HR Frontiers with Senyo M Adjabeng: Employee income taxes: Navigating complex payroll challenges

For an astute business leader, the HR professional, or the conscientious employee in Ghana, the subject of income tax is often met with a familiar sense of dread.  It is frequently viewed as a complex, ever-shifting web of regulations, percentages, and deadlines, a necessary evil that quietly diminishes the monthly payslip.

Yet, to perceive it merely as a statutory burden is to miss a crucial part of the employer-employee compact and the very engine of national development.  A thorough, nuanced understanding of the key elements of employee income taxes is not just about compliance; it is about strategic financial planning, fostering a culture of transparency, and empowering the workforce.

The Ghanaian income tax system, anchored primarily by the Income Tax Act, 2015 (Act 896) as amended, presents a structure that, while intricate, can be mastered with careful attention.

Now, let me quickly disclaim that I am only but an HR and Labour Consultant and not an acclaimed tax expert.  Hence, I will approach this article from a purely employment relations point of view but not from the technical tax standpoint.

Chargeable Income

The cornerstone of the income tax system is the concept of chargeable income.  This is a term that every employee should etch into their financial vocabulary, for it is not the gross salary that is taxed, but the chargeable income.  The journey from gross income to this taxable figure is the first critical voyage.

It begins with the aggregation of an employee’s income from employment, a broad term that encompasses not only the basic salary but also allowances, be they for housing, transport, or utilities, bonuses, commissions, benefits-in-kind, and virtually any other valuable or value-based consideration received by virtue of one’s employment.  The Ghana Revenue Authority (GRA) casts a wide net, and understanding the composition of this gross income is the first step toward accurate tax computation.

Once the gross income is established, the law, in its design to ensure fairness and progressivity, allows for specific deductions to arrive at the chargeable income.  This is where the system offers a measure of relief.

The most significant of these is the personal relief, a fixed amount granted to every individual taxpayer if applicable. Think of it as a tax-free threshold, a portion of your income the government exempts to acknowledge basic living costs.  Beyond this, an additional relief is granted for contributions to a registered provident fund or a pension scheme.

In an era where retirement planning is paramount, this provision serves a dual purpose, it incentivizes long-term savings while simultaneously reducing the immediate tax burden.  The contributions made by the employee, up to a statutory limit, are deducted from the gross income.  Therefore, the fundamental equation imprinted on every payroll officer’s mind should be, Gross Income minus Approved Deductions;

Personal Relief and Pension Contributions) = Chargeable Income.

It is upon this calculated chargeable income that the graduated tax rates are applied.  Ghana employs a progressive tax system for individual employment income, meaning the rate of taxation increases as the income rises.

This philosophy aims to distribute the tax burden more equitably, asking those with a greater ability to pay to contribute a larger percentage of their income. The current bands are structured as follows.

Ghana Monthly Income Tax Rates (2025)

Chargeable Income (GHS)	Rate (%)
First GHS 490	0%
Next GHS 110	5%
Next GHS 130	10%
Next GHS 3,166.67	17.5%
Next GHS 16,000	25%
Next GHS 30,520	30%
Exceeding GHS 50,416.67	35%

Source: Ghana Revenue Authority, 2025

A discussion of these core mechanics, however, would be incomplete without addressing one of the most pivotal and often misunderstood components: the Contribution to the Social Security and National Insurance Trust (SSNIT).

While not an income tax in the strictest sense, it is an inseparable part of the payroll deduction landscape and directly influences the income tax calculation.  The SSNIT pension contribution is a mandatory monthly payment, shared between the employee and the employer.  The employee’s portion is currently set at five and a half percent of their basic salary, while the employer contributes thirteen percent.

It is the employee’s five and a half percent contribution that is deductible for tax purposes, as previously mentioned.  This interlinkage underscores the importance of viewing payroll not as a collection of isolated deductions but as an integrated financial system.

Beyond the straightforward salary, the tax treatment of allowances and benefits-in-kind presents a more nuanced challenge.  Many employees operate under the misconception that allowances are tax-free perks. This is a dangerous fallacy.  The default position of the GRA is that all allowances are taxable.  However, there are specific exceptions, and these are where careful documentation is paramount.  For instance, a travel allowance granted for a specific business trip, with receipts and logs to substantiate it, may be exempt.

