How salary workers pay less taxes

Which is Legally Approved by Ghanaian Tax Laws

By Lord Logo Stephen

Two things are certain in life: death and the payment of taxes. Yet most Ghanaian salary workers more taxes every month than necessary. There are loopholes in the Tax laws that permits the payment of less taxes. The Ghana Revenue Authority (GRA), following the Income Tax Act, 2015 (Act 896) and related laws, has created several legal ways for employees to lower the part of their income that is taxed under Pay As You Earn (PAYE).

This article is specifically for salary workers in the formal sector. The piece explains the main deductions, reliefs, and strategies they can use to keep more of their salaries within the boundary of the law. Whether you earn GHS 2,000 or GHS 40,000 a month, these strategies apply to you.

Section 2(1) of the Income Tax Act, 2015 (896) clearly states that “The chargeable income of a person for a year of assessment is the total of the assessable income of that person for the year from each employment, business or investment less the total amount of deduction allowed that person under this Act.”

The emphasis here is, “less the total amount of deduction allowed”. The law itself permits you to reduce your taxable income. But are you aware of this and are you taking full advantage of every allowable deduction?

Understanding How You Are Currently Taxed UNDER PAYE

Before looking at ways to reduce your tax bill, let us clarify how PAYE works in Ghana. The country applies to a progressive income tax system. This means that the more you earn, the higher amount of Tax you pay. There is a tax bracket for every amount you earn, when you earn more, you fall in a different tax bracket. The deductions are automatically done by the Accountant and paid to GRA on your behalf mostly on or before the 15th of every month.

The table below details the monthly income tax bands and rates generally applicable to the chargeable income of resident individuals and this can be found currently on the GRA portal:

Source: Ghana Revenue Authority (GRA), effective January 2024.

You will notice that only part of your income within each band is taxed at that band’s rate. As your income increases, more of it is taxed at higher rates, so you end up paying more overall. That is why the deductions in this article are much more valuable for high earners than for people earning minimum wage.

Before your PAYE is calculated, your employer must deduct 5.5% of your basic salary for your SSNIT contribution. What’s left is your taxable income, which is the amount you will use for all the tax-saving strategies explained below.

CONTRIBUTING TOWARDS Tier 3 Provident Fund

If you are an employee in Ghana and you are taking monthly salary, and you are not contributing towards the Tier 3 provident fund, then you are paying more tax to the government than the law requires. This is one of the most powerful yet underutilized tax-saving tool available to salary workers.

Ghana’s Three-Tier Pension System

The National Pensions Act, 2008 (Act 766) established Ghana’s three-tier contributory pension system:

• Tier 1 — Mandatory Basic National Social Security, managed by SSNIT. The combined employer (13%) and employee (5.5%) contribution of 18.5% is split, with 5% going to Tier 2 and the remainder funding Tier 1 and the National Health Insurance.
• Tier 2 — Mandatory Occupational Pension Scheme, managed by licensed private Corporate Trustees under the supervision of the National Pensions Regulatory Authority (NPRA).
• Tier 3 — Voluntary Provident Fund and Personal Pension Scheme, also managed by licensed private Corporate Trustees. Open to both formal and informal sector workers.

Tiers 1 and 2 are automatically managed by your employer, Tier 3 is entirely voluntary, and that is where you unlock a lot of tax benefits.

The Law Behind the Tax Benefit

Section 112(2) of the National Pensions Act, 2008 (Act 766) states that contributions not exceeding 16.5% of a contributor’s monthly income, made by either the contributor, the contributor’s employer, or both, shall be treated as deductible income for purposes of income tax. This means that up to 16.5% of your monthly salary can be channeled into a Tier 3 scheme and will not be taxed under PAYE.

The GRA’s own PAYE guidance confirms that provident fund contributions up to 16.5% of basic salary whether paid by the employer, the employee, or shared between both are deducted from salary before calculating PAYE.

What Are the Tax Implications When You Withdraw Your Contribution/Savings?

