TAXATION 1 LECTURES – LECTURE 6
BACT 305
JOHN KWAKU AMOH
(LEAD LECTURER)
SERVICE EXCELLENCE
TAXATION OF EMPLOYMENT INCOME2
SERVICE EXCELLENCE
PERSONAL TAX RELIEFS
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A tax relief is a legally approved deductible allowance intended to reduce one’s taxable income and
thereby lessen the tax burden.
Purpose: It’s purpose is to cushion the effect of tax on the individual and make it bearable for him/her to
pay the tax. Ie to reduce the tax burden.
It is granted by the government to evoke and encourage certain forms of behaviours and actions.
The Relief is based on INDIVIDUAL CIRCUMSTANCES
Non- resident persons are not entitled to such reliefs unless so approved under a Double Taxation
Agreement.
Tax Relief Card : a formal application should be made by the completion of a Personal Return Form. ie To
be granted tax relief of any form, an employee is required to apply to the Commissioner General on a
prescribed form.
Once an individual qualifies he is allowed as a deduction against his TCE the amount of the relief.
Types of Reliefs: Personal Reliefs under Act 896 can be categorized into two:
A. Those that can be granted upfront
B. Those that cannot be granted upfront
Reliefs that can be granted upfront include: Marriage allowance, Child Education Allowance, Old Age
Relief, Disabled Relief, Life Insurance Relief, SSF contribution
All other reliefs can only be granted after filing of a tax return at the end of the year of assessment to
which the relief relates. They include Dependent Relief Allowance and the Cost of Training.
The categorization is based on the ease with which a person meets the criteria for the granting of the
relief.
TYPES OF PERSONAL TAX RELIEFS
• 1.Marriage Relief /Child Dependency /Responsibility Relief:
• It is granted to one spouse only if s/he has a dependent spouse or at least 2
dependent children; Marriage Certificate or registered birth certificate. A
tax payer can claim either one in any year of assessment.
• However, one partner can claim for one and the other partner for the other.
• 2. Disability Relief: 25% of assessable income from both employment and
business.
• Certified by the Ministry of Employment & Labour Relations[Social Welfare]
• 3. Old Age Relief:
• 60 years and above; income from both employment and business.
• 4. Child Education Relief:
• An individual(one spouse) who sponsors or bears the cost of education of
his/her children or wards can claim the relief for a maximum of three
children or wards in recognised registered educational institution in Ghana
only.
• 5. Aged Dependants Relief:
• A dependant relative of 60 years and above.
• A maximum of two dependent relatives.
TYPES OF PERSONAL TAX RELIEFS
• 6.Training and Development Relief: -cost of
updating his professional, technical or vocational
skills or knowledge through training but such
training should not lead to the award of a degree
• 7. Social Security Contribution: 5.5% of basic salary
• 8. Personal Relief:(And Graduated Salary Scale)
• Ghana uses the graduated scale in computing tax on
income from employment unlike corporate tax
where a flat rate is applied.