Similarly, a meal allowance for overtime work might be treated favoruably if it falls within prescribed limits and is properly documented.  Conversely, a flat monthly “transport allowance” or “housing allowance” paid as part of the remuneration package is almost certainly fully taxable.  Benefits-in-kind, such as the private use of a company car, free accommodation provided by the employer, or low-interest loans, present another

layer of complexity. Their value must be quantified according to prescribed rules in the tax laws and added to the employee’s gross income.  For example, the value of a company car is typically calculated as a percentage of the cost of the vehicle, while rent-free accommodation is valued based on its open-market rental value.  Failing to account for these non-cash benefits is a common source of tax underpayment and subsequent liabilities.

Pay-As-You-Earn (PAYE)

The operational backbone of the employee income tax system in Ghana is the Pay-As-You-Earn (PAYE) mechanism. This is a system of withholding tax at source, placing the responsibility of calculation, deduction, and remittance squarely on the employer’s shoulders.  The employer acts as an agent of the GRA, and this fiduciary role carries significant legal weight.

The process is continuous. Each month, the employer must calculate the tax due based on the employee’s cumulative earnings for the year to date, applying the tax bands and deducting the appropriate reliefs.  This cumulative approach ensures that the correct annual tax is paid, even if an employee’s income fluctuates during the year, for instance, due to a mid-year bonus.

The deducted tax must then be paid to the GRA by the 15th day of the following month.  Timely remittance is non-negotiable; failure to do so attracts severe penalties and interest charges, which can quickly cripple an organization’s finances.  The GRA has significantly enhanced its monitoring and enforcement capabilities, making compliance a strategic imperative rather than a mere administrative task

At the culmination of the tax year, which in Ghana runs from January to December, the process culminates in the filing of an annual income tax return.  While the PAYE system is designed to collect the correct tax throughout the year, the return serves as a reconciliation and final declaration.  For most employees whose sole source of income is employment, and whose tax has been correctly handled through PAYE, this process is often straightforward.

However, for employees with multiple sources of income, significant investment income, or complex deductions, the annual return is their opportunity to ensure their total tax liability for the year is accurate.  It is the final, formal account rendered to the state.

The landscape of Ghanaian income tax is not static.  The government, through the annual budget, introduces changes that can have profound implications.  Tax bands and relief amounts are often adjusted for inflation, though not always consistently.

New policies, such as the introduction of the COVID-19 Health Recovery Levy or other fiscal measures, can temporarily alter the cost structure.  For businesses and employees alike, staying abreast of these changes through the budget statement and subsequent GRA guidelines is essential.

Ignorance is never a valid defence in the face of a tax audit.

The key elements of employee income taxes in Ghana, from the calculation of chargeable income and the application of progressive tax rates to the intricate treatment of allowances and the rigorous demands of the PAYE system form a sophisticated framework.

To navigate it successfully requires more than just rote compliance.  It demands a proactive and informed approach.  For employers, it is a critical element of corporate governance and risk management. A  robust payroll system, staffed by knowledgeable professionals, is not an expense but an investment that safeguards against costly penalties and fosters employee trust.  For the employee, this knowledge is a form of financial empowerment.

Understanding what is deducted, and why, demystifies the payslip and enables better personal financial planning.  Ultimately, a nation’s tax system is a reflection of its social contract.

By diligently fulfilling our roles within this system, whether as payers or collectors, we contribute not just to the government’s coffers, but to the very foundations of our shared society – the roads we drive on, the schools that educate our children, and the hospitals that care for our families.  The complex web, when properly understood, reveals itself not as a trap, but as a pathway to collective progress.

Now I know not many will agree with statements in my last paragraph.  But ultimately, our systems, road network and all other public amenities may not be fully efficient, but at least they are not entirely absent.  SO lets pay.  Pay your Income Tax before the GRA finds you.

References:

1. Ghana Revenue Authority. Income Tax Act, 2015 (Act 896).
2. Ghana Revenue Authority. Withholding Tax Guide.
3. Ghana Revenue Authority. Frequently Asked Questions on PAYE.
4. Social Security and National Insurance Trust (SSNIT). Pension Reform Act, 2024 (Act 1128).
5. Ministry of Finance, Ghana. Budget Statement and Economic Policy.

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