Introduction
Imagine a ten-line table of payments: a dividend, goods from a supplier, rent, a natural resource payment, a management fee to a non-resident. Your job is to compute the tax on each and say whether it is final. That is ten marks, and it has appeared in the ICAG Principles of Taxation paper in several sittings. In this article we go through the law behind that table: Part VIII, Division II of the Income Tax Act, 2015 (Act 896), Sections 114 to 120, and the rates in paragraph 8 of the First Schedule. By the end you will know who withholds, what rate applies, and when the tax is final.
What the Law Says
Section 113 says tax is payable by withholding under Division II, by instalment under Division III, or on assessment under Division IV.
Section 114 (employer). An employer shall withhold tax from the payment of an amount to be included in the employee’s income from employment. The rate for a resident is the individual rates in paragraph 1(1); for a non-resident it is 20%. The Income Tax Regulations, 2016 (L.I. 2244) add: overtime to a qualifying junior employee at 5% (10% on the excess if the overtime is more than half of monthly basic salary), bonus at 5% up to 15% of annual basic salary, and casual workers at 5%. Regulation 5(3) and regulation 6 make these final.
Section 115 (investment returns). A resident person withholds when paying a dividend, interest, natural resource payment, rent or royalty with a source in Ghana. The Income Tax (Amendment) Act, 2023 (Act 1094) added winnings from lottery and consideration for the realisation of an asset or liability. Rates in paragraph 8(1)(b): dividends 8%; interest to individuals 1%; other interest 8%; rent (residential) 8%; rent (non-residential) 15%; natural resource payments and royalties 15%; lottery winnings 10%; asset or liability realisation 3% (resident) or 10% (non-resident). The section does not apply to payments already under s.114, payments by an individual not in business, interest paid to a resident financial institution, or exempt amounts.
Section 116 (goods, services, contracts). Service fees to resident individuals: directors and board members 20%; examiners, invigilators, part-time lecturers, endorsements, lotto, sales and insurance agents 10%; other services 7.5%. A resident person other than an individual paying a resident under a contract withholds 3% on goods, 5% on works and 7.5% on services, provided the contract exceeds 2,000 currency points (one currency point is one cedi), with related contracts treated as one. Non-resident payments: service fees 20%, insurance premiums 5%, management and technical fees 20%, goods or works under a contract 20%. A resident who enters into a contract with a non-resident must notify the Commissioner-General within 30 days.
Sections 117 and 118. The agent pays the tax and files a statement within 15 days after the end of each calendar month, and serves a withholding certificate within 30 days after the month end. An agent who fails to withhold must still pay the tax and may recover it from the payee.
Section 119 (final). Final withholding payments: dividends paid by a resident company; rent to a resident individual or other person (except rent received in conducting a business of sale or letting); payments to non-residents subject to withholding under this Division (other than through a Ghanaian permanent establishment); payments under s.116(1)(a)(ii) and (iii); and lottery winnings.
Section 120. For non-final withholding, the payee is treated as having paid the tax and gets a credit for that year of assessment.
What It Means in Plain English
Sort every payment into one of three baskets: employment, returns on money or property, and goods, works and services. Then ask the exam question: is it on the Section 119 list? If yes, it is final: it is left out of the recipient’s income, no expense is deducted, no credit can reduce it, and the liability is satisfied. If no, it is on account: the gross income stays in the recipient’s income and the tax withheld is a credit against the final bill. Anything paid to a non-resident under this Division is final.
Real-World Example (Illustration, Not from a Past Paper)
Mensah Builders Ltd, a resident company, pays the following in November. All figures exclude VAT and levies (the GRA Practice Note says the base excludes VAT and communication service tax).
| Payment | GHS | Rate | Tax GHS | Final? |
|---|---|---|---|---|
| Cement, resident supplier | 100,000 | 3% | 3,000 | On account |
| Building works, resident contractor | 200,000 | 5% | 10,000 | On account |
| Consultancy, resident company | 40,000 | 7.5% | 3,000 | On account |
| Fee to resident director | 12,000 | 20% | 2,400 | On account |
| Part-time lecturer | 5,000 | 10% | 500 | Final |
| Rent to individual (residential) | 24,000 | 8% | 1,920 | Final |
| Dividend to resident shareholder | 50,000 | 8% | 4,000 | Final |
| Management fee, non-resident | 80,000 | 20% | 16,000 | Final |
| Total | 40,820 |
Payment to the Commissioner-General is due by 15 December, with the monthly statement filed the same day.
EXAM TIP: For every line in a withholding table, write three things: the rate, the tax figure, and a comment saying final or on account. In the July 2024 marking scheme each tax figure earned half a mark and each comment half a mark. And remember: the Chief Examiner said it was “shocking” that some candidates did not know all withholding on non-residents is final.
How the Examiner Tests It
The ICAG Principles of Taxation (Paper 2.6) reports, November 2019 to March 2025, all examine withholding directly. Typical forms: a ten-line table (July 2023, July 2024); the obligations of a withholding agent (November 2023, five marks); a contract including VAT and levies, where GHS 300,000 gives withholding of GHS 7,383.10 at 3% after stripping VAT and levies (November 2023); the 30-day notification for non-resident contracts (November 2024, five marks); rent, where the examiner complained that candidates could not state that rent withholding is final or give 8% and 15% (May 2021); and the payments to which withholding does not apply (March 2023, August 2022, March 2025).
Common Mistakes
- Applying the rate to a VAT-inclusive figure.
- Missing the aggregation rule: GHS 1,000 + 900 + 900 = GHS 2,800, taxed at 3% = GHS 84.
- Calling non-resident withholding “not final”.
- Treating all rent as final; rent paid to a person whose business is sale or letting is on account.
- Mixing income tax withholding with VAT withholding.
- Deducting the withholding credit from chargeable income instead of from tax payable.
The Mark-Winning Answer Format
Use a five-column table: payment, section, rate, tax, final or on account. Show VAT and levy stripping for contracts. State the GHS 2,000 threshold test. Finish with the compliance line: pay within 15 days after month end, file even if nil, serve the certificate within 30 days.
Conclusion
Withholding tax is a rates-and-classification topic, so it rewards preparation. Learn the three baskets, memorise the Section 119 list, and practise the five-column table. That is how you turn a ten-line question into ten marks.
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