Gender and Taxation: The Case of Ghana

by

Abena D. Oduro Department of Economics

University of Ghana Legon

aoduro@ug.edu.gh

January 2009

Table of Contents

1. Introduction......................................................................................................... 1 2. Introduction to Ghana’s Economy .......................................................................... 2

2.1. Structure of Economic Activity ...................................................................... 2 2.2. Household Composition.................................................................................. 6

3. Central Government Revenues .............................................................................. 8 4. Personal Income Tax......................................................................................... 10

Income from Employment ................................................................................ 11 Income from a Business.................................................................................... 12 Income from Investments ................................................................................. 13

4.1. Personal Income Tax Rates................................................................................ 13 4.2. Deductions ......................................................................................................... 15

Retirement Savings ........................................................................................... 15 Personal Relief .................................................................................................. 15

4.3. Exempt Income .................................................................................................. 17 4.4. Pensions ............................................................................................................. 18

5. Evaluating the Gender Implications of Personal Income Tax .......................... 19 6. Conclusion ................................................................................................................ 22

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Gender and Taxation: The Case of Ghana

1. Introduction In contrast to its first poverty reduction strategy, Ghana’s second poverty reduction

strategy has mainstreamed gender. The second poverty reduction strategy paper seeks to

make operational various international agreements of which the Convention on the

Elimination of All Forms of Discrimination against Women (CEDAW) is one.1 Despite

the fact that CEDAW does not contain any explicit references to taxation its principles

can be used to assess how the tax code impacts women and men. Article 2 of CEDAW

requires that states must agree to pursue by all appropriate means a policy of eliminating

discrimination against women. To achieve this, states must amongst other things embody

the principle of equality of women and men in their national constitutions or other

appropriate legislation. States must also ensure through the law and other appropriate

means the practical realisation of this principle. CEDAW therefore requires that there

should be no discrimination against women in the tax system.

Relevant to this analysis are the concepts of formal and substantive equality. Formal

equality requires that laws and policies should not distinguish between women and men.

Substantive equality focuses on the impact of laws, policies and practices on women and

men. Substantive equality requires that tax laws and policies do not have a

disproportionately negative effect on either women or men. Laws and policies that

formally treat women and men as equals can have different impacts on them because of

cultural norms and practices and other social constructs. In socio-cultural and economic

settings that treat women and men differently a deviation from formal equality may be

required in order to achieve substantive equality.

1 Republic of Ghana (2005) Growth and Poverty Reduction Strategy (GPRS II) (2006-2009). Vol. 1 Policy Framework, National Development Planning Commission, Accra, p. 5.

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This paper will examine Internal Revenue Act, 2000 (Act 592) and its amendments to

assess the extent to which the personal income tax laws in Ghana ensure formal and

substantive equality of women and men. The next section presents a brief background to

Ghana’s economy. This is followed in section three by a discussion on the sources of

central government revenue. Section four contains a discussion on the personal income

tax regime in Ghana. This is followed in section five by an assessment whether there is

formal and substantive equality in the personal income tax regime. Section six concludes

the paper.

2. Introduction to Ghana’s Economy

2.1. Structure of Economic Activity

Agriculture has traditionally played an important role in Ghana’s economy. The sector in

2006 accounted for approximately 36 percent of the Gross Domestic Product (GDP).

Next in importance is the services sector that accounted for 30 percent of GDP. The share

of manufacturing is low and is estimated at 8.8 percent of GDP. In 2006, industry was the

fastest growing sector at 7.3 percent per annum followed by the services sector at 6.5

percent and agriculture at 5.7 percent.

In 2005/6 it is estimated that about 67 percent of women and 71 percent of men aged 15

years and above were in employment. Agriculture is the single largest sector of

employment. About 50 percent of employed women and 55 percent of employed men

aged 15 years and above were employed in this sector in their main job (Table 2.1). The

majority of workers are self-employed and the incidence of self-employment amongst

women and men in 2005/6 was about 61 percent and 58 percent respectively (Table 2.2).

The majority of self-employed women and men do not employ others. Less than 10% of

women are in regular paid employment in their main job (i.e. they work for a salary or a

wage that is paid by their employer). The incidence of unpaid family labour amongst

women is high and accounted for about 28 percent of the employment of women in their

main job in 2005/6 compared to about 12 percent of employed men (Table 2.2).

