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Relieving tax burden with pension contributions


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The recent announcement by the Minister of Finance, Mr Ken Ofori Atta, about the proposed tax changes has sent shivers down the spines of many Ghanaians.

The minister, in his mid-year budget review presentation to Parliament, proposed additional 35 per cent band to be included in the graduated Pay As You Earn (PAYE) system to essentially increase the tax burden on individuals earning more than GH¢10,000. The proposal, though yet to be approved by Parliament, has left many Ghanaians talking.

As noted by the minister, one major challenge that the country continues to face is low domestic revenue mobilisation and to address this, he proposed an additional tax band to increase the tax obligations of high-income earners in Ghana as one of the numerous measures to be deployed to tackle revenue shortfalls.

Although a progressive-income tax assessment appears laudable, the populace must be sensitised to understand the reasons for this approach, in particular, why there is the need for more taxes to be paid on their higher earnings.


Paying taxes in itself is obviously not something people, since the days of Matthew in the Bible, feel encouraged to do, or talk less of having to pay extra on your high earnings. To encourage people to honour their tax obligations and more importantly, have the urge to pay more, it is always important to introduce incentives aimed at achieving that objective, particularly, where such incentives achieve a social goal. It is for this reason that the National Pensions Act, 2008 (Act 766) as amended, expressly exempts pension contributions from taxation in view of the need to have adequate income security during retirement to alleviate old-age poverty.

Section 3 of Act 766 provides for 18.5 per cent of the basic salary of a worker to be mandatorily set aside to provide pension income for the worker when they retire from active work. Additionally, a worker may voluntarily contribute up to 16.5 per cent of their income into a registered Provident Fund (PF) or a Personal Pension Scheme to supplement retirement income.

These contributions by, and on behalf of the worker, qualify for tax reliefs for the worker or his/her employer to the extent of the contribution made by either the employer or the worker. The tax relief on pension contribution can substantially reduce the tax burden of a worker and, therefore, Ghanaians should take advantage of the provisions of Act 766 and contribute more towards their retirement.

Current arrangements

Under the current tax arrangements, a worker earning say GH¢20,000 as basic salary and GH¢10,000 as allowance can make extra tax savings of GH¢1,237.50 (representing 25 per cent of GH¢4,950 contribution to a PF) if he makes an additional voluntary contribution of 16.5 per cent of his/her income alone to a registered PF.

Extending this to the new proposal by the Finance Minister means extra tax saving of GH¢1,732.50 (representing 35per cent of the GH¢4,950 contribution to the PF) can be made by this worker when the proposal is approved by Parliament.

On the basis of the above illustration, it is of prudential benefit to workers earning in excess of GH¢10,000 to take the relevant steps to identify a registered PF and make the necessary pension contributions.

Columnist: Hayford Amankwah


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