A new year is fast approaching, and every business owner is looking forward to a much more promising year ahead. There were peak seasons of great sales and months that didn’t look as good; direct or indirect costs were too much to control due to internal and external business pressures. Anyways, 2019 is coming with its own expectations and business owners are preparing their budgets and making projections.
Today, let’s talk about some of the new tax reforms in 2018 be it proposed or implemented, that can assist in your budgeting.
From 1st August this year, we have had some reforms in the top marginal income tax rate from 25% to 35% on the monthly chargeable income of GHS 10,000 and above for resident individuals, the conversion of the GETFUND component of VAT and the NHIL into straight levies and many others which may not necessarily be beneficial to your business.
Currently, it has been proposed that, the top marginal income tax rate for resident persons be reduced from 35% to 30% and the monthly chargeable income be increased from GHS 10,000 to GHS 20,000. Also, the tax-free threshold on income will be adjusted to align with the national daily minimum wage which has been increased to GHS 10.65 starting 1st January 2019. This will mean an increase from GHS 261 to GHS 288. Local textile manufacturers will be given support using tax stamps and also zero-rating supplies for VAT purposes for three years. This is to make them more competitive and produce products that are very attractive for local patronage. These and many other policies have all been proposed and some implemented as measures to strengthen indigenous businesses and meet Government’s revenue and expenditure performance and outlook.
Pay-As-You-Earn
The new graduated income tax schedule is to help make the income tax charge progressive so that those within the high income earning bracket, pay more than those within the lower bracket. What this means is that, your employees who earn low amounts would have low PAYE tax to pay.
VAT, NHIL AND GETFUND
The Value Added Tax (VAT) has now been reduced to 12.5% so the NHIL and GETFUND levy can be 2.5% straight charges each. Before, these rates were administered together, with standard rated VAT registered businesses having the ability to deduct up to 17.5% of costs incurred in making supplies. But, with this new amendment, businesses no longer deduct up to 5% of the costs attributable to Health and Education levy.
TAX INCENTIVE FOR ENTREPRENEURS BELOW 35 YEARS
Business owners or entrepreneurs who are 35 years or below and operate businesses within the following industries: Manufacturing, Information and communication, Technology, Agro-processing, Energy production, Waste processing, Tourism and creative arts, Horticulture and medicine are to enjoy some tax holidays for five years. The qualified entrepreneurs are enjoying tax holidays on the income from their business operations. Then after the 5th year, they would enjoy reduced tax rates for the next five years depending on the business location. Any entrepreneur interested in this incentive needs to apply through the National Entrepreneurship and Innovation Plan (NEIP).
Although all or some of these reforms can inform or guide your strategic planning process, some business owners do not consider budgeting a priority. Considering how rare it is to find a small business owner who reviews financials throughout the year, a dedication to the numbers will not be an option.
Develop a budgeting habit. Once you have been able to prepare a budget, don’t simply forget about it. Take time off your busy schedule to check at least once every month to see how your performance is measuring up to your expectations. If your projections and actuals are completely out of balance, find a way to realign them. By comparing what you thought might happen and the reality, you can put in new strategies to make things work.
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