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Table 2.1: Distribution of Employment in Main Job by Sex and Industry, 2005/6 Sector Men Women Total

Agriculture 55.6 50.4 53.0Forestry 2.3 0.4 1.3Fishing 0.6 0.3 0.4Mining 1.1 0.4 0.7Manufacturing 8.9 13.6 11.4Utilities 0.4 0.1 0.2Construction 3.8 0.1 1.9Trading 8.9 22.5 15.9Hotels/Restaurants 0.7 3.2 2.0Transport 5.6 0.5 3.0Finance 0.6 0.1 0.3Real Estate 1.5 0.3 0.9Public Administration 2.3 0.7 1.5Education/Health Other Comm Services 6.9 6.8 6.8Others 0.5 0.4 0.4

Source: Ghana Statistical Service, Fifth Living Standards Survey, Accra.

Table 2.2: Employment Status by Sex for Persons Aged 15 years and Above, 2005 Men Women

Paid Employee 26.9 8.6Non-Agriculture Self-Employed 14.2 35.9Non-Agriculture unpaid family worker 0.6 2.0Agriculture Self-employed 44.2 24.7Agriculture Unpaid Family Worker 11.1 26.5Domestic Employees 0.1 0.3Apprentice 2.7 2.0Other 0.2 0.1 Source: Ghana Statistical Service, Fifth Living Standards Survey, Accra.

With more than half of the adult working population employed either in agriculture or

self-employed outside agriculture Ghana has a large informal sector. This has

implications for the tax base for personal income taxation. This is because with a still

large subsistence element in agriculture it is difficult to assess the tax base for personal

income taxation in particular and direct taxes in general. Many operators in the informal

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non-agriculture sector do not keep records or accounts thus making it difficult to

determine and assess the tax base.

Table 2.3: Distribution of Plots Growing Different Crops based on the Sex of Plot Holder

Women's Plots Men's Plots Women's share of: Avocado 0.6 0.9 21.4Bananas 1.3 2.2 18.7Beans 3.4 6.1 18.2Cashew 1.5 1.4 29.5Cassava 52.1 36.9 35.9Cocoa 13.7 17.3 24.0Coconut 1.1 1.1 28.5Cocoyam 16.1 10.4 13.5Cotton 0.2 0.6 24.7Groundnuts 7.3 8.8 27.3Maize 35.5 37.6 27.2Mango 0.9 1.0 27.2Millet 1.7 6.4 9.6Oil Palm 9.1 11.8 23.4Onions 0.9 0.4 48.1Oranges 2.3 2.9 23.5Okro 6.8 4.0 40.2Pepper 14.8 7.8 42.7Pawpaw 0.9 0.8 31.3Pineapple 0.9 1.6 19.0Plantain 32.0 21.7 36.9Rice 2.3 3.8 19.0Rubber 0.0 0.1 15.6Sheanut 0.9 3.8 8.9Tomatoes 8.3 5.6 37.2Watermelon 0.0 0.2 0.0Yam 10.5 13.7 23.3

Share of

Source: Ghana Statistical Service, Fifth Ghana Living Standards Survey (preliminary findings),

Accra

Within agriculture women are employed in the production of a wide range of crops. They

are not excluded from the production of the traditional export crop, i.e. cocoa, nor are

they excluded from the production of recently emerging non-traditional export crops such

as mango, pineapple and pepper (Table 2.3). However, a significantly large proportion of

the plots of women cultivate food crops such as cassava, maize and plantain.

Outside of agriculture micro-enterprises dominate. More than 80 percent of women and

52 percent of men are employed in micro-enterprises – that is businesses that employ less

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than 5 people. These micro-enterprises, found mainly in the informal sector are unlikely

to provide social security or other benefits. Less than 2 percent of women are employed

in businesses employing 30 or more people compared to about 9 percent of men.

Only 3 percent of working women aged 15 years and above in 2005/6 can expect to

receive a pension when they retire compared to about 11 percent of men. Focusing on the

subset of workers who are paid employees reveals that the differences between men and

women are not always significant in terms of benefits, but fewer women than men are

paid employees so similar percentages yield very different absolute numbers (Table 2.4).

Table 2.4: Characteristics of Employment in Main Job of Men and Women (%)

Entire Work Force Men WomenSigned Contract 12.6 4.3Trades Union 10.9 3.4Paid Holidays 13.3 4.7Sick Leave 12.8 2.0Maternity Leave 0.8 0.5Sick and Maternity Leave 1.2 2.8Pension 10.7 3.5Subsidised Medical Care 10.2 3.1Other Social Security Benefits 8.4 2.9

Persons in Paid EmploymentSigned Contract 45.3 47.7Trades Union 39.3 38.1Paid Holidays 49.1 54.0Sick Leave 47.1 21.8Maternity Leave 2.6 4.3Sick and Maternity Leave 4.4 32.1Pension 39.7 40.9Subsidised Medical Care 37.8 34.3Other Social Security Benefits 31.3 33.0

2005/6

Source: Ghana Statistical Service, Fifth Living Standards Survey, Accra.

