Updated: Nov 24, 2020
“Tax Rules should be like a bee which collects honey without causing pain to the plant”
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 42 (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 criminalised 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.
Interest for under-estimating income tax payable
Interest for failing to pay tax on due date
Penalty for failing to maintain documents
Penalty for failing to file tax returns
Penalty for making false or misleading statements
Penalty for unauthorised attempt to collect tax
Penalty for aiding and abetting
Failure to comply with a tax law
Failure to Register
Failure to pay tax
Making false or misleading statements
impeding tax administration
Causing harm to a tax officer
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.
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.
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.
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 the failure continues.
Depending on the tax type, taxpayers are required to submit some form of returns to the GRA. Some of the returns are required to be submitted monthly whiles others are supposed to be submitted annually.
Section 124 (1) of the Income Tax Act, 2015 (Act 896) provides that “a person shall file with the Commissioner-General not later than four months after the end of each year of assessment a return of income for the year”.
There are few instances where a person is not required to file tax returns. Section 125 of Act 896 provides that, a return of income for a year of assessment is not required from
a. a resident individual who has no tax payable for the year, or
b. a non-resident person who has no tax payable for the year.
Prior to 2016, a resident employee had no obligation to file a personal income tax return if his entire annual income was from employment. The employee may however choose to file this return. If the employee derives business or investment income, the personal income tax return must be filed. Non-resident employees must file the personal income tax return regardless of whether their entire annual income came from employment. When the Income Tax Act, 2015 (Act 896) was enacted, employers did not have an obligation to have annual returns. Resident employees also continued to enjoy the “exemption” when all their annual income was attributable to employment. Since 2016 there has been an amendment to the Income Tax Act. The Income Tax Act (Amendment No. 2), 2016 Act 924, now requires employees to file income tax returns, even if their income is entirely from employment.
In the case of Adkin V HMRC (2007) SSCD 323, a painter and a decorator failed to submit a tax returns for three years and the tax authorities imposed a daily penalties at the rate of £35 amounting to 58.3% of the actual tax liability. The taxpayer appealed on the grounds that, a penalty at £35 per day was too much especially considering the fact that he had relocated to a different place, which had made it hard for him to obtain the relevant information to file the returns. The issue was whether or not the daily penalty was appropriate for failing to file his returns. It was held that, the penalty was appropriate.
In the case of RL Mallinson Ltd V HRMC (2011) TC00825, the company’s tax returns for 2008 was not submitted on due date until February 2010. Penalties were imposed for late submission and the company appealed on the grounds that, the accounts and tax returns were sent through the postal system for signing before they could submit the returns but due to a strike at the postal company, the returns delayed. The court held that, “it was the company’s responsibility to ensure that relevant tax regulations are observed and that returns are filed by their due dates. The responsibility for doing this cannot be transferred to an accountant or other agent”
Another case was Foresight Financial Services V HMRC (2011) UKFTT 647. The company had only one employee who resigned during the year. The company failed to submit annual returns on the employee and the tax authorities imposed penalties for not filing tax returns. The company appealed on the grounds that, the only employee had left their employment and so the penalty of £400 (£100 per month for four months) was unreasonable. The appeal was dismissed.
Filing tax returns is therefore important and all effort must be made to avoid delays. The law however makes provision for an extension of the time to file tax return. Section 30 of Act 915 provides that, a person may apply to the Commissioner General for an extension of time to file the return. Such application shall be in writing and must state the reasons for the request of the extension and the letter must be sent before the due date of the filing of the returns. The Commissioner General may extend the time if only in his opinion, the applicant has shown a reasonable cause for the extension but he cannot extend it more than 60 days. One must note that, the extension does not change the date of the payment of any taxes. It is only the returns date which has been extended.
Penalty for making false or misleading statements (Section 74):
Making false or misleading statements relating to one’s tax obligation attracts severe penalties. Section 74 (1) provides that, a person who
a) makes a statement to a tax officer that is false or misleading in a material particular; or
b) omits from a statement made to a tax officer, any matter or thing without which the statement is misleading in a material particular is liable to a penalty of
i. one hundred percent of the tax shortfall where the statement was made without reasonable excuse; or
ii. thirty percent of the tax shortfall in any other case.
The penalty imposed shall be
a. cumulatively increased by twenty percent for each subsequent false statement to the person within the last five years; and
b. reduced by twenty percent if the person voluntarily discloses the error before its discovery by a tax officer or before the next tax audit of the person, whichever is earlier.
Where a person files a tax return in which the tax stated as payable is less than the actual tax liability
a. by a margin of between thirty and fifty percent , the person is treated as making a false or misleading statement to a tax officer; or
b. by a margin of fifty one percent or more, the person is treated as making a false or misleading statement to a tax officer without reasonable excuse.
