Richmond Ofori-Boafo’s thoughts … Financial impact of COVID-19: … An analysis of personal tax reliefs

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The world’s economy has currently come under intense pressure as a result of the novel Coronavirus Disease (COVID-19). This pandemic has affected most economies, of which Ghana is no exception. Governments all over the world, including Ghana, have had to take bold and drastic measures in order to stabilise their economies amid a drastic fall in government revenues. The private sector has also had its fair share of the negative effects from COVID-19.

My attention has been drawn to lots of pressure being exerted by businesses and employees on the government of Ghana to either relieve or waive some taxes temporarily during the period. However, this may not be an easy decision for any government to make – due to fallen revenues and increased unbudgeted expenditures that the COVID-19 has brought to these governments.

Objective

This article is intended to educate and draw the attention of resident individuals in Ghana to already existing and improved tax incentive packages that are enshrined in Ghana’s Income Tax Act, 2015 (Act 896) as amended by The Income Tax Act 2019 (Act 1007), so that individuals can take advantage of these tax incentives called ‘Personal Reliefs’ which can be claimed through the Ghana Revenue Authority (GRA) to cushion such individuals financially, during and even after these unusual times of COVID-19 pandemic.

Personal Tax Reliefs

‘Personal Reliefs’ are legally approved allowable deductions enshrined in the tax laws of Ghana, intended to reduce the Chargeable Income of resident persons in order to lessen the person’s tax liability. These personal reliefs have existed in our tax laws for a long while, but most individual taxpayers in Ghana either have no knowledge of their existence; or due to their previous insignificant financial impact, most taxpayers ignored them.

However, these personal reliefs have since 01 January 2020 been significantly enhanced and increased by the Ghana Revenue Authority (GRA), and hence it is a good time now for taxpayers to take advantage of these personal reliefs to their benefit – especially during these COVID-19 times.

Reference is made to the Fifth Schedule of Act 896 of The Income Tax Act 2015 (as amended), Personal Reliefs to individuals have since 01 January 2020 been revised as follows:

Type of Reliefs Previous Relief GH¢ Current Relief GH¢
Marriage / Responsibility 200 1,200 per year
Old Age 200 1,500 per year
Child Education 200 600 per child per year
Aged Dependent Relative 100 1,000 per year
Professional Training 400 2,000 per year
Disability 25% of Assessable Income from employment or business

 

An Analysis of Current Personal Reliefs

Below are further specific and practical explanations to the above current reliefs and conditions that must be fulfilled in order to qualify for any of these personal reliefs.

  1. 1. Marriage/Responsibility relief: A person is married for tax purposes when he/she has obtained a valid marriage certificate upon marriage (whether through an ordinance, customary, or Islamic marriage). Both couples cannot claim the same marriage relief. Only one of the spouses can claim at a time in a year. Responsibility, which is equated to marriage, is evident when a person has at least two (2) dependent children.
  2. Old Age: A person is old-aged for tax purposes when he/she is 60 years and above.
  3. Child Education: This relief is granted to a person who has enrolled his/her dependent children in recognised registered educational institutions in Ghana. This relief is limited to a maximum of three (3) children only. The children could be biological or otherwise – only there must be evidence that the person claiming the relief is the one funding the children’s education.
  4. Aged Dependent Relative: This relief is granted to a person who caters for relatives who are 60 years and above. These aged relatives must be dependent on the person claiming the relief. The relief is limited to a maximum of two (2) dependent relatives.
  5. Professional Training: This relief is granted to a person who has undergone a training programme during the year in order to upgrade the person’s technical, professional and vocational knowledge and skill. The training must seek to improve the already existing skills the person applying for the relief has acquired and is being used in the person’s current role in his/her employment or business. Any form of academic training (Bachelors, Masters and Doctorate degrees) does not qualify for this relief.
  6. Disability relief: A disabled person is a person with a physical, mental or sensory impairment; including visual, hearing or speech functional disability that gives rise to physical, cultural or social barriers which substantially limit one or more of the person’s major life activities. The person must have a valid certificate of disability as issued by a recognised governmental institution, or satisfactory proof to the Commissioner-General that the person is disabled.

Other general conditions

  1. To qualify for any of the above reliefs, the person must file his/her tax returns at the end of the year of assessment.
  2. Personal Reliefs must be specifically applied for by the person before they can be granted.
  3. The reliefs can be claimed up-front on a monthly basis if the source of income is from employment, or at the end of the year of assessment in the case of business income.
  4. The amount per each relief is absolute in nature and not relative. This means it does not matter the amount of a person’s annual/monthly salary, the same amount of the relief is available for grabs. For example, take a person who has a monthly assessable income of say GH¢500.

If this person is married, has 3 dependent children who attend recognised, registered educational institutions, takes care of her two aged parents, and has undergone professional training during the year, this person’s total personal relief will amount to GH¢7,000. You will notice that this person’s total annual personal relief far exceeds his/her total assessable income from employment or business. This will mean the person effectively does not pay any tax during the year. This is a significant cash saving.

  1. Personal relief not claimed during a year cannot be deferred into future years.
  2. Non-resident individuals are not eligible for personal reliefs, unless there exists a double taxation arrangement between the person’s country of residency and Ghana.
  3. The Commissioner-General must be satisfied with the evidence provided by individuals in relation to a specific relief being applied for. Hence, a personal relief applied for could be rejected if the Commissioner-General is unsatisfied with the evidence provided by the taxpayer.

Conclusion

Personal reliefs are legal means of planning the tax affairs of resident individuals in Ghana and lead to significant cash savings, especially during these unusual times of COVID-19 pandemic. As a result of the significant increment of these already existing personal tax reliefs, it is encouraged that all resident individuals whose source of income is from employment and business – and who file their tax returns, must take advantage of these incentives in our tax laws to improve their personal finances.

>>>The writer is a Chartered Accountant and Member of the Institute of Chartered Accountants (Ghana)

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