The taxation of churches or religious organizations has lately gained a lot of interest among the Christian community and tax analysts and I foresee a more unending debate on the subject in coming days.
The church has over the years questioned why they need to pay tax considering the role they play in the country’s developmental agenda. A lot of social projects such as schools, universities, hospitals, mechanized boreholes, educational scholarships etc. including the provision of employment could be credited to the churches which turns to reduce government’s expenditure in those areas.
But one will ask, how is the church able to finance all these projects? Obviously, we can all agree that about 99% of these funds come from the contributions made by church members through offerings, tithes, fund raising and donations from partners or associates and these are generally recognized as income source for the churches.
The Income Tax Act, 2015 (Act 896) under Section 97 outlines provisions which categorize religious organizations (like churches) as part of charitable organizations based on certain definition. It also explains that the income of such charitable organizations are exempt from tax i.e. their incomes are not subject to tax. Specifically, section 97(4) of the Act stipulates that “The income accruing to or derived by a charitable organisation is exempt from tax”. So the church is legally right to say that its income cannot be taxed and is not just because of their developmental partnership role with Government but that the Income Tax Act, 2015 (Act 896) which regulates the taxation of income enjoins says so.
But let me hasten to add that the same Act further says in section 97(5) that “Subsection (4) does not apply to business income of the charitable organisation”. Simply put, while the income accruing to or derived by the church from its generally recognized sources as mentioned above is exempt from payment of taxes, the income accruing to or derived by the church from business is taxable or not exempt from tax. It is interesting to know how the Tax Act anticipated that churches have the potential to engage in business aside their core reason for existence.
With this background, it is evident that income of churches can be taxed (just like any profit making company) but only that income derived or earned from engaging in businesses, be it schools, hospitals, logistics, transport, rentals etc. and where people have been employed, the church is required by the Act to withhold income tax and pay social security benefits (SSNT) on the salaries paid to the employees including the withholding of taxes for payment made for works, goods and services. Where the church business also places funds in any investment, the interest to be earned on the investment (which is another form of income to the church business) will be taxed as well.
Though some churches do not engage in any business activity, they do have staff or workers who work for the church and are paid periodic salaries or allowances including the church leader(s) and likewise the Income Tax Act requires the church to deduct taxes on such salaries or allowances including social security benefits. But I humbly ask, if a church does not have any business activity;
- but places surplus of its offerings, tithes etc. in an investment, will the income or interest receivable be subjected to tax in reference to section 97(4) and/or section 115(1) of Act 896?
- but contract a person for the provision of works, goods or services, should the church withhold tax on the payment to be made to the person in reference to section 116 of Act 896 (i.e. withholding tax)?
- but sells church literatures like sermon on CDs, Books etc. will the proceeds from this sales be taxed as business income?
- is it required to register for the Tax Identification Number, TIN?
Assuming the Ghana Revenue Authority, GRA respond YES to these questions then I see a great storm fused with fire on the mountain as most churches will be in breach of the Tax Laws should GRA begin audit of their taxable activities which is expected to happen sooner than later according to the Commissioner-General of GRA.
Therefore, like Jesus responded to the chief priest in Matthew 22:21…”render to Caesar the things that are Caesar’s…”, so should the church know that their business incomes or other taxable activities are liable to tax excluding income from the generally recognized income sources as required by the Income Tax Act, 2015 (Act 896). Failure to pay tax or file tax returns is an offence under the Income Tax Laws and is thus prudent for churches to start putting their house in order for the set time is now and Ghana Revenue Authority, GRA is just about to press the church bell to take that which is the Government’s.
The author is an accounting, audit and tax consultant. Comments welcomed via firstname.lastname@example.org/0242844114.