In the case R V Hudson  2 QB 252, a farmer submitted a false audited accounts and a false certificate of disclosure to the tax authorities. He was convicted for fraud and he appealed on the grounds that, the criminal offence was one not known to the tax law. The jury found that, the documents that the farmer had submitted were false and fraudulent and that, he submitted them “for the purpose of avoiding the payment of tax. Lord Goddard CJ stated that to avoid the payment of tax by positive false representations constitutes a fraud on the Crown and a fraud on the public.
Penalty for unauthorised attempt to collect tax (Section 75)
Sometimes a business owner who is supposed to register for tax may not be registered but still go ahead to collect taxes on behalf of government and not pay the taxes collected to the GRA. Where a person is not authorised to collect tax from others but collect taxes anyway, the law imposes penalties. For example, a company is not registered for VAT but collects VAT from customers and refuses to pay the VAT to the GRA. Section 75 provides that where a person who, without authorisation, collects or attempts to collect tax he is liable to pay the following penalty:
a) where the collection or attempt is made knowingly or recklessly, two hundred percent of the amount collected or attempted to be collected; or
b) in any other case, the amount collected or attempted to be collected.
Penalty for aiding and abetting (Section 76)
Where a taxpayer aids or abets with another in cheating the state of the relevant revenue, the tax law imposes penalties on the person. This can even include accountants and auditors who prepare accounts and tax returns for others. A person who knowingly or without reasonable excuse aids, abets, counsels or induces another person to commit an offence, that person is liable to pay a penalty of one hundred percent of the tax shortfall.
Criminal prosecution of tax defaulters
No matter how punitive the administrative penalties imposed by the GRA on defaulting taxpayers will be, some taxpayers will not comply with the tax law. In designing tax laws, such unreasonable behaviour on the part of some taxpayers resulting in under-payment of taxes to the state are penalised. Deliberate and fraudulent actions are usually criminalised in the tax laws. The Ghana tax law provides for the imprisonment of tax evaders to send signal to others that, evasion is a crime and the 1992 Constitution and society in general disapproves of such behaviour. It is a crime to take government money. Penalties imposed by the court comes in monetary fines, prison term or both.
Although the offence is treated as a crime, it is treated as a misdemeanour and usually involves a summary convention, unless it involves serious fraud or causing harm to a tax officer. Under the Economic and Organized Crime Act, 2010 (Act 804), EOCO is mandated under section 3(a) (v) to investigate, and on the authority of the Attorney-General, prosecute serious offences that involve tax fraud and section 69 (2) (c) of the EOCO Act provides that, in the trial for such offence, the accused person may be presumed to have unlawfully obtained pecuniary resources or property in the absence of evidence to the contrary if the accused person has no evidence of taxes having been paid.
For normal and minor tax crimes the trial does not invoice a jury like in the case of murder; only a siting judge applies the punishment outlined in the law and depending on the degree or severity of the offence, the law provides minimum sentence and a maximum sentence.
The monetary fines are measured in Penalty Units and section 1 of the Fines (Penalty Units) Act, 2000 (Act 572) provides that, where in any enactment provision is made for the imposition of a fine as a penalty for the contravention of any provision in the enactment, the amount of the fine shall be expressed in terms of a number of penalty units. According to the Fines (Penalty Units) (Amendment) Instrument, 2005 [L .I. 1813], a penalty unit is GHS12.
Section 78 to Section 85 of Act 915 provides for the court to impose both monetary fines and imprisonment.
Failure to comply with a tax law (Section 78)
Parliament has given a lot of powers to the GRA as far as tax revenue is concern. Taxpayers are obliged to comply with tax laws and section 6 of Act 915 provides that, a person will not be remunerated or reimbursed for complying with the tax laws, unless expressly provide in the law. Such obligations include paying taxes on time, filing tax returns, registering for tax, keeping proper records etc.
Section 78 provides that a person who fails to comply with a provision of a tax law commits an offence. Where a specific penalty for the offence committed is not provided, then that person is liable on summary conviction to a fine of not less than one thousand penalty units (i.e.GHS 12,000) and not more than two thousand and five hundred penalty units (GHS 30,000) or to a term of imprisonment of not less than 2 years and not more 5 years or to both. A judge can sentence a tax defaulter to either fines or both fines and prison term.
In some countries, the prosecution of tax defaulters for failure to comply with a tax law follows immediately after the implementation of a tax amnesty. A tax amnesty is usually a short period where parliament passes a law to forgive tax offences.
This is what happened in South Africa in the case of Commissioner for South African Revenue Service (SARS) v Saira Essa Ltd and Others (162/10)  ZASCA 154.
