Putting a Price on Perks: How In-Kind Benefits Are Taxed

Employee benefits aren’t always about money in the bank. From company cars to housing allowances, many perks come in non-cash form—but that doesn’t mean they’re tax-free. While cash benefits are straightforward to value, in-kind benefits must be quantified—usually at fair market value—unless specific rules apply.

This article breaks down the most common taxable in-kind benefits, how they’re valued, and what employers need to know to stay compliant.

Taxation of Benefits in Kind

Benefits in kind are generally subject to income tax, except in cases where they are explicitly exempt under the 4th Schedule of the Income Tax Act, 2015 (Act 896). These benefits are added to an employee's monthly chargeable income and taxed as a percentage of their total taxable emoluments.

Examples of benefits in kind that are taxable, evaluated at market rates, include:

• Employer-funded education for the employee’s children
• Free or discounted goods or services provided to the employee
• Provision of domestic staff or personal security
• Employer payment of the employee’s personal income tax
• Employer-settled utility expenses

 

Classified Benefits in Kind under Act 896

The Income Tax Act, 2015 (Act 896) identifies three main categories of in-kind benefits for taxation:

1. Accommodation Benefits
2. Motor Vehicle Benefits
3. Loan Benefits

Accommodation Benefits

When an employer provides residential accommodation for an employee during the assessment year, the taxable value is determined as a percentage of the employee's total cash emoluments:

 

Note: Accommodation provided by employers in sectors such as timber, mining, construction, agriculture, or petroleum, especially when located near remote or hazardous work sites, is exempt from tax if necessary for the employee's health or safety.

 

Motor Vehicle Benefits

When an employer provides a motor vehicle for an employee’s use, the taxable benefit is calculated based on the following rates:

 

Loan Benefits

Loans provided by an employer to an employee are exempt from tax if they meet all the following conditions:

• The loan term does not exceed 12 months
• The loan amount does not exceed three months’ basic salary

For loans that do not meet these criteria, a taxable benefit arises. This is calculated as 25% of the difference between the statutory interest rate set by the Bank of Ghana and the actual interest paid by the employee.

In summary, the taxation of benefits plays a crucial role in ensuring fairness, transparency, and compliance within any tax system. While benefits provide additional value to employees beyond regular salaries, both employers and employees must understand the tax implications attached to them. Ultimately, clear tax policies on benefits create a balanced environment where governments can generate revenue, businesses can remain compliant, and employees can enjoy their entitlements responsibly.