In recent months the Ghana Revenue Authority has taken significant steps toward educating taxpayers to leverage the modified taxation provisions in the tax Act, which offer certain categories of taxpayers a simplified approach to computing and settling their tax obligations.
What is modified taxation?
Modified taxation is an alternative method of determining taxable income for eligible businesses that may not be required — or are unable — to maintain comprehensive accounting records. It allows qualifying taxpayers to calculate their liabilities based on a presumptive profit applied to gross turnover, rather than relying strictly on audited financial statements.
The regime was introduced to support small and medium-sized enterprises, self-employed professionals and other informal sector operators who often face challenges in maintaining detailed financial records.
Who qualifies?
Under the Second Schedule of the Income Tax Act 2015 (Act 896) as amended, modified taxation applies where:
- The individual is resident in Ghana.
- The chargeable income of the individual is exclusively from business with a source within Ghana.
- The annual gross turnover of the business is more than GHS 20,000 but does not exceed GHS 500,000.
Mind the exclusions
- An individual who has a professional qualification.
- An individual engaged in a business prescribed by regulations that has a high profit-to-turnover ratio.
- An individual who has more than one business.
- An individual whose business has more than one outlet.
- An individual in a partnership.
Benefits
One of the key benefits of modified taxation is its simplicity. It significantly reduces the administrative burden on small-scale taxpayers by eliminating the need for complex bookkeeping and audit requirements, and encourages voluntary compliance by making tax obligations more predictable and manageable.
It also enhances fairness in the tax system by ensuring smaller players contribute equitably without being disproportionately burdened by the demands of conventional tax administration.
You are advised to touch base with your tax consultant before placing reliance on this article.