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2.2. Household Composition

Just over half of the households are made up of a household head living with his or her

spouse. Households that contain a head, spouse and children of the head are the single

largest category of household, i.e. the nuclear family (Table 2.5). In addition there is the

extended family household, i.e. the nuclear family and other family members such as the

grandchild of the head of household, parents and in-laws of the head of household. About

80 percent of households that contain the household head and spouse have at least two

members working for pay in cash or in kind. The average number of working adults in

this category of households is more than two implying that adult members of the

household other than the head and spouse also work.

Table 2.5: Household Composition Household Type Male Female All HouseholdsCouple Only 7.8 0.2 5.6

Head and Spouse 64.4 2.9 46.3With child only 55.6 2.4 39.9With Child, Parent of Head 2.7 0.2 1.9With Child, Grandchild 4.4 0.2 3.2With child and inlaws 0.3 0.0 0.2With Grandchild and inlaws 0.3 0.0 0.2With grandchild only 1.1 0.2 0.8

Head with no Spouse 6.0 70.0 24.9Single Parent with child 3.6 42.5 15.0Single parent with parent 0.2 2.5 0.9Single with grandchild 0.4 11.5 3.7Single parent and grandchild 0.3 9.9 3.1Single with relative 1.5 3.6 2.1

Single person Household 20.3 24.1 21.4

Other 1.6 2.8 1.9 Source: Ghana Statistical Service, Fifth Living Standards Survey, Accra.

About a quarter of households contain a head with no spouse. This is the predominant

household type of female headed households (Table 2.5). The average number of

working adults in these households is less than two. Most of the households with a head

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and no spouse contain children. In a limited number of instances the head lives with

grandchildren or with the parent(s) of the household head and grandchildren.

The average number of working adults in male headed households is higher than in

households headed by women, i.e. 1.87 and 1.12 respectively.

A classification of households using the sex composition of adults (i.e. persons aged 15

years and above) reveals that about 21 percent of households do not contain adult men

and about 17 percent do not contain adult women. Almost two thirds of the households

that do not contain adult women are men living on their own. Households that do not

contain adult men comprise largely of women living with their children or grandchildren

or women living alone.

Table 2.6: Sex Composition of Adults in Household and Percentage that Work

Percent of Adults in Households that Work Women only Men only Men and Women

All Households

No working adult 19.8 14.9 3.9 9.1Less than 50 percent work 4.6 1.3 12.8 9.250 to 74 percent work 15.0 4.0 34.4 25.275 to 99 percent work 0.4 0.4 6.4 4.1All adults work 60.2 79.5 42.6 52.5

Total 100.0 100.0 100.0 100.0

Sex composition of Adults in Household

Source: Ghana Statistical Service, Fifth Living Standards Survey, Accra.

In more than half of households all adults work (Table 2.6). Households that contain both

adult women and men have the lowest incidence of all adults working compared to the

other category of households. In 80 percent of households that do not contain adult

women and 60 percent of households that do not contain adult men all the adults work.

These findings are to be expected given the large number of single person households

amongst these categories of households.

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The largest proportion of households that do not contain working adults is households

that do not have adult men. Indeed 45 percent of the households with no working adult

are households that do not have adult men.

3. Central Government Revenues

Changes in the composition of central government revenue since 1995 have been driven

largely by the introduction of new taxes (i.e. the VAT), increased efforts at revenue

generation (for example the establishment of the Non-Tax Revenue unit to coordinate the

activities of the non-tax revenue agencies) and trends in the inflow of foreign grants. The

largest source of central government revenue in 1995 was international trade taxes. Next

in importance was non-tax revenue.2 Direct taxes came a distant third accounting for 15

percent of central government revenue (Figure 3.1). The share of direct taxes followed a

cyclical but upward trend until 2002 when it stood at 31 percent of central government

revenue. In 2006 the composition of government revenue changed. The largest source of

revenue to central government was non-tax revenue. Direct taxes ranked second after

non-tax revenues. The contribution of VAT increased significantly over the period from

about 5 percent of central government revenue to 18 percent.

Focussing on tax revenues, the share of direct taxes in total central government tax

revenue was about 21 percent in 1994. It peaked at about 33 percent in 2002 and declined

to 29 percent in 2006. As a share of GDP direct taxes have risen almost continuously

from 3.4 percent in 1994 to 6.3 percent in 2006.