Section 112(5) of Act 766 and Regulation 25 of the Income Tax Regulations, 2016 (L.I. 2244) provide the rules governing withdrawals:

• Withdrawal after 10 years of continuous contribution: The total amount is Tax free. There are no PAYE deductions and no withholding tax. You receive the full accumulated amount, including investment returns, without any deduction.
• Withdrawal before 10 years: Subject to a flat 15% final withholding tax on the amount withdrawn. This is still significantly lower than the PAYE rates that would have applied had you simply taken the money as salary.

A Practical Illustration of How You Can Save By Contributing Towards Tier 3

Let us compare two employees both earning GHS10,000 per month. Employee A does not contribute towards Tier 3. Employee B contributes the maximum 16.5% (GHS 1,650) to a Tier 3 scheme.

Employee B saves GHS412.5 every month and GHS 4,950.00 per year. This is done by diverting money that would have gone to the GRA into a Tier 3 account. This amount would have benefited GRA directly. Another advantage for contributing towards Tier 3 is that these savings continue to grow through investment returns.

You Earn Investment Returns by Contributing Towards Tier 3

Beyond the immediate tax saving, Tier 3 funds are invested by licensed fund managers. Ghanaian provident funds have historically delivered annual returns between 10% and 20%, compounding over time. This means not only are you keeping money that would have gone to taxes, but that money is also growing year on year, creating a significant retirement nest egg.

Consider this: if Employee B saves GHS 1,650 per month at a conservative 12% annual return, over 10 years they would accumulate over GHS 380,000 and it is entirely tax-free upon withdrawal after the 10-year mark. No PAYE deducted. No withholding tax applied. Full benefit to the contributor.

How to Start Your Tier 3 Contribution

Starting a Tier 3 contribution is straightforward. You have two options:

• Through your employer: Request that your employer set up or connect you to a registered Tier 3 provident fund scheme. Your employer can also contribute on your behalf (or share the contribution), and their portion is equally tax-deductible for them.
• Independently through a licensed trustee: You can approach any Corporate Trustee licensed by the National Pensions Regulatory Authority (NPRA) such as GLICO Pensions, Enterprise Trustees, NBC Ghana Trust, among others. You can enroll personally. Your contributions will be deducted and remitted on your behalf.

If you are in a job interview or renegotiating your package, this is the right time to ask your employer to include a Tier 3 contribution as part of your total remuneration. It costs the employer little extra (since it is also deductible for them) but puts significantly more money in your pocket.

Other Pre-PAYE Deductions You May Be Missing

Mortgage Interest Deduction

If you are paying a mortgage on your principal private residence, the interest component of that mortgage is fully deductible from your taxable income before PAYE is applied. This relief, confirmed by the GRA, is available for one residential property in your lifetime so it is not repeatable, but for those paying a mortgage, it can result in very substantial monthly tax savings depending on the interest amount.

To claim this deduction, you or your employer must file the relevant details with the GRA. The deduction applies to qualifying mortgage interest paid in the year of assessment. Most homeowners with mortgages do not claim this deduction because their employer simply does not know about it. Bring this to your HR department’s attention. It is the employer’s legal obligation to apply it once you declare it.

Personal Tax Reliefs Granted by the GRA

Beyond pre-PAYE deductions, the GRA also grants personal tax relief that reduce your tax liability directly. These are not deductions from your taxable income, they reduce the amount of tax owed after the PAYE bands have been applied. Common reliefs include:

• Marriage/Responsibility Relief: Available to married individuals or those responsible for two or more children. This can reduce your annual tax liability.
• Child Education Relief: GHS 600 per child per year for up to three children attending a recognized educational institution. Only one parent may claim per child.
• Training/Self-Education Relief: An annual deduction of GHS 2,000 if you undergo formal training to update your professional, technical, or vocational skills.
• Old Age Relief: GHS 1,500 per year for individuals aged 60 and above who still earn taxable income.
• Disability Relief: 25% of assessable employment income for individuals certified as disabled by a recognized medical authority.
• Dependent Relative Relief: For individuals who care for a relative aged 60 or above, covering up to two dependents.

These reliefs are not automatic. You must apply for them using the Tax Relief Application Form, which can be submitted by you or your employer to the GRA’s Commissioner-General. Many Ghanaian workers never apply and as a result, they leave money on the table every year.

