With effect from January 2006, there will be no more personal income tax on minimum wage, Finance Minister, Mr Kwadwo Baah-Wiredu announced.
The move to abolish personal income tax on minimum wage is in line with government's objective of increasing disposable incomes of workers.
Specifically, the proposal is aimed at relieving low-income earners of their tax burden through the introduction of a special income tax regime.
The measures are part of tax relief being proposed by government to lessen the plight of low-income earners.
Mr Baah-Wiredu explained that taxes to be paid by those whose incomes were marginally above the minimum wage should be capped at levels, which would ensure that they earn disposable incomes above the minimum wage.
The following tax bands would apply for all other income earners with the minimum tax-free threshold going up from ¢1.8 million to ¢2.4 million. This means that everybody's income of ¢2.4 million shall be tax-free.
The next ¢1.8 million has been raised to ¢2.4 million, and will attract a 5 per cent tax rate.
The next ¢4.8 million has been raised to ¢12.0 million, and will attract a tax rate of 10 per cent in 2006.
The next two bands of ¢27.6 million and ¢36.0 million have been combined and raised to a single band of ¢79.2 million, and will attract a tax rate of 17.5 per cent in 2006.
The Minister said incomes in excess of ¢96.0 million will attract a marginal rate of 25 per cent down from 28 per cent, in 2006.
The total amount of relief in line with this tax policy will amount to ¢ 293 billion.
Mr Baah-Wiredu also announced reduction in overtime earnings, which it said was done in consultation with organised labour.
Consequently the qualifying annual employment income has been raised four-fold from 2,400 currency points to 9,600 currency points.
The first ¢1.2 million will attract a tax of 2.5 per cent, between ¢1.2 million - ¢4.0 million - 10.0 per cent, while Overtime earnings in excess of ¢4.0 million will be added to the beneficiary's income and taxed at the prevailing personal income tax rates.
The Minister said, however, that there would be no concessionary rates for those who earned above ¢8.0 million.