A tax is a compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law.
TAXATION FOR SME’s
A business once set up needs to comply with taxation requirements which are applicable to the business. The following are the highlights that SMEs should be aware of:
Pay As You Earn (PAYE): This a system of withholding income tax from payments made by employers to employees. Under the system, the employer deducts tax from an employee’s taxable income at source and then remits the tax to the Ghana Revenue Authority (GRA) by the 15th day of the month following the month in which the deduction was or should have been made.
An employer must also file an Employer’s Annual Tax Deduction Schedule with the GRA, disclosing income paid to and tax withheld from each employee, within four months of the end of the calendar year.
Graduated tax brackets that need to be applied in computing PAYE is detailed as follows:
Corporate tax: The general rate applicable to entities which do not qualify for incentives is 25%. For companies engaged in mining and upstream petroleum business, the rate is 35%.
Withholding tax: Withholding tax, or a retention tax, is an income tax to be paid to the government by the payer of income rather than by the recipient of the income. The tax is thus withheld or deducted from the income due to the recipient. Withholding tax applicable to SME’s are as follows:
Value Added Tax (VAT), National Health Insurance Levy (NHIL) and Ghana Education Trust Fund Levy (GETFL):
These are charged on the supply of goods and services that are taxable, and are made by a taxable person in the course of a taxable activity. Except for supplies considered to be zero-rated or subject to a flat rate of 3% (for wholesalers and retailers of goods), the standard rate of VAT is 12.5%, the NHIL is 2.5% and the GETFL is 2.5%. NHIL and GETFL are calculated on the value of the taxable supply of the goods, services or imports, with VAT charged on the value of the taxable supply inclusive of NHIL and GETFL.
Registration for VAT is mandatory in respect of taxable supplies with a turnover threshold of GHS 200,000 over a 12-month period.
Registered businesses are generally required to submit monthly returns showing: VAT charged on supplies, the taxable value of supplies sold that were exempt or relieved from VAT, VAT incurred on the purchase of goods and services, the net VAT payable or credit and NHIL and GETFL charged on supplies. VAT, NHIL and GETFL returns and payment (if any) are ordinarily due by the last working day of the month after the month to which the returns relate