2 Non-tax revenues comprise of incomes and fees and foreign grants.

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Figure 3.1: Composition of Central Government Revenue

0

5

10

15

20

25

30

35

Percent

Direct Taxes Other Indirect Taxes VAT International TradeTaxes

Non-Tax Revenue

Sources of Revenue

Composition of Central Government Revenue

199520002006

Source: ISSER State of the Ghanaian Economy, various issues, Accra.

The relatively low share of direct taxes in central government tax revenue can be

explained partly by the large proportion of unpaid family workers and the large

proportion of the workforce employed in agriculture and the informal urban and rural

sectors. Only about 20 percent of the adult work force is in paid employment (i.e.

receives a salary or a wage) and thus likely to fall within the pay as you earn (PAYE) tax

net. Tax from self-employment is very low. This is not surprising since the informal

sector is difficult to tax. The major categories of direct taxes are company taxes and taxes

paid by employees (Table 3.1).

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Table 3.1: Composition of Revenue Collected by the Internal Revenue Service (%) Year Employee Self-Employed Companies Others1995 25.3 5.4 58.1 11.21996 27.9 5.3 55.1 11.71997 28.9 5.1 55.5 10.51998 29.8 5.3 49.8 15.21999 33.0 6.5 52.6 7.92000 34.3 5.3 49.4 10.92001 33.3 5.6 50.8 10.42002 32.4 4.7 47.5 15.32003 34.8 5.3 45.1 14.72004 33.9 5.0 47.6 13.42005 35.5 4.9 50.3 9.42006 42.9 4.9 43.7 8.5

Source: Internal Revenue Service, Accra.

4. Personal Income Tax

Income tax is paid by resident3 and non-resident persons earning an income derived from

or accruing in Ghana. Income tax will be charged on income that is received in Ghana or

brought into Ghana.

There is separate filing of taxes. Each individual is assessed separately. Women are

individual tax payers. Ghana’s tax code does not identify the individual by sex or by

marital status. The tax system may be described as marriage neutral. If income of an

individual remains unchanged before and after marriage, the tax paid before marriage

will remain the same after the person gets married. The income tax law does not

explicitly discriminate against women. It can therefore be concluded that Ghana’s laws

with respect to personal income tax pass the test of formal equality.

3 A resident is a citizen of Ghana (not including a citizen with permanent residence outside Ghana), a person living in Ghana for a total period of 183 days in the twelve-month period of assessment, an employee or official of the Government of Ghana posted abroad for the year of assessment or a citizen who is temporarily absent from a Ghana for a period not exceeding 365 continuous days.

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Traditional norms and practices in some parts of the country may make it difficult for

women to own land and other forms of property. However, there is nothing in the laws of

Ghana to prevent a woman from owning houses, land etc. Property acquired when

married does not automatically become the property of both the husband and wife.4 The

Internal Revenue Act states that in order to ascertain the income from a joint investment,

inclusions and deductions with respect to the investment must be divided amongst the

joint owners on the proportion to their respective interests in the investment.

Ghana has adopted a schedular system of income taxation. Personal income from

employment and from running a business is subject to a graduated set of income tax rates.

Income from self-employment is subject to the graduated personal income tax schedule

and not subject to the laws governing corporate tax. Investment income from dividends is

subject to a different tax rate. Rental income is either subject to the graduated income tax

rate schedule once deductions stated in the law have been applied, or else in the absence

of deductions a flat rate can be charged.

Income from Employment

Income from employment is the gains or profits from employment. This includes

allowances or benefits paid in cash or in kind resulting from the employment. Cash

allowances such as house help allowance, cook allowance, steward allowance and child

education allowance paid by employers are included in the calculation of assessable

income. These allowances are usually paid by medium and large-scale enterprises. If a

married couple is employed in different organisations each person qualifies for the

allowance in the work place. However, if the couple works in the same organisation

whether or not both will receive these allowances will depend on policy of the

organisation. When an employee is provided an allowance to pay for house help,

stewards, cooks etc, the emoluments of stewards, cooks etc who provide personal service

are added to the emoluments of the employee receiving the service and taxed.

4 The intestate succession law ensures that the surviving spouse inherits part of the estate. If a surviving spouse is left out of the will of his/her spouse, s/he can claim a portion of the estate of the deceased spouse. A divorced person can make a claim on the estate of his/her spouse.

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Section 8(2) of Act 592 lists the allowances or benefits that are not to be included in the

calculation of income, for example, dental, medical or health insurance expenses where

the benefit is available to all full-time employees on equal terms, provision of

accommodation by an employer in the timber, mining, building, construction or farming

business to an employee on the site where the business is being conducted, severance pay

or a night duty allowance that does not exceed 50 percent of the basic salary.

