Updated: Sep 19, 2020
By: Timore Francis
(Chartered Tax Consultant)
Interest and penalties are major tools in tax administration. In Ghana, penalties and interest are largely provided under the Revenue Administration Act, 2016 (Act 915).
1) Our tax obligations to the nation
Every person or citizen in Ghana who earns income has an obligation to declare his income honestly and pay the right taxes, and not just pay the correct taxes, he must pay it on due date to the state. Taxes are major sources of revenue to the state and without such revenue, state machineries such as the police service, hospitals, ministries and government agencies will not function as expected. Chapter 5 of the 1992 constitution of Ghana guarantees our fundamental human rights and freedoms as citizens of Ghana. But one cannot enjoy such fundamental rights and freedoms under the constitution if he fails to honour his tax obligations.
Article 41 (j) of the 1992 Constitution provides as follows:
“The exercise and enjoyment of rights and freedoms is inseparable from the performance of duties and obligations, and accordingly, it shall be the duty of every citizen – (j) to declare his income honestly to the appropriate and lawful agencies and to satisfy all tax obligations”
The determination of the tax payable by a person is effected through a procedure called tax assessment. The tax assessment begins with the submission of returns (documents and accounts etc.) of income to the Ghana Revenue Authority. The tax liability is then finally determined and any tax due the state must be paid. In most cases, the taxpayers’ submission of returns goes together with the payment of the required taxes due the state.
The procedure for assessment, submission of tax returns and the payment of the correct taxes in most cases are not smooth. Taxpayers will either not submit tax returns at all or those who submit returns will do so very late. In some cases, the correct taxes are not paid and even when they are paid, it is paid late. This behaviour of taxpayers affect the running of the state because the state is denied resources at the right time and at the correct tax amount. To prevent this attitude of taxpayers, tax laws are designed to include penalties, fines and imprisonment to ensure compliance with tax obligations as required by the Constitution.
The use of penalties and interest are major part of every tax administration. Without it, the general assumption is that, taxpayers will ordinarily not pay taxes at all, or they will delay the payment of taxes. Penalties, interest and fines are therefore important to ensure taxpayers comply with their tax obligation. Penalties and interest are built in mechanisms to ensure that, taxes are paid on time and the necessary documents and returns are submitted to the Ghana Revenue Authority on due dates. They are thus compliance tools.
2) Tax Administration in Ghana after 2016
Tax Administration in Ghana saw a face lift in 2016 when the Revenue Administration Act, 2016 (Act 915) was passed to consolidate the way tax administration is done in Ghana.
For some of the taxes, the GRA collect them through businesses who act as automatic agents when people register their businesses. For example, the GRA uses employers to collect PAYE, Withholding taxes and VAT. The tax laws require persons who have earned income from either employment, business or investment to pay taxes to the state. Returns are supposed to be submitted to the GRA showing the calculations of the taxes due, accompanied with payment of the tax amount due and if there is overpayment of tax, the GRA either refunds the overpaid taxes or set it off against future taxes. The GRA generally re-calculates the taxes to ensure that, they were calculated correctly by the taxpayer. There are instances where the taxpayer’s own calculation will differ from that of the GRA and this leads to disagreement.
Where a taxpayer disagrees with the GRA’s own calculations and assessment, the taxpayer can appeal against the GRA’s assessment, first to the Commissioner-General and if he is still not satisfied with the Commissioner General’s final decision, he can appeal to the High Court and even to the Supreme Court. But for such appeal to be entertained, the taxpayer must pay all outstanding taxed and most importantly, pay 30% of the tax in dispute. This 30% down payment is contained in section 42(5) of Act 915. The Commissioner General can however waive the requirement of the 30% down payment.
It is expected that, the 30% rule is exercised with care by the GRA since the abuse of the rule will make the dispute procedures in our tax laws very bias, leading to injustice.
The GRA has been given much powers under the Revenue Administration Act to impose interest and penalties for non-compliance with payment of taxes and filing of tax returns. The greater powers given to the GRA are justified because there is potential loss of revenue to the state if taxpayers are negligent in their tax obligations and so such penalties and interest are for the lost revenue. Usually, the penalties and interest are calculated as a percentage of the lost or additional revenue after correcting the error in the tax returns.
3) Penalties and fines under Ghana’s tax laws
Penalties are perhaps one of the most over relied upon tools for enhancing tax compliance in the tax administration system. It is effective because it has the ability to deter unwanted behaviour in tax compliance. But care must be taken when applying it. It should be applied only when the taxpayer is really at fault and has breached the tax laws. Some countries apply penalties only when there is negligent or unreasonable behaviour on the part of the taxpayer which resulted in under payment of taxes. For such countries, innocent errors do not attract penalties whiles deliberate actions attract severe penalties and fraudulent actions are criminalized in the tax laws.
Apart from the fact that penalties are able to deter unwanted behaviour in taxpayers, it can also be a good source of revenue to the GRA. In most cases the penalties imposed are more than the tax liability itself. Under Act 915, interest for underpayment of tax is calculated at 125% of the statutory rate, compounded monthly.
