Presumptive taxation in Ghana
The second schedule of the Income Tax Act, 2015(Act 896) as amended imposes a presumptive tax on resident individuals who only have income from certain businesses.
A presumptive tax is a system of taxation where other means are used to determine the tax liability of a person, rather than the usual rules based on the taxpayer’s accounts, for example using net worth, bank deposits, expenditure or turnover (gross sales).
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In Ghana, the presumptive tax is based on the turnover from the business of the resident individual, where the chargeable income of a resident individual for a year of assessment consists exclusively of income from a business; and the income is exclusively from sources within Ghana, and the individual has an amount of turnover of not more than GH¢20,000.00 calculated as an average of the turnover for three consecutive years in the year of assessment.
The total tax liability of the individual shall be the instalment tax payable in the year of assessment.
Where the individual has an annual turnover of more than GH¢20,000 but not more than 500,000, the tax payable in the year of assessment is three per cent of the turnover of the business.
If an individual has a turnover of less than GH¢20,000 or more than GH¢20,000 and elects to disapply the presumptive taxation system, it shall not apply to the individual in that year of assessment and the following five years, but that individual may qualify for modified cash basis of taxation.
Exclusion from presumptive taxation
The act excludes certain class of businesses from presumptive taxation. These include:
a) An individual who has professional qualification.
b) An individual who is engaged in a business prescribed by regulation that has a high-profit turnover restriction.
c) An individual who has a business with more than one business outlet.
e) An individual in a partnership.
f) An individual who elects to disapply the presumptive tax system.
Importance of presumptive taxation
Presumptive taxation reduces the compliance burden on taxpayers as it is based on turnover. The individual will not be required to engage consultants to get his/her accounts done for tax purposes.
Again, it encourages proper record keeping of businesses as the business records will be used by the tax administration to determine the gross turnover. This also increases the revenue base of the government and also encourages compliance, since the compliance cost of presumptive taxation is low.
Modified taxation
Where a resident individual has an assessable income from all businesses conducted in Ghana and consists exclusively of income from sources in Ghana and the turnover of that individual does not exceed GH¢ 500,000 calculated using a modified cash basis of accounting, then the income shall be calculated using the standard rules for calculating income from a business to determine tax liability.
In this case, the individual shall not be entitled to carry forward losses from the business, or carry back losses, among others.
The writer is a partner at EA Assurance and Associates.
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