Taxing the church in Ghana is a very delicate issue for some reasons. Money deemed to belong to God must not be taxed or given to government. To be honest many of us will be happy giving out our monies to the Church than to the government. Tax collectors were seen in the biblical times as sinners and oppressors who took more than what they were entitled to. For that matter it’s difficult for the tax man to implement the tax laws to the latter and collect taxes which the churches owe the government. Running a church is a multi-million cedi’s empire in Ghana and is evident by the lifestyle of some of these men of God. Extravagant lifestyles and the ability to outdo a church with material things makes the issue rather interesting. Most of the times it’s very difficult to draw a line between the church and the pastor. Offerings are shared right after the close of service and in most cases no proper records are kept for the income that is received in their ministry. The mega churches who form the minority of those who do have the right administrative and financial structures in place like the International Central Gospel church, The church of Pentecost, The Christian Action Faith, The Catholic, Presbyterian Church, Methodist Church of Ghana, The Apostolic church, Light House Chapel, Perez Chapel and their likes closely guard against misappropriation of the incomes for personal use.
When Jesus and his disciples arrived in Capernaum, the collectors of the two-drachma temple tax came to Peter and asked, the tax status of Jesus’ Ministry. Yes, they replied. Later at the house, Jesus asked them “What do you think, Simon?” he asked. “From whom do the kings of the earth collect duty and taxes—from their own children or from others,” Peter answered. Then the children are exempt,” Jesus said to him. But so that we may not cause offense, go to the lake and throw out your line. Take the first fish you catch; open its mouth and you will find a four-drachma coin. Take it and give it to them for my tax and yours. In other words Jesus was telling them that income derived from his normal soul winning activity is tax exempt but all income derived from their non- core activity must be taxed like the fishing expedition.
Mode of Operation
Churches are registered in Ghana as a charitable faith based organizations. They are actually limited by guarantee. Examples of other charitable organization are the Schools, Non-Governmental Organizations, etc. These categories of business are exempted from the paying of income taxes on their core operations.
Section 10 of the companies’ code, Act 179, 1963 make available useful insight to their operations as
(1) A company limited by guarantee may not lawfully be incorporated with the object of carrying on business for the purpose of making profits.
(2) If any company limited by guarantee shall carry on business for the purpose of making profits, all officers and members thereof who shall be cognizant of the fact that it is so carrying on business shall be jointly and severally liable for the payment and discharge of all the debts and liabilities of the company incurred in carrying on such business, and the company and every such officer and member shall be liable to a fine not exceeding five pounds for every day during which it shall carry on such business.
One of the core activities of the church is the kingdom business i.e. to win souls and expand their Christianity which makes the churches an NGO. This means that income generated from its core activities is tax exempt as stipulated in the Internal Revenue Act, Section 10(1) d of Act 592, 1963 as amended on exempt income. One of the categories of income exempted from taxes are ‘income accruing to or derived by an exempt organization other than income from any business. Section 94 of Act 592 as amended defined an exempt organization as anyone who or that is and functions as a religious, charitable, or educational institution of a public character. This means that in principle, churches are tax exempt on incomes accruing to or derived in Ghana except income from other business.
Sources of Churches income
The church has three main sources of income. A primary source of income i.e. income from its core operation been the tithes, offerings and special offerings on special days like annual harvest, major and minor offerings and donations. This is what is exempt in the Internal Revenue Act, Act 592 as amended.
Another source of income is secondary in nature. It ranges from the sales of both tangibles and non-tangibles to their members and the community. Examples are:
- Consultation fee: This fee is paid before a pastor listens to the problems of his member. This ranges from a minimum of GHS 50.00 to excess of GHS 2,000 depending on the type of church and the nature of your problem.
- Sale of paraphernalia like handkerchiefs, production of compact disc, DVD’s of a sermon or a service, holy water, candle, anointing oil, calendars, sticker, pens, Diaries, porridge, vegetables etc.
- Hiring of facility: Some churches rent out their facilities to entities who want to use them for their events like music events, wedding ceremony etc. other assets rented out are stage, sound systems, Lighting systems, Vehicles etc. I know of a church who recently rented out its premises to an NGO to organize its annual musical concert for GHS 20,000. Churches who for example have an audio-visual department charge commercial rate for those who want to use their services for their wedding in the same church.
The third sources i.e. tertiary source of income generated by the church is the income from its investments and affiliate institutions. Most churches run other business like book shops, schools, canteens, radio and television stations where paid adverts are run and everything is commercialized. These entities though not directly related to the church by their mode of registration reports on profits and losses to the mother church. A lot of related party transactions take place and will not be surprising if money laundering and tax evasion issues occur there.
One agrees with me that both the secondary and the tertiary sources of income do not form a core source of their income. The motive of having these streams of business running alongside the ministry work is for profit intent and therefore need to be taxed. They have departed from their core mandate of been a company limited by guarantee and not-for-profit for that matter to a multi-million Ghana cedis money venturing enterprise
Withholding Taxes
The concept of withholding taxes is simple. It is also referred to as payment of taxes on instalment as captured in Section 80-84 of Act 592, 2000 as amended of the Internal Revenue Act. An entity is required by the Law as a tax collecting agent of the Ghana Revenue Authority to deduct an amount equivalent to between 5% – 25% depending on the nature of the transaction either from the supply of goods or the provision of services. The church as an agent of the Ghana Revenue Authority is mandated to collect but not limited to:
- Rental of Premises- most churches pay rent to landlords for the use of their property either for church service or for the private residency of the pastor. Withholding taxes should be deducted but this is not done.
