Statutory Deductions In Ghana: A Comprehensive Guide

You’ve probably heard of statutory deductions in an obscure conversation here or there. Or come across a few questionable subtractions as you gloss over your paycheck at the end of the month. 

Looking at your paycheck can be confusing as you see how much of your hard-earned money isn’t going into your pocket. Realising that your employer is sending off chunks of your salary to the government raises many questions. Of course, there are well-known deductions you have heard of, the most common of which is PAYE, but the more obscure values might be ones you have never come across. 

For employers just starting a new venture or finding their footing in Ghana’s business environment, beginning on the right foot is imperative. These deductions could determine whether you are in compliance with the law or potentially facing a shutdown. 

What Are Statutory Deductions?

Statutory deductions are government-mandated deductions that employees are required to pay to gain access to some government programmes and services. They can be taken out of an individual’s income or from a business’s revenue. The values are preset by government statutes or regulations and failure to comply with them could result in legal consequences. They vary from country to country but generally include Income Tax, Social Security Contributions, Unemployment Insurance, Health Insurance Premiums and Pension Contributions.

They are designed as a way for the government to collect revenue but also provide benefits such as social welfare for employees and risk mitigation for businesses. The deductions generate necessary revenue for governments that are utilised to finance public services, social programmes and infrastructure. Unemployment Insurance and Social Security deductions create a safety net for employees in instances of unprecedented job loss and improve employee-employer relations since they provide long-term benefits that account for future uncertainties. 

Statutory Deductions In Ghana

Statutory deductions have great fiscal importance for any country, Ghana included. To navigate the complex world of taxation, a comprehensive understanding of statutory deductions imposed by the Ghanaian government is imperative for businesses and individuals. Below we will delve into the different components of statutory deductions in Ghana, discussing their importance and the impact they have on businesses and individuals.

• Income Tax: Ghana’s Taxation Cornerstone

Income tax is the foundation of Ghana’s taxation system, wherein businesses and individuals are required to pay taxes on their earnings. The Ghana Revenue Authority (GRA) oversees the administration of income tax. The Income Tax Act 2015, splits income tax into two categories, Personal and Corporate Income Tax, with the former applying to individuals who earn an income from either employment, a business or an investment above GH¢ 402 monthly and the latter to incorporated companies. Tax rates are progressive with higher earners paying higher percentages of their incomes and are filed annually.

• Social Security and National Insurance Trust (SSNIT): Provisions for Social Welfare 

The Social Security and National Insurance Trust is charged with catering to the social welfare of Ghanaians as per the 2008, National Pension Act. It serves as a financial cushion for Ghanaians who have lost their primary source of income due to old age, invalidity or the death of a Trust member, in which their dependents receive a lump sum. Both employers and employees contribute to this fund but it is a mandatory component of their salary, for employees to ensure they have a safety net in their retirement years.

• Pay As You Earn (PAYE): Easing Individual Taxation

The PAYE system was designed to simplify tax payments for the individual Ghanaian, making tax compliance easier. Similar to the aforementioned Income Tax, the PAYE system applies solely to employees but more so to their employers. Employers make these payments monthly on behalf of their employees. The payment is typically deducted from monthly salaries. This eases individual tax burden, makes the entire collection process more efficient and is therefore quite convenient for all parties involved.

• Ghanaian Education Trust Fund (GETFund) Levy: Investing in The Future

This deduction is aimed at financing educational infrastructure and other educational initiatives around the country. Both employees and employers contribute to this fund, in keeping with the government’s dedication to investing in the future and promoting literacy for all Ghanaians. The Fund supports the creation of education opportunities for Ghanaian students across multiple education sectors including scholarships for students seeking master's degrees at foreign institutions.

Compliance, Economic Stability and Social Welfare

Statutory deductions are a critical part of Ghana’s fiscal policy. They have proven useful when it comes to generating government revenue and they contribute to economic growth by investing in human capital, developing infrastructure and promoting social welfare. They are essential to the creation of a sustainable and inclusive economic environment with innumerable benefits for both businesses and individuals. Staying on top of your statutory deductions not only offers you social security, it gives you the satisfaction of actively contributing to the well-being of your fellow Ghanaians.

A Blueprint for Sustained Growth

Understanding Ghana's statutory deductions is not merely a compliance exercise; it's a blueprint for sustained growth. As employers embark on this journey, they contribute to the prosperity of their businesses and the collective progress of Ghana's vibrant and diverse economy. 

Take advantage of Workpay’s calculator, which ensures you remit the right deductions every time. Get in touch to learn more.

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