The Ghana Revenue Authority (GRA) has outlined the specific categories of taxpayers who qualify for its Modified Taxation Scheme. This initiative primarily targets resident individuals earning business income, especially those operating within the informal sector who are not registered for Value Added Tax (VAT).
Victor Yao Akogo, Chief Revenue Officer of the GRA’s Domestic Tax Revenue Division, explained the scheme on Joy FM. He stated that the scheme is designed for individuals who are residents of Ghana and generate business income within the country. A crucial requirement is that these individuals must not be registered for VAT, meaning their annual turnover should not exceed GHS 750,000.
This clarification comes as Ghana continues efforts to broaden its tax base and formalize the informal economy. The informal sector contributes significantly to the nation's Gross Domestic Product (GDP) but often operates outside the formal tax system. Integrating these businesses into a simplified tax framework is essential for sustainable revenue generation and economic development.
Mr. Akogo emphasized that certain groups are explicitly excluded from the scheme. Professionals such as engineers, accountants, and lawyers do not qualify because they are regulated and expected to maintain proper business records. Individuals with multiple businesses or those operating from more than one outlet are also ineligible. Taxpayers can also choose to opt out of the scheme if they wish.
The Modified Taxation Scheme is structured into three distinct categories. The first category, known as presumptive tax based on installments, applies to resident individuals whose annual business income is up to GHS 20,000. These taxpayers pay a fixed amount of GHS 45 per quarter, totaling GHS 180 annually. This category includes small traders, such as those selling from tabletops or operating small shops, who may find it challenging to keep detailed financial records.
The second category, presumptive tax by turnover, is for taxpayers with annual turnover exceeding GHS 20,000 but not more than GHS 750,000. These individuals pay 3% of their annual turnover as tax. This simplified approach aims to ease the tax burden for businesses that may not have sophisticated accounting systems. The 3% rate is applied directly to sales, simplifying compliance for many informal sector operators.
The third category is the modified cash basis, designed for taxpayers who possess some record-keeping knowledge and wish to have their business expenses considered. Under this system, standard tax assessment principles apply. Allowable business expenses are deducted from income to determine the chargeable income, and then the appropriate graduated tax rate is applied. This option provides flexibility for businesses that can manage more detailed financial reporting.
The GRA's initiative reflects a strategic move to enhance tax compliance and revenue collection from a segment of the economy that has historically been difficult to tax. By providing clear guidelines and simplified options, the authority aims to encourage more informal businesses to fulfill their tax obligations. The success of this scheme will be crucial for Ghana's fiscal stability and its ability to fund public services and infrastructure projects. Businesses and individuals in the informal sector should carefully review the criteria to determine their eligibility and ensure compliance with the new regulations.