Exploring the Angelic blessings within the triangular tax system

…A Tax Planning Perspective

By Fred Kwasi Anokye, Ph.D

A former U.S. Supreme Court Justice, Oliver Wendell Holmes Jr, profoundly made a quote that: “Tax is the price we pay for living in a civilized society.” This statement underscores the importance of taxes in the developmental strides of every country. The architecture for taxation in every country has three (3) main interrelated components, which form what I call the “Triangular Tax System.”

The triangular tax system comprises tax policy (which sets government’s objectives and approach to taxation), tax laws (which provide the rules to achieve the objectives) and tax administration (which ensures these rules are applied and enforced in practice). Every tax system is therefore crafted in a manner that makes the payment of taxes compulsory, making tax evasion punishable by law.

Paying your taxes as an individual is not something that is fanciful; in fact, it is actually painful. To this end, taxpayers are often advised to pay just the right amount of tax, but no more. This position has been espoused in a landmark case of Inland Revenue Commissioners Vs. Duke of Westminster (1936) A.C. 1, where the Judge, Lord Tomlin, stated that: “Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be.” It is therefore expedient and beneficial for individuals to plan their tax affairs effectively in order to minimize their tax liabilities.

tax planning opportunities for individuals in Ghana

Tax planning is the effective and legitimate way of finding loopholes in the tax system to pay the lowest possible tax or no tax at all. An individual should have a firm grasp of the various tax incentives that exist in our tax laws to enable effective tax planning.

There are a good number of tax planning opportunities that individuals can take advantage of to minimize their tax liabilities. These tax planning opportunities include mortgage interest tax concession, the deductibility of pension contributions & donations as well as personal tax reliefs. These would be discussed in three (3) separate articles. The first article features mortgage interest tax concession, the second would be on pension contributions & donations, and the third on personal tax reliefs.

Mortgage interest tax concession

This is one of the tax provisions that aims to incentivize individuals to have their own residential houses in Ghana, with the consequential effect of bridging Ghana’s housing deficit. Ghana’s housing deficit is estimated to be more than 1.8 million housing units (UN-HABITAT, 2024). With increased population growth and urbanization, it is important for government to bridge this gap.

Government has made a concerted effort through tax as a fiscal tool to encourage mortgage financing of residential houses. The Income Tax Act, 2015 (Act 896) as amended provides for the deductibility of mortgage interest. This article therefore sheds light on the tax advantage of financing your residential house through a mortgage.

Mortgage interest means interest incurred by an individual in respect of a borrowing employed in constructing or acquiring the individual’s only place of residence (Paragragh 4(5) of the Sixth Schedule of Act 896). The law allows for mortgage interest to be deducted when determining an individual’s income from employment, business or investment, thereby lessening the tax burden (Paragragh 4(3) of the Sixth Schedule of Act 896).

It is instructive to note that unless stipulated in a double taxation agreement, mortgage interest deduction is not available to non-resident individuals (Regulation 2 of L.I. 2244). Resident individuals are allowed to claim a deduction for mortgage interest on a monthly basis (see Kwasi Nyantakyi Owiredu Vs. Commissioner-General, Ghana Revenue Authority, 2019) when certain conditions have been met.

Conditions for claiming mortgage interest deduction

Per Paragragh 4(4) of the Sixth Schedule of Act 896 and GRA’s Practice Note on Mortgage Interest Deduction, the following conditions should be met to guarantee the deductibility of this tax concession. They are:

1. The property must be a residential property located in Ghana and acquired in the name of the applicant.
2. An individual can deduct mortgage interest in respect of only one residential premises during the lifetime of that individual.
3. The mortgage must be secured from a recognized resident financial institution as defined in Act 896, an employer or a registered lender.
4. The mortgage must be denominated in Ghana Cedis. Any interest in another currency shall be converted to Ghana Cedis at the Bank of Ghana interbank exchange rate used on the date the amount is to be considered.
5. To qualify for a deduction, the individual must prove that the interest on the mortgage has been paid.
6. For a self-employed individual, the deduction should be considered when filing the statement of estimated tax payable and/or the annual tax returns.
7. Where the property is used for both residential and commercial purposes, the mortgage interest deduction would be apportioned and granted accordingly.
8. An individual cannot claim this deduction if the property is disposed of before the end of the mortgage period.

Procedures for claiming the mortgage interest deduction

In accordance with GRA’s Practice Note on Mortgage Interest Deduction, the following procedures must be observed.

1. An individual must write formally to notify the Commissioner-General of GRA once the mortgage is secured.
2. An employee must provide the relevant documents relating to the mortgage to his/her employer.
3. For a self-employed individual or an employee whose employer is not required by the tax laws to withhold tax, the relevant documents on the mortgage should be submitted to the Commissioner-General of GRA.
4. An employer shall formally write to notify the Commissioner-General of GRA about employees who have applied for the mortgage interest deduction.
5. An employer who has duly deducted mortgage interest from an employee’s income shall keep all documentary proof of the mortgage and the deductions in accordance with the Revenue Administration Act, 2016 (Act 915).

Conclusion

I conclude by reiterating a quote by Benjamin Franklin, an American Stateman, who opined that: “In this world, nothing is certain except death and taxes.” This goes to emphasize that by hook or by crook, taxes would be levied and collected compulsorily by government. In view of this, I would advise individuals that instead of viewing taxes as ‘demons’ tormenting and thwarting their financial progress, they should rather explore the ‘angelic blessings’ within the tax system to minimize their tax liabilities. Anticipate part 2 which will discuss tax deductions in respect of pension contributions and donations.

REFERENCES

• Income Tax Act, 2015 (Act 896) as amended
• Income Tax Regulations, 2016 (L.I. 2244).
• GRA Practice Note on Mortgage Interest Loan Deduction under the Income Tax Act, 2015 (Act 896).
• Kwasi Nyantakyi Owiredu Vs. Commissioner-General, Ghana Revenue Authority, 2019, CM/TAX/0142/2019.
• UN-HABITAT (2024). Ghana housing profile. Available at: https://unhabitat.org/sites/default/files/2025/02/ghana_housing_profile_final_version.pdf

 

The writer is an Academic, an Accounting and Tax Professional with considerable experience in Lecturing, Research and Tax administration. He is a Chartered Accountant, a Chartered Tax Practitioner and an Adjunct Lecturer at the University of Ghana Business School.

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