Income from a Business

The income of a person from a business is the gains or profits from any business that the

person undertakes. Income from farming is exempt from tax for a period of 10 years if

the person should farm tree crops (i.e. coconut, coffee, oil palm, rubber and sheanut)5 and

cattle.6 The exemption period is five years in the case of other livestock, fish or cash

crops (i.e. cassava, maize, pineapple, rice and yam). The income from cocoa is exempt

from tax. Cocoa farmers may not be subject to income tax but are subject to an export tax

as measured by the difference between the world price excluding marketing costs and the

domestic producer price of cocoa.

Table 4.1: Concessions on Income from a Business Special Tax concessions Period of exemptionIncome of a person from farming is exempt from taxFarming tree crops 10 yearsFarming livestock other than cattle 5 yearsFarming Cattle 10 yearsRental income of a person 5 yearsCocoa income Tax exempt

Rental Income

In 2000 rental income of individuals from residential or commercial property and the

income of companies that construct for rent or sale were exempt from tax for five years.

5 Ten years beginning from the year of the first harvest. 6 Ten years beginning from the year the business commences.

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In the amendment of Act 592 the rental income of a person was no longer tax exempt.

The five year tax exemption applied only to the income of a company in the business of

construction for either rent or sale.

Before being subject to tax the Act makes provisions for deductions to be made from

rental income. These are any local or district rates, mortgage interest due to loans taken to

construct or acquire the property, an allowance of 30 percent of the aggregate rent

received and any other necessary expenses incurred on the property.

Income from Investments

Income from investments is the gains or profits from the investment. Gains or profits is

defined in the Act to include any dividends from a resident company, non-resident

company, interest, charge, annuity, royalties, rent, or natural resource payment.

Interest received on investment in a resident financial institution or from Government of

Ghana bonds is exempt from taxation. Also exempt from taxation is interest or dividend

from an approved unit trust scheme or mutual fund.

The withholding7 tax rate applicable to dividend payments for resident persons was 10

percent in 2006 and reduced to 8 percent in 2007.

A capital gains tax is paid on the difference between the value of the asset at the time of

its disposal and its cost at the time of acquisition. The capital gains tax was 10 percent

between 2001 and 2006 and was reduced to 5 percent in 2007.

4.1. Personal Income Tax Rates

The income tax schedule is progressive. Over the period 2000 to 2006 income tax rates

have been reduced to encourage compliance. The tax free bands were raised by 100 7 The withholding tax is deducted at source by the payee of a service. It is credited against the tax assessed of the person whose income was reduced by the amount of the tax.

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percent between 2000 and 2006 from GH¢120 to GH¢240. Between 2000 and 2005 there

were 6 income bands. The first income band is a provision of basic relief provided to all

irrespective of the size of total income. In addition to this were income bands to which

tax rates of 5, 10, 15, 20 and 30 percent were applied (Table 4.2). The tax rate of the

highest income band was reduced from 30 percent to 28 percent in 2005 and was reduced

further to 25 percent in 2006. In 2006 the number of income bands was reduced to 5. The

merging of the fourth and fifth income bands in 2006 resulted in a decline in the tax rate

for incomes originally falling within the fifth band and an increase in the tax rate for

incomes falling within the fourth band (Table 4.2). The reforms would thus appear to

favour individuals earning higher incomes. In the 2006 budget personal income tax on the

minimum wage was abolished. In addition, incomes marginally above the minimum

wage would be charged a lower income tax rate (2.5 percent) to ensure that disposable

incomes stay above the minimum wage.

Table 4.2: Personal Income Tax Rates, 2000-2006.

Chargeable Income Rate

Chargeable Income Rate

Chargeable Income Rate

Chargeable Income Rate

Chargeable Income Rate

GH¢ % GH¢ % GH¢ % GH¢ % GH¢ %First 120 Free 120 Free 150 Free 180 Free 240 FreeNext 120 5 120 5 150 5 180 5 240 5Next 300 10 300 10 300 10 480 10 1,200 10Next 1,860 15 1,860 15 2,100 15 2,760 15 .. ..Next 2,400 20 2,400 20 3,300 20 3,600 20 7,920 17.5Exceeding 4,800 30 4,800 30 6,000 30 7,200 28 9,600 25

