Understanding and Complying with Withholding Taxes: A Basic Guide to Business Success

What is Withholding Tax (WHT)?

Withholding Tax (WHT) is a tax deducted at source by a withholding agent before making final payments to a seller, contractor, or consultant. The withholding agent (resident individual or entity), is responsible for withholding the tax when making payments to resident or non-resident persons. The amount withheld is subsequently remitted to the Ghana Revenue Authority (GRA).

The power to deduct or withhold is provided by the Income Tax Act, 2015 (ACT 896). The Act provides the following rates to be applied to a resident person:

1.     The supply of goods - 3%

2.     The supply of works - 5%

3.     The supply of services – 7.5%.

The rate for a non–resident person is 20% on Goods, Services, and Works.

Definition of Key Terms

1. Goods
“Goods” refer to objects of every kind, including raw materials, products, and equipment, as well as solid, liquid, or gaseous items, and electricity. It also includes services incidental to the supply of goods, provided the value of the incidental services does not exceed the value of the goods.
Goods include:

·        Movable tangible property

·        Thermal and electrical energy

·        Heating, gas, refrigeration, air conditioning, and water

Goods do not include money.

2. Works
“Works” refers to activities associated with the construction, reconstruction, demolition, repair, or renovation of buildings, structures, or surfaces. It also includes:

·        Site preparation and excavation

·        Erection, such as masts for telecommunications

·        Assembly, and installation of plants or equipment

·        Decoration and finishing

·        Any incidental activity under a procurement contract

3. Services
“Services” involve the provision of labor, time, or effort without delivering a specific product, except for reports incidental to the required performance. It includes:

·        Consulting, professional, and technical services

·        Services excluded from this definition: employment agreements and collective bargaining agreements

Threshold for Withholding Tax

The deductible withholding tax applies when the total cost of goods, works, or services exceeds GH¢2,000.00 per year.

Modalities for Withholding Tax

For WHT to be applied, the following conditions must be met:

1.     The total cost base exceeds GH¢2,000.00 per year.

2.     The supplier of goods, works, or services is not exempt from withholding taxes.

3.     The goods, works, or services have been delivered or supplied.

4.     Approval has been given for payment.

Conclusion

Complying with withholding tax requirements is critical for business success in Ghana. It ensures adherence to tax regulations, prevents penalties, and strengthens financial accountability. Businesses should maintain proper records and work closely with tax professionals to fulfill their withholding tax obligations effectively.

Reference; GRA -Practice Notes on Withholding tax.

Written by: Jennifer Ayampoka Kukua (Mrs.), CA

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