- Purchase of Assets- churches make huge expenditure on the acquisition of musical instruments, clocks, printer, CCTV, projectors etc. these items attract a 5% withholding tax. Church buildings are built and dedicated year after year but withholding taxes on these transactions is never deducted and paid. This will be difficult in Ghana since we have to distinguish between items donated by members and those bought by the church. But proper record keeping and availability of adequate information will be necessary.
- General Administrative expenses- these range from Honoraria, Allowances for guest preachers and ministers. Various expenses they incur during events like publicity, stationery, adverts, meeting and catering expenses should all be included in items to be deducted.
- PAYE- Pay-as-you-Earn. This withholding taxes is deducted from the gross salary of an employee and paid to the Ghana Revenue Authority. Section 94 of the internal Revenue Act as amended defines “employment” to mean:
(a) the position of an individual in the employment of another person;
(b) the holding of or acting in any office or a position entitling the holder to a fixed or
ascertainable remuneration other than an office or position as director of a company or
manager of a body of persons;
Men of God are called by God but paid by the church. The church takes care of their welfare and pays all their salaries and allowances and other provisions which in a way or the other, amount to some kind of collateral benefit. Other charismatic churches have lay preachers, or Tent Ministers who are allowed to work in their secular profession and still do the work of God. Lay pastors also draw allowance from the church.
Section 8 of Act 592, 2000 as amended explains that “A person’s income from an employment is that person’s gains or profits from that employment. The gains or profits from an employment of a person include any allowances or benefits paid in cash or given in kind to, or on behalf of, that person from that employment, other than:
(a) a reimbursement or discharge of a person’s dental, medical, or health insurance
expenses where the benefit is available to all full-time employees on equal terms;
(b) a passage to or from Ghana in respect of that person’s appointment or termination of
employment where that person:
(i) is recruited or engaged outside Ghana;
(ii) is in Ghana solely for the purpose of serving the employer”
I believe that unless a distinction is made between a “man of God” and the church – and here am referring to these one-man churches -, tax evasion is inexorable. Let’s look at the personal allowances that they enjoy.
- Founders Appreciation Day– this is a special offering set aside for the founder. It’s normally once in a year but can vary from church to church. Special appeal is made to the members and targets set for each member to meet. Amount earned can range from GHS 500 to in excess of GHS 100,000 depending on the size and the nature of the church.
- Pastors’ thanksgiving offering: here am referring to a situation where a member is healed by a man-of-God and the member decides to give him an offering. These offerings do not go to the church accounts but to the personal account of the men-of-God. It ranges from cash to capital items like mobile phones, cars, telephone credits, fuel coupons. Some classify them as gift and as such the gift tax rule be applied. But where they are considered as collateral benefits, this should be added to their salaries and tax PAYE appropriately.
- Transfer of Station or parish Appreciation – Most churches periodically transfer their pastors from one parish to the other. These transfers come with a special package in the form of gift, offering for that man of God and his family. Since the church has control over such appreciative items, they must ensure that the amounts are declared and taxes paid accordingly either as a gift tax, PAYE or honorarium.
- Collateral Benefits– any benefit conferred by an entity directly or indirectly on an eligible person, in any capacity, in respect of: the use or transfer of property, money or rights of the entity or the creation or destruction of property or the creation or release of rights or obligations, or the provision of services, is treated as income of the person. Any consideration provided for is less to arrive at the gross to be taxed. An eligible person includes a partner of a partnership, a director or shareholder of a company, a manager or beneficiary of a body of persons and an associate of those persons.
Examples of benefits a church worker can enjoy are free rent, payment of school fees for the children and himself, filling of gas, groceries, throwing of birthday parties for the pastor’s and sponsoring the pastor’s children’s wedding ceremony, travel trips abroad for vacation etc. these benefits constitute collateral benefits and as such must be taxed.
Tax collection is not an easy work to do but I believe with a lot of education and training the message will sink down well and compliance will improve for the desired results. One means of achieving this is the registration of all churches and more especially those who do not belong to any fraternity like the Christian Council of Ghana, the Ghana Pentecostal Council etc. Identification of the tax payer is paramount to the collection of it. Where we are able to identify them, the tax education and the awareness will be efficient.
About the Writer. Peter A. Williams is a Tax consultant, a Chartered Accountant and Certified Business Process Outsourcing Master Trainer and an SME finance coach. He blogs on issues on Finance, Management, Fraud, risk, Tax and business process re-engineering. He currently works with Pentecost University College as a Deputy Account Manager and was part-time Lecture in Quantitative Methods and Advance Taxation. He consults for Gospelgh.com pro bono. He may be contacted via aklamationpet@gmail.com.