2004 2005 20062000 2002

In an attempt to widen the income tax net to reach the self-employed in small and micro-

scale firms in the informal sector a tax stamp system was introduced in 2005. Traders are

classified according to the size of business. The tax is a lump sum that is to be paid in

advance every quarter. When the entrepreneur files the tax returns the tax stamp already

paid will be accounted for in the final assessment of tax. In 2007 the tax ranged from

GH¢15 for businesses in 40 footer containers to GH¢3 for hawkers and entrepreneurs

operating from table tops. The different groups that have been classified and are targeted

by this tax measure include dressmakers, owners of local restaurants (chop bar owners),

butchers, hairdressers, car repair owners, diamond and gold winners and buyers. This

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measure to widen the tax net to include self-employed individuals in the informal sector

makes use of a lump-sum tax that is progressive. The progressivity however is not linked

to the incomes generated by the business but by the physical size of the business premises

(whether it is in a 40 foot container or operating from a table top). Progressivity only

kicks in when the self-employed files his or her tax returns.

4.2. Deductions

Act 592 lists deductions that can be made from the income of a person from any business,

employment or investment. Interest on borrowings, rent on land or building occupied by

the business, repair and maintenance costs of equipment and utensils, bad debts, research

and development expenditure, capital allowances, foreign exchange losses incurred with

respect to the conduct of the business and carry over losses are to be deducted.

Retirement Savings

Contributions to a retirement fund made either by the employee or by the employer on

behalf of the employee (subject to conditions set out in section 60(3) of Act 592) are

deducted from the assessable income for the year of assessment. The Social Security and

National Insurance Trust (SSNIT) is the largest pension scheme in the country.8

Although the proportion of female contributors to the SSNIT scheme rose between 1992

and 2006, women only account for 28.6 percent of the contributors (Table 4.3).

Personal Relief

Personal relief (i.e. reduction in assessable income by stipulated amounts) is provided on

an individual basis (Table 4.4).

In Act 592 relief is provided to a taxpayer who has a dependent spouse or who has at

least two dependent children. Where reference is made to a spouse the sex of the spouse

8 It is required by law that all employers register their workers with the scheme. The exceptions to this requirement are judges, lecturers and personnel in security institutions.

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is not defined. Access to this type of relief is open to both men and women who have a

dependent spouse and married and unmarried people with at least two dependent

children. A dependent spouse or child is someone whose income is less than GH¢20 in a

year. This criterion is low enough to exclude working low-income spouses from the

definition of dependent spouse. This relief was increased in 2007 to GH¢35. This is of

not much value to middle and high income earners but is of much more significance to

low income earners especially those with incomes close to the minimum wage threshold.

Table 4.3: Contributors to the Social Security and National Insurance Trust

Men Women % Women1992 313,793 112,949 26.51993 325,099 118,446 26.71994 331,587 120,947 26.71995 346,222 127,727 26.91996 351,035 126,012 26.41997 383,558 136,306 26.21998 402,836 145,556 26.51999 419,579 153,038 26.72000 437,090 162,901 27.22001 451,888 171,348 27.52002 471,725 181,139 27.72003 489,659 190,395 28.02004 517,841 202,445 28.12005 538,049 211,694 28.22006 539,581 216,056 28.6

YEARNUMBER OF CONTRIBUTORS

Source: SSNIT

The education allowance can be claimed for up to three children or wards in registered

educational institutions in Ghana. The relief was increased in 2007 to GH¢30 from

GH¢24. This relief is of particular value to low income households who send their

children to public schools. This is because since public schools are tuition-free the relief

will be equivalent to a significant proportion of the direct costs of sending the child to

school. Relief for education expenses is available to either parent/guardian of the child

but not both.

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Table 4.4: Changes in Personal Reliefs 2000-2007 2000 2002 2007

Dependent Spouse or two dependent children GH¢30 GH¢35

Disabled individual 25% of assessable income

Income earned by person 60 or more yearsLesser of GH¢30 or total income

Lesser of GH¢35 or total income

Child Education Relief - maximum of 3 children GH¢24 per child GH¢30 per child

Dependent Relative aged 60 or more years - maximum of 2 relatives GH¢20 per dependent GH¢25 per dependent

Training Relief to update skills/knowledge GH¢50Cost of training not exceeding GH¢50

Cost of training not exceeding GH¢100

The aged dependent relative relief is rather low at GH¢25 per person per annum. This is a

relief that is provided to taxpayers in respect of dependent relatives aged 60 years and

over. The maximum number of dependents against whom this relief may be claimed is

two. This relief can be claimed by any one of the relatives responsible for aged

dependents.

The income of a person aged 60 years and above from employment or business qualifies

for the old age relief. The relief is GH¢35 or the total income if it is the lesser of the two.