The Act imposes two categories of penalties
1. Offences which attracts pecuniary penalties: This type of offences are mainly administrative powers given to the Commissioner General to impose monetary fines as a result of failure to comply with the tax law. The pecuniary penalties are in addition to the original tax liability and they do not relief a person from criminal proceedings in court.
2. Offences which attracts imprisonments or both imprisonment and pecuniary penalties: The taxpayer can still be criminally prosecuted depending on the circumstances. This is in addition to the monetary fines and mostly imposed by the court.
The penalty regime in Ghana is predominately based on the degree of culpability of the taxpayer towards his tax obligations. The degree of culpability ranges from deliberate attempt to reduce tax liability to careless preparation of tax returns and records keeping. Taxpayers are therefore supposed to exercise care when calculating their taxes and filling tax returns.
The interest, fines and penalties in Ghana are mainly around:
1. Errors made in the tax returns or tax document
2. Failure to file tax returns on due dates
3. Failure to pay taxes on due dates and underpayment of taxes.
4. Failure to keep records of tax obligations
5. Unauthorised attempt to collect taxes
6. Aiding and abetting
7. Failure to comply with tax laws
8. Failure to register and pay Tax
9. Impeding tax administration and causing harm to a tax officer.
Section 70 to Section 85 of the Revenue Administration Act, 2016 provides the following penalties and offences in Ghana.
Section 70- Interest for under-estimating income tax payable
Section 71- Interest for failing to pay tax on due date
Section 72- Penalty for failing to maintain documents
Section 73- Penalty for failing to file tax returns
Section 74- Penalty for making false or misleading statements
Section 75- Penalty for unauthorized attempt to collect tax
Section 76- Penalty for aiding and abetting
Section 78- Failure to comply with a tax law
Section 79- Failure to Register
Section 80- Failure to pay tax
Section 81- Making false or misleading statements
Section 82- Impeding tax administration
Section 85- Causing harm to a tax officer
1) Interest for under-estimating income tax payable (Section 70)
The tax law requires self-assessment of taxes where companies and businesses compute and assess the taxpayer’s own tax liability for the year and pay taxes in instalment every quarter. It is more of a forecast or estimate of the taxes payable during the year and because the government cannot wait till the end of the year when the actual profit is determined, the taxpayer is supposed to make quarterly instalment payment. The taxpayer is allowed to revise his tax estimate anytime during the year. If at the end of the year the taxpayer’s estimate is significantly different from the actual, a penalty is imposed. Section 70 provides that, where an estimate or a revised estimate of tax payable by a taxpayer under self-assessment is less than ninety percent of the correct amount, interests calculated as one hundred and twenty-five percent (125%) of the statutory rate, compounded monthly, applied to the difference between
a) Ninety percent of the total amount that would have been paid by way of instalments during the year of assessment to the start of the period had the estimate of the person equalled the correct amount; and
b) The amount of income tax paid by instalments during the year of assessment to the start of the period.
2) Interest on failure to pay tax on due date (section 71)
Taxes must be paid on due dates so as not to deny the state tax revenue to run government machinery. If a taxpayer does not pay tax on due dates, interest is imposed on the liability. A taxpayer who fails to pay tax by the date on which the tax is payable is liable to pay interest for each month or part of a month for which any part of the tax is outstanding. The interest is calculated as one hundred and twenty-five percent (125%) of the statutory rate, compounded monthly, applied to the amount outstanding at the start of the period.
3) Records keeping and Documentation (Section 72)
Records keeping is a major source of information for the GRA to ascertain the correct taxes due the state. Taxpayers are required to keep proper records of all transactions. The records must be kept properly and made readily available to the GRA officers to check the figures used in the tax calculations and returns. In fact the GRA under section 33 of Act 915 has, for reasonable cause and without prior notice, unlimited access to all information. Where a taxpayer who is required to keep records and documents fails to do so, section 72 imposes penalties on the taxpayer.
i.Where the failure to keep record is deliberate, he will pay for each month or part of the month which the failure continues, 75% of the tax attributable to the period which the records were not kept
ii. Where the failure is not deliberate, he will pay either GHS 250 each month or the 75% of the tax attributable to the period whichever is lower.
Rouf V Revenue and Customs Commissioners  BTC 375 is a case in point. In that case, the owner of a restaurant had substantially under declared his sales because his did not maintain a complete and reliable records. The tax authorities maintained that, the failure to maintain complete and reliable records amounted to negligence. The tax authorities issued an additional interest assessment on him.
4) Failure to file Tax Returns (Section 73)
Income tax returns is a major document which taxpayers are required to submit to the GRA. The tax authority assesses the amount of tax due based on information provided to them in the tax returns. The tax law imposes penalties if such tax returns are not submitted to the GRA.
A person who fails to file a tax return as required by a tax law is liable to pay a penalty of GHS 500 and a further penalty of GHS 10 for each day that th