The Smart Employee’s Monthly Tax Strategy

Let us now put all of this together with a realistic example. Consider an employee earning GHS 5,000 per month in basic salary with two children in school and an active mortgage.

Compare this to the same employee who takes none of these deductions: their PAYE on GHS 4,725 (after SSNIT only) would be GHS 792.25, leaving a take-home of GHS 3,932.75 but they would have contributed nothing to their long-term wealth. With the Tier 3 strategy, the employee takes home slightly less in cash but is channeling GHS 825 monthly into a tax-sheltered, interest-bearing investment account that will be worth hundreds of thousands of cedis over time.

Negotiating Tier 3 at Your Workplace

One aspect of this conversation that is rarely discussed is the power of employees to negotiate Tier 3 contributions into their employment terms. Under Ghanaian law, there is nothing stopping an employer and employee from agreeing that a portion of the total remuneration package will be structured as a Tier 3 contribution rather than direct salary.

For the employer, this is advantageous because employer contributions to a registered provident fund scheme are also tax-deductible under Section 112(1) of Act 766, which states that such contributions shall be treated as part of the deductible income for the employer. In other words, the employer pays less corporate tax too.

Practical steps for employees:

• During salary negotiations, propose that part of any raise be structured as a Tier 3 contribution rather than a direct salary increase. This is legal, beneficial to both parties, and widely practised in the private sector.
• If your employer has no existing Tier 3 scheme, request that they register with a licensed Corporate Trustee. This is a straightforward administrative process and takes relatively little time.
• If your employer refuses or is unable to provide Tier 3 access, you can join a personal pension scheme directly through any NPRA-licensed trustee, entirely independently of your employer.

Common Misconceptions About Tax Planning in Ghana

“This is Tax Evasion”

Absolutely not. Tax evasion is the illegal non-payment or underpayment of tax through concealment, deception, or fraud. What this article describes is tax avoidance. The completely legal reduction of taxable income through mechanisms expressly provided for in Ghanaian legislation. The law itself grants you these tools. Using them is not just legal but it is financially prudent.

“My Employer Handles Everything — I Don’t Need to Do Anything”

Your employer automatically deducts SSNIT and calculates PAYE. But unless you proactively inform your employer and the GRA of your additional deductions, such as a personal Tier 3 contribution, a mortgage, or eligible tax reliefs — they will not be applied. Your employer can only act on information you provide. Many workers overpay PAYE for years simply because they never submitted a Tax Relief Application Form.

“I Don’t Earn Enough for This to Matter”

This is a widespread misconception. Even an employee earning GHS 3,000 per month can save GHS 2,000–4,000 per year simply by contributing 16.5% of their salary to a Tier 3 scheme. At lower incomes, every cedi matters and the compound interest effect over 10–20 years creates wealth that would otherwise simply never have existed.

Conclusion: The Law Is on Your Side, Use It

The Ghanaian tax code, despite its complexity, contains a coherent and generous set of provisions designed to encourage long-term savings, home ownership, and financial responsibility. Section 2(1) of Act 896 tells you that your chargeable income can be reduced by every deduction the law allows. The question is whether you are claiming all of those deductions.

To summarise the key actions every salary worker should take immediately:

• Enrol in a Tier 3 provident fund scheme either through your employer or directly with an NPRA-licensed trustee and contribute up to 16.5% of your basic salary.
• If you have a mortgage, declare your interest payments to your employer and the GRA so the deduction is applied before your PAYE is computed.
• File your Tax Relief Application Form with the GRA to claim all personal reliefs you are entitled to for marriage, children’s education, self-training, and any other applicable categories.
• Negotiate Tier 3 contributions as part of your compensation package at your next review or job change.
• Review your approach annually, as the GRA updates tax bands and relief amounts regularly.

The most expensive financial mistake a salary worker can make is paying more tax than the law requires. The tools to pay less are already in the law. They simply require knowledge and action.

About The Author

Lord Logo Stephen is the author of Landing Your First Job in Ghana. He is a Chartered Accountant, Chartered Tax Practitioner, and Assistant Audit Manager, and is currently pursuing a law degree at the University of Ghana, Legon.
LinkedIn: linkedin.com/in/stephenlogo | Email: stephenlogo1@gmail.com | Tel: +233 24 228 6867