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COMPUTATION OF CHARGEABLE INCOME -EMPLOYMENT INCOME ONLY
Basic Salary(S.4)
Add Cash Allowances(and other Cash BenefitsS( .4):
Cost of living/Subsistence Allowance,
Professional Allowance, Responsibility
Risk/Entertainment Allowance, etc
Fees, Commissions, Gratuities,
Leave Pay, Overtime Pay, Bonus( Reg. 28)
Gifts, etc
Total Cash Emoluments(TCE) [Reg 29]
Add: Benefits in kind/Non Cash Benefits:[S.4,26 & Sch 4]
Car Element(% of TCE)
Rent Element (% of TCE)
Loan Benefits
Add Other Indirect Payments
Retirement Contribution on Behalf of the Employee
Qualifying employment Income
Less Bonus taxable @ 5% and Overtime
Assessable Income from employment
Less Personal Reliefs:
Social Security Contribution
Marriage Relief, Old Age, Cost of Training, etc
Mortgage Interest [Sch 6(4 & 5)]
Contribution to worthwhile cause(S. 100)
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CHARGEABLE INCOME
TAX PAYABLE(on chargeable income)-Using the Tax table
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Computation of Tax Outstanding
Chargeable income
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Tax Thereon using Graduated Table[Sch 1) XX
Less Tax Credits
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Tax Paid on Accounts
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Tax Outstanding/(Tax Refund)
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TAXATION OF OVERTIME
• OVERTIME PAYMENT
• Where an employer makes a payment during a year of assessment
to a qualifying junior employee for overtime work by that
employee:
• a. if it is up to 50% of the basic salary of the employee for the
month, the employer shall with-hold tax at 5% from the payment
• b. If it is more than 50% of the basic salary of the employee for the
month, the employer shall with-hold tax at 10% from the payment
• Ie. It applies only to junior staff members
• It’s either 5% tax or 10% tax on the TOTAL overtime
• It’s a monthly affair
• It is a final tax
TAXATION OF BONUS PAYMENTS
• BONUS PAYMENT(2011• Where an employer pays a bonus during a year of assessment
and the sum of the payment and other bonuses paid by the
employer to the employee during the year:
• a. does not exceed 15% of the annual basic salary of the
employee, the employer shall with-hold tax from the gross
amount of the payment at the rate of 5%,
• b. exceeds 15% of the annual basic salary of the employee, the
employer shall :
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(i) add any excess above the 15% payment to the employment
income of the employee for the year, and
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(ii) with-hold tax from the payment in accordance with income
tax rates for resident individuals (ie the graduated tax table)
• Ie. It applies both to junior and senior staff members
• It’s a yearly affair
• It is a final tax
TUTORIAL QUESTIONS
• Mr Awudi has been a Farm Manager at Frusi Farms Ltd for many
years. For 2010 his entitlements were as follows:
• Salary………………………………… GHc 45,000
• Fully furnished accommodation
• Vehicle with fuel
• Inconvenience Allowance
GHc10,800
• Risk Allowance ……………….……….. GHc 9,000
• He receives cash of GHc 150 per month for entertaining his visitors at
his home which is at the farm site. He also contributes towards Social
security.
• He is married with five children all attending recognised second cycle
institutions in Ghana.
• Required:
• Compute his tax liability for the year
QUESTION, 3
Dr. Prince Sowah has been a consultant Physician and Surgeon with the Good Health Clinic since
1st July 2003. He is on a salary scale of GHS 54,000 X 2,400__72,000 per annum.
His other entitlements are:
i.
Responsibility allowance…GHS 500 per month
ii.
Professional allowance…GHS 500 per month
iii.
Risk allowance……………..GHS 500 per month
Dr Sowah is also provided with furnished accommodation and a vehicle with fuel. He
contributes to the Social Security Scheme.
His personal Income Tax return for the year 2006 disclose the following:
i.
Part-time lecturing, University of Ghana, Legon (GHS24,000)
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Part-time private practice (GHS 36,000)
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Married with four children(All attending recognised educational institutions in Ghana)
iv.
Subscriptions to professional journals GHS 600
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viii.
Required:
Determine his Tax Liability for the year 2006.
Show all workings and make any comments necessary
Tax Rates
TUTORIAL QUESTIONS
• Kofi Mensah who is Managing Director of KUMIPREKO COMPANY
LIMITED received a salary of GHc 300,000 for the year ended 31st
December, 2010. He contributes to social security . He stays in his
own house but the company pays for the wages of his watchman
which was GHc 120,000 for the year 2010. In addition the company
paid his water and electricity bills which amounted to GHc 80,000
during the same period. He enjoys rent allowance of 20% of his basic
salary.
• He is married with four children. The first one is in the University of
Professional Studies,Accra (UPSA) , the second and third are in Accra
Academy and the last one at Tema SOS(KG).
• You are required to compute his chargeable income and tax liability
for 2010.
• Annual income tax rates for resident individuals for 2019 year of
assessment is as follows:
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QUESTION 5- MAY 2011, PAPER 4.4 [PART 4]
Jones Handle was seconded to Ghana from the Soil Scientists Institute in Britain as a consultant
agronomist to Fadama Farms Limited for a period of 15 months (fifteen months) commencing from
1st October, 2007.
His conditions of service were as follows:
GHS
i. Salary
72,000 p.a.
ii. Expatriate allowance
24,000 p.a.
iii. Risk allowance
12,000 p.a.
iv. Professional allowance
12,000 p.a.