Section 57 of the Internal Revenue Act allows for life insurance premiums to be deducted

from the assessable income before taxes are charged. The reduction of the premiums

should not exceed 10 percent of the assured sum or 10 percent of the individual’s total

assessable income, whichever is the lesser.

4.3. Exempt Income

Exempt income includes interest paid to an individual by a resident financial institution,

interest paid on bonds issued by the Government of Ghana, capital sums paid to a person

as compensation or a gratuity in relation to personal injuries suffered by that person or

the death of another person. Also exempt from assessable income is interest or dividend

or any other income of an approved unit trust scheme or mutual fund or interest or

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dividend paid or credited to a person who has invested in a venture capital financing

company. The scholarship, bursary or similar endowment of a person receiving

instruction at an educational institution from is exempt. Income from a retirement fund

exempted under an enactment is exempt from tax. Proceeds from life insurance are

exempt from tax.

The income of some categories of individuals is exempt from income tax. These include:

• The salary, allowances, pension and gratuity of the President

• The income of a non-resident person from any business of operating ships or

aircraft so far as an equivalent exemption is proven to be granted by that

person’s country of residence to person’s resident in Ghana

• The income of a person from an employment in the public service of the

government of a foreign country provided that the person is either a non-

resident person or is resident solely for the purpose of the employment, does

not earn income from any other source, is taxed by the foreign country and

whose income is payable from public funds in the foreign country.

• The income of individuals entitled to privileges under an enactment giving

effect to the Convention on the Privileges and Immunities of the United

Nations and other relevant conventions.

4.4. Pensions

Pension incomes received on account of old age, sickness or an infirmity are not subject

to taxation. Neither is a pension or a lump sum payment made by a retirement fund to a

beneficiary of the fund. The income of a retirement fund can be exempt from taxation if it

is exempted under an enactment.

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5. Evaluating the Gender Implications of Personal Income Tax

Women are not explicitly disadvantaged. There is formal equality but there is not always

substantive equality. To begin with, a larger proportion of men than women are directly

affected by the income tax laws and regulations. In the absence of data on the proportion

of working men and women that pay income tax a proxy will be used. Contributions to

the SSNIT can be used as an indicator of being within the income tax net. Of the persons

recorded as contributing to the SSNNIT less than 30 percent are women. It may thus be

inferred that a smaller number of women compared to men are therefore affected directly

by the provisions of Act 592. The lower proportion of women compared to men in the

direct tax net is because of the larger proportion of women who are unpaid family

workers and the larger proportion of women who are either self-employed or employed in

micro-enterprises. Their lower level of education, skills and training compared to men

deters entry into formal sector jobs where they cannot easily avoid paying income tax.

Norms and practices that disempower women result in them being unpaid family

workers.

The personal income tax system does not discriminate between the wage and salaried

worker (the large proportion of whom are men) or the own account worker (Table 5.1).

The lower proportion of women who are wage or salaried workers is not a source of

substantive inequality de jure. This is because income earned from self-employment is

subject to the same tax schedule, except when the business is incorporated.

Because there is separate filing of taxes and because tax rates do not explicitly

discriminate between men and women and on the basis of marital status the taxes paid by

men and women with the same assessable income will not be different (Table 5.1). The

implications of the tax code for total household income does not depend on the

distribution of income between the two sexes but does depend on how the income is

distributed amongst the income earning members of the household and what proportion

of income of an individual member falls in the higher tax bands. The system of separate

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filing of taxes and the structure of the different forms of personal relief do not discourage

second earners amongst married couples.

The income tax brackets are not indexed. The nominal tax brackets are not always

adjusted with the rate of inflation. Tax bands remained unchanged from 2000 until 2004

when they were adjusted by 25 percent. This is despite inflation of 15 percent in 2002

and 23 percent in 2003. The failure to adjust tax brackets when nominal income is

adjusted with the rate of inflation results in an increase in the real value of taxes paid by

households, i.e. fiscal drag. This is particularly burdensome for low income earners. This

is because those persons whose incomes were largely in the tax free band will find that an

increasing proportion of their nominal incomes will move into the next tax band that is

subject to tax. About 40 percent of adult working women and 27 percent of adult working

men who report earnings are in the first income tax band that is tax free.9 This suggests

that failure to adjust tax bands in the context of inflation results in a larger proportion of

women compared to men with incomes in the tax-free income bracket being pushed into

the next income tax bracket that is subject to tax.