In that case, a criminal investigation was instituted against the companies for non-payment of PAYE, under-declaration of VAT and non-filing of tax returns for the 2003/2004 tax years. The companies were notified about the investigation and were afforded opportunity to submit all outstanding returns and for a discussion of possible criminal charges arising out of the investigation. They submitted the tax returns, paid the taxes and also paid admission of guilt fines. A tax Amnesty was passed in 2006 to provide tax relief to small businesses who had not complied with the tax law by either not registered for tax, or registered but for the years preceding 2006 have not paid tax, understated tax or whose tax returns were not filed. An applicant whose application for amnesty has been approved is deemed not to have committed any tax offence and such a person would not be liable for criminal prosecution. The companies contended on the grounds that, they applied for amnesty and were granted amnesty and so they are entitled to immunity from criminal prosecution. The Supreme Court ruled that the companies were granted amnesty from criminal prosecution hence cannot be prosecuted.
In Ghana, the government in the 2018 budget, passed the Tax Amnesty Act, 2017, (ACT 955) to grant amnesty to taxpayers who failed to register with the GRA or have not filed tax returns or paid taxes. The purpose of the amnesty is to encourage voluntary compliance and get more taxpayers registered. There was forgiveness of penalties and interests in respect of previous years up to and including 2017 for taxpayer who applied on or before 30th September 2018 and register with the GRA and files tax returns. After this period, the GRA is bent on prosecuting all tax defaulters. The GRA says the days of non-compliance with the tax laws were over, as it would henceforth go after tax defaulters after the expiration of the grace period granted through the tax amnesty.
Tax defaulters should watch out for the GRA in 2019. With the use and enforcement of Tax Identification Number (TIN), Section 146 (3) of the Bank and Specialized Deposit-Taking Institution Act, 2016 (Act 930) allows a person’s bankers to provide information on the banking records to GRA. Without TIN number, one cannot in the near future undertake banking transaction, even withdrawing money at the bank. With these development, it seems the days of hiding income are getting over. Your bank might have sent you a text message to provide your TIN.
Failure to register with the GRA (Section 79):
Registration for tax is key in tax tax collection. Prior to the passage of the Income Tax (Registration of Trade, Business, Profession or Vocation) Law, 1988 (P.N.D.C.L 156), through to the passage of the Internal Revenue (Registration of Business) Act, 2005 Act, 684, the Taxpayers Identification Numbering System Act, 2002, (Act 632) and even under the latest Revenue Administration Act, 2016 (Act 915), identification and registration of taxpayers is critical for purposes of promoting tax compliance. Taxpayers are first given Tax Identification numbers (TIN). After the TIN numbers, taxpayers, especially businesses are required to visit their local tax office to register for the relevant tax types. The law therefore imposes penalty if a person fails to register when such a person is required to do so. Section 79 provides that, a person who fails to register commits an offence and is liable on summary conviction to
a) Pay the tax payable under that tax law; and
b) Pay a fine of not more than two times the amount of tax payable or an amount of one 1000 penalty unit [GHS 12,000], whichever is higher.
The Commissioner-General may also authorise the forfeiture of any goods or materials used by the person in carrying on the business of that person.
Malan v State  ZAWCHC 93 is a case in point. This was an an appeal against the conviction of the Managing Director of a company. The company was required to register for VAT but it failed to do so and also did not charge VAT on the services rendered. He was convicted for failure to register for VAT and sentenced to a fine of R15,000 and 4 months’ imprisonment.
Failure to pay tax (Section 80):
Tax belongs to the government and it must be paid on time. Section 51 of Act 915 provides that, tax is a debt due to the Government on the date it becomes payable and the Commissioner-General may initiate proceedings in court for the recovery of unpaid tax as well as the cost of the suit. Since tax is for the government, there are strict deadlines for tax payment. Lack of funds to pay tax is not a reasonable excuse. If you do not have the money to pay the taxes due, it is better to rush to the local office and discuss with the GRA about your cash flow problems. They are not obliged to listen to you but sometimes depending on the taxpayer’s circumstances, the GRA can add some human face to the situation.
In Crossley v HMRC  UKFTT 810 (TC), the taxpayer persuaded the tribunal to forgive him of the penalties because his case was unusual and sympathetic. Crossley had some properties which were funded by his bankers. He sold one property and made profit but the bank insisted on collecting all the sale proceeds before they would release their charge on the property. He ended up with no money, even though there were capital gains tax on the sale. The court found that his inability to pay the tax was attributable to an event outside his control. He therefore had a reasonable excuse and was relieved from the penalty imposed.
Estate Agency Affairs Board v McLaggan  4, SA 531(SCA), an estate agent had deducted employees PAYE but instead of paying it to the revenue authorities, it used the money to pay operational expenses. He was convicted for dishonesty and sentenced to six month imprisonment. The Supreme Court of Appeal described such conduct as “intrinsically dishonest” to use moneys collected for payment of taxes for an entirely different purpose. LEWIS JA held that, “If an employer deducts tax from employees, and uses it for any purpose other than paying the fiscus, that is dishonest. It is a deliberate misuse of funds. It is conduct that would be regarded by the public in general as lacking in probity”
Section 80 of Act 915 provides that, a person who fails to pay tax on due date commits an offence and is liable on summary conviction
a) Where the failure relates to an amount exceeding