In addition, he was provided with a furnished bungalow and a chauffeur-driven Toyota Pick-up vehicle
at the farm. He was also provided with a cook, househelp, security man and a garden assistant all of
whom were paid GHS400 each a month.
He does not contribute to the Social Security Scheme.
Jones Handle, in his own free time, set up an experimental farm producing snails. This proved to be
very lucrative as it was a delicacy in the area. For the year ended 31st December, 2008 he earned
GHS28,000.
Required:
(a) Determine his chargeable income, if any, during his stay in the country, stating the basis periods
and the relevant years of assessment.
(14 marks)
(b) Produce the related notes guiding your determination. (6marks)
(Total: 20 marks)
• QUESTION 4
• Isaac Duncan retired from the Ministry of Agriculture and joined Farm Products
Limited as a consultant farm manager with effect from 1st November, 2007
• He was placed on a salary of GHC 21,600 X 720- GHC24,480 per annum plus the
following allowances:
• A. Risk allowance
GHC 120 per month
• B. Responsibility Allowance GHC 100 per month
• C. Inconvenience Allowance GHC 50 per month
• He was provided with accommodation at the farm with day and night fuel and a
labourer to keep his residence always tidy. They were all paid GHC 50 a month
each.
• Duncan’s children were so brilliant that on application, the company decided to
subsidize their children education with GHC 600 per annum each with effect from
1st October, 2008
• Mr Duncan rented his residence at Cantonments to William Glad and Associates
for GHC 500 per month with effect from 1st January , 2008.
• Required:
• Compute Mr Duncan’s Chargeable income for the year of assessment 2009.
QUESTIONS
• ICA NOV, 2004, PART 3, QUESTION 4
• Discuss the principles regarding the assessment of
employment income. You may consider the
following:
• When does employment arise?
• How are other benefits, apart from salaries and
wages, but excluding accommodation and
transport treated?
• Which lump sum payments are taxable and which
are not? What is the rationale?
• (20 marks)
• QUESTION
• Janus Obimpeh was appointed Liaison Officer of Data Line Limited on a
Consolidated Salary of GHS 21,600 per annum with effect from 1st July 2008
and posted to Tamale. He was paid a transfer grant of GHS 2,500 on 1st July
2008.
• His entitlements included the following:
• Responsibility Allowance………………………..GHS 500 per month
• Overseas Allowance……………………………….GHS 700 per month
• In convenience Allowance………………………GHS 500 per month
• He contributed 5% of his salary to the Social Security Scheme
• The Tamale office of Data Line Limited provided him with free
accommodation, a car and a driver. The Accra office also contributed GHS
1,000 per annum towards his children’s education at Prempeh College.
• Mr Obimpeh’s aged mother, wife and two children live at his residence at
Kwadaso in Kumasi. He is solely responsible for their upkeep. The guest
house, a two-bedroom self-contained residential facility at his residence, has
been rented to Mr. and Mrs. Barrow at GHS 500 per month for the 2009 year
of assessment.
• Required :
• Compute Mr Obimpeh’s chargeable income, if any, for the year of assessment
2009. State any basic tax principles underlying your computation.
• [20 MARKS]
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QUESTION 1
Kojo Apio was appointed Managing Director of Yoewa Ltd on a basic salary of GHC20,000
a year with effect from 1st January 2012.
The contract provided for an annual increase of 20% each year. In addition, he was
entitled to the following allowances:
GHC
a) Medical allowance
b) Entertainment allowance
c) Responsibility allowance
d) Bonus 30% of basic salary
4,000
2,000
3,000
The company provided him with a soft furnished accommodation for which GHC3,500 is
deducted from source every month. He is also provided with a car with free supply of fuel
for official use.
Mr. Apio contributes to the Social Security Scheme and the employer also contributes
9.5% of his basic pay to a Provident Fund.
Mr. Apio lives with two (2) wives, and four children who are in approved basic schools in
Germany.
Required:
a) Compute the chargeable income of Mr. Apio for the 2012 year of assessment.
(12marks)
b) Determine his (take home) pay for the 2012 year of assessment. (8 marks)
(Total: 20 marks)
SERVICE EXCELLENCE