Income tax is progressive; a household with higher income must pay more tax (Table

5.1). However, if the same income is split between two earners, the tax burden of the

household is lower. Thus for a household with two earners and three children with a

combined income of GH¢ 650 per annum the tax drops significantly to GH¢3 when the

income is distributed such that one worker earns GH¢450 and the second earns GH¢200

per annum (Table 5.1). This contrasts with tax of GH¢13.50 if the income of GH¢650 is

earned by one person. The single earner household is being discriminated against (Smith

2000). A counter argument is that the single earner household benefits from the unpaid

work of the home maker. This latter view however assumes that the single earner has a

spouse who provides unpaid domestic services. This cannot be assumed in Ghana where

about 34 percent of single earner households do not have an adult male and where many

single earner households are headed by women. About 44 percent of single earner

9 This estimate is obtained from the preliminary findings of the fifth Ghana Living Standards Household Survey conducted in 2005/6.

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households in Ghana are headed by women. With female headed households making up

approximately 30 percent of households in Ghana they are over-represented amongst

single earner households. The woman is both the earner and home maker. Alternatively

the unpaid work may be done by a girl child.

Table 5.1: Hypothetical Annual Income and Tax Paid by Household with Three Children

in School

Household Income (GH¢) 325.0 650.00 1300.00

Tax Paid By Household (GH¢):Male Earner Only 0.0 16.50 81.50

Female Earner Only 0.0 16.50 81.50

Male and Female Earners 0.0 3.00 45.75

Salaried Worker Self-EmployedHousehold Income (GH¢) 650 650

Tax Paid By Household (GH¢)Male Earner Only 13.25 13.25

Female Earner Only 13.25 13.25

Notes: In household earning income of GH¢650 with two earners the distribution of income is GH¢450 and

GHC200. In household earning income of GH¢1,300 with two earners the distribution of income is

GH¢825 and GH¢475.

The salaried worker makes social security contributions.

Households headed by women constitute the largest proportion of households headed by

separated, widowed or divorced individuals (Table 5.2). Women heads of households

who are divorced, separated or never married have on average more of their own children

aged 18 years and less living with them compared to households headed by men (Table

5.2). These categories of households are therefore more likely to qualify for the

responsibility relief for dependent children than similar households headed by men. The

marriage/responsibility relief is currently only GH¢35. This is about 6 percent of the

annual earnings of a person earning the minimum wage. Thus for divorced, separated or

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widowed heads of low income households –the greater proportion of whom are women-

this relief is of great value.

Table 5.2: Number of Children and Sex of the Household Head

Households Headed by Men WomenPercent of households headed by women

Married Person 2.33 1.60 11.4Divorcee 0.44 0.88 70.7Widowed 0.46 0.61 83.2Separated 0.35 1.15 67.0Never married 0.02 0.19 24.5

Mean number of children

Source: Ghana Statistical Service Ghana Living Standards Survey, 2005/6, Preliminary Findings,

Accra.

Concessions on income tax from farming have been informed by the need to promote

agriculture. The choice of specific crops that benefit from tax concessions has been

informed by concerns about food security, for example, cassava, maize and rice. They

have also been informed by the need to promote non-traditional exports such as

pineapple. Concessions to agro-processing fit neatly into the objective of promoting rural

development as well as industrialisation. These concessions do not formally discriminate

against any of the sexes. The wording of the section is such that it covers all categories of

crops whether tree crops or cash crops.

6. Conclusion

There is formal equality in Ghana’s personal income tax system. The tax laws do not

explicitly differentiate between men and women. The tax rates are the same irrespective

of the sex of the individual. The tax laws do not make reference to the marital status of

the individual except with respect to the reliefs provided to married dependent spouses.

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The evidence on substantive equality presents some negative and positive elements with

respect to women. The tax system discriminates against single earner households many of

which are headed by women. On the other hand the marriage/responsibility allowance

provides valuable relief to households headed by widowed, separated and divorced

persons the majority of whom are women. These households on average tend to contain

more children than similar households headed by widowed, divorced or separated men. It

is recommended that the value of the responsibility relief should be increased and

graduated. The value of the relief should decline as the income of the individual increases

above a threshold level. An element of targeting is thus being recommended to increase

the value of the relief to low income households without burdening the budget.

The negative effects of fiscal drag on low income persons impacts a higher proportion of

women in the tax net compared to men. This is because a larger proportion of women

have incomes in the first income tax bracket. It is recommended that income tax bands

are adjusted more frequently to protect the real disposable income of low income tax

payers. Fiscal drag when it occurs is a source of revenue to central government. It is

therefore recommended that government strengthens its tax collection mechanisms to

reduce tax evasion as a means of maintaining and if not increasing its tax revenues.

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