The Tax Queen: How Small Businesses Can Legally Avoid Tax

Dede Asare

The Legal ways of avoiding tax for small businesses is a topic every startup business owner or entrepreneur must pay attention to. In Ghana tax planning is important for companies to adhere to.

Tax planning is the act of arranging one's tax affairs in ways that postpone or avoid tax. In doing so, some might evade or avoid tax.

There is a difference between Tax Evasion and Tax avoidance. Tax evasion is reducing your tax liability by using illegal ways while tax avoidance is minimizing tax liability which does not violate the tax rules,taking the unfair advantage of the shortcomings in the tax laws. For small businesses there can be several ways of avoiding tax.

These three(3) will be concentrated on;
1. Employ Fresh Graduates - an incentive is given to companies that employ fresh graduates to deduct up to a maximum of 50% of the salaries and wages of graduates. The law defines a fresh graduate as 'a person who has graduated from a tertiary institution for the first time whether or not that person was previously employed'. These graduates should be from recognized tertiary institutions in Ghana. Under paragraph 8 of the sixth schedule of the Income Tax Act states these incentives :

Up to 1%(percentage of fresh graduates employed)- 10% of salaries and wages of the fresh graduates.

Above 1% - 5% (percentage of fresh graduates employed) - 30% of salaries and wages of the fresh graduates.

Above 5%(percentage of fresh graduates employed) - 50% of salaries and wages of the fresh graduates. This means after deducting your salaries and wages for the total number of workers, you deduct the salaries and wages for the fresh graduates alone.

2. Research and Development Expense
It is an expense that is incurred wholly, exclusively and necessarily but without regard to whether the expense is of capital nature. It should be an expense that is incurred by a person in the process of developing the business of that person and improving business products/processes and not an expense incurred that is otherwise included in the cost of an asset used in developing the business of that person or improving business products /processes.

3. Lastly, donations are largely not considered to be necessary expenses. However, certain donations have been allowed for deductions. Under section 100 of the Income Tax Act list the donations that are worthwhile and approved by the Commissioner-General. To mention but a few, donating to a worthwhile cause in high-income years, eg. donating to Osu Children's Home in Accra, Ghana Heart Foundation, etc is allowed. All these are tax allowable expenses that can help small businesses to avoid tax.

THE TAX QUEEN
Sovereign Dede Asare
(Accounting (BSc) , ICA )
T: 0242709653 E:[email protected]