OVER the past few days, some people have questioned why churches’ income, basically in the form of offerings and tithes, are not subjected to tax and the main reasons are the fact that some churches own a lot of properties and their pastors live in a way that raises eyebrows.
They own very expensive vehicles and properties and that prompts people to question why churches’ income and that of their pastors are not subjected to tax.
Section 7 (1) of the Income Tax Act,2015, Act 896 talks about exempt amounts and it includes Section 7 (1) a. which stipulates that “the salary, allowances, facilities, pension and gratuity of the President in accordance with Article 68 (5) of the Constitution “. Exempt amounts include pension, the income from cocoa of a cocoa farmer, a cost of living allowance, other than training allowance paid in place of salary for services rendered abroad by members of the Ministry of Foreign Affairs, and officers attached to official Ghanaian diplomatic or consular missions abroad. This implies that the incomes mentioned above are exempt from tax.
Section 3 (1) mentions that “the assessable income of a person for each year of assessment is the income of that person from any employment, business, or investment” and so only incomes from employment, business, and investment are subject to tax.
Section 97 (1) stipulates that “The Commissioner – General may approve an entity as a charitable organization for the purposes of this Act” and Section 97 (2) stipulates that “The Commissioner – General shall before approving an entity under subsection (1) ensure that, (a) the entity is established to operate as (i)a charitable institution which is of a public nature” and (ii)” a religious institution which is of a public character”. The implication is that once a religious institution is of a public character, it is deemed to have received approval from the Commissioner – General to operate as a charitable organization for the purposes of this Act and Section 97 (4) states that “the income accruing to or derived by a charitable organization is exempt from tax”.
In the case of churches, they fall under charitable organizations and so we need to delve more into what constitute incomes that are taxable with regard to churches. Incomes of churches are from tithes and offerings and so strictly speaking, they are exempt from tax. If the Commissioner – General or people think that these incomes must be subject to tax, the Commissioner- General may, for good cause, or for contravention of a requirement specified in subsection (2), revoke an approval granted under subsection (1).Until this is done, the tithes and offerings of churches shall remain tax exempt.
Churches employ workers and their pastors receive salaries for which taxes are to be withheld and paid to Ghana Revenue Authority (GRA). In addition, some churches engage the services of other persons to provide services including security, repairs, cleaning, etc and taxes are to be withheld when payments are made to these persons. It is the responsibility of tax officials to ensure that the relevant taxes are withheld and paid to GRA.
Taxable Incomes of Churches
When a church invests in any activity including printing of religious materials, making of arm bands, transport services, T shirts etc, it has to declare the profits, if any, to the tax authorities and pay the relevant taxes to GRA. This is because the expenditure that goes into the production of the income relating to these activities may lead to losses being incurred and for that matter, the chargeable income may be nil or zero.
In addition, if a church uses the tithes and offerings to buy shares in a business and disposes of them for profit, they have to declare it and pay the relevant taxes. Also, if the church places some of its monies from tithes and offerings in fixed deposits with financial institutions, it should pay tax on the interest that it earns.
Churches have to file their returns in view of the fact that they may engage in other income- generating activities that lead to profits being gotten and therefore taxable. They do not fall under persons that are not required to file their returns in accordance with Section 125 of Act 896. This section mentions that a return of income is not required for a resident individual who has no tax payable for the year under Section 1 (1) a or whose tax payable relates to only employment which has been subjected to withholding tax .
Some pastors receive various gifts including cars and houses and these are taxable because they go to them personally. Others do private consultancy and charge various amounts of money and all these are taxable because under Act 896, it constitutes business.
Churches’ incomes being subjected to tax has become a topical issue because of “one-man churches “where the entire offerings and tithes go directly to the pastor who happens to be the founder. In the case of orthodox churches there are structures that have been put in place which makes it difficult for the pastor to dip his hands into the coffers. These churches support the communities in which they operate in various ways including drilling boreholes and even set up scholarship schemes to support wards of their members and the community at large. Some even establish schools to support government’s effort and these schools employ teachers and other non-teaching staff for which taxes are withheld from their salaries and paid to GRA.
If as a nation, we think that churches’ incomes in the form of tithes and offerings must be subjected to tax, then the Commissioner – General must revoke his approval of religious institutions of public character being considered charitable organizations but it will be a difficult thing to do because it will contravene the law.
Firstly, the Commissioner – General should ensure that churches file their returns and conduct audits into their activities. This will enable him to make a fair assessment and collect the relevant taxes due the state.
Secondly, the pastors of churches must file their returns because they have other sources of income apart from employment. The lifestyles of some of them are enough for tax officials to assess them because they have the power to do so. A tax official must act based on information which can easily be gotten an audit or other sources including interviews.
To conclude, the Commissioner – General must ensure that churches disclose their sources of income in their returns so that a proper assessment can be made.
The writer is a Tax Consultant
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