The Law Behind the Hustle: Personal Income Tax and the Sole Proprietor

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Let’s talk about the business structure most people in Ghana start with: the sole proprietorship.  The way the sole proprietor is  taxed is totally different from how  someone who runs  a limited liability company is taxed.

Let’s refresh our memories. Shall we?  What Exactly is a Sole Proprietor?

Simple. A sole proprietor is you, running a business in your own name, without creating a separate legal entity. There’s no difference between you and the business. What the business earns is considered your personal income.

This means you don’t pay “company tax.” Instead, you pay personal income tax, just like someone working a regular job. But instead of being taxed on a salary, you’re taxed on your business profit.

Now, What is Personal Income Tax?

Personal Income Tax (PIT) is the tax you pay on any income you personally earn. Whether it comes from employment, rent, investments or your own business. For sole proprietors, it’s your business profits that are taxed.

Ghana uses a graduated system, which means:

I)               The more you earn, the higher your tax rate.

II)            It starts from 0% and goes up to 35% for residents for tax purposes .

III)          If you’re not a resident for tax purposes , your income is taxed at a flat rate of 25%.

Here’s What It Looks Like in Practice:

Let’s say Ama runs a small smoothie business. After expenses, she makes GHS 45,000 profit in a year. She doesn’t pay corporate tax. She simply calculates her personal income tax based on that amount, using Ghana’s tax bands. It’s her income. So it’s her tax responsibility.

As a Sole Proprietor, You Must:

• Keep records of your income and expenses

• Register with the Ghana Revenue Authority (GRA)

• File a personal income tax return even if you don’t make a lot

• Know that your business and personal income are one and the same

Why Does This Matter?

Because most MSMEs in Ghana fall under this category and many are operating without knowing how taxes really work. And when tax time comes, it’s not “I didn’t know” that saves you. It’s good records and the right structure.

This isn’t about fear. It’s about freedom through understanding. When you know what’s expected, you plan better, you grow smarter and you avoid unnecessary drama with the GRA.

What’s Next in The MSME Series?

We’ll be looking at Modified Taxation, a simpler tax system designed for small businesses like yours. If your business is still growing and you’re tired of complex tax rules, this next episode will open your eyes.

Until then, remember:

If the business is yours, the income is yours. And so is the tax responsibility.

www.tweneboahkoduahlegal.com

https://linktr.ee/lawyerTKay 

  


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