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By Tengey KLAH & Thomas GYABAAH Tax authorities and administrations worldwide have developed various strategies of dealing with tax non-compliance of individuals and corporate entities. It is a known fact that non-compliance with tax laws and regulations has cost nations colossal sums in tax revenue through ways as under-declaration of tax liability, incorrect/non-disclosure and filing of tax affairs and returns, and transfer mispricing. One way tax administrations have dealt with this is the imposition of monetary sanctions. While it is important to impose some form of tax controls over such improprieties, these systems should be carefully designed to avoid appearing punitive and discourage foreign direct investments. Instead, they should promote the primary goal of enhancing compliance, particularly when the act committed was unintentional. Interest and Tax Penalty Regime Ghana’s penal regime for tax defaulters has transitioned from a lenient model to a harsher and draconian system. Prior to the enactment of the Income Tax Act, 2015 (Act 896) as amended (“Act 896”), the penal system, specifically for failure to file tax returns and pay taxes on due dates, consisted mainly of penalty sanctions [as the Act did not apply the term ‘interests’ exclusively to taxes] for both – under the erstwhile Internal Revenue Act, 2000 (Act 592) as amended (“Act 592”). In other words, interest [as the word connotes] was not imposed on late payment of taxes – only penalties. However, the introduction of Act 896 and its subsequent repeal of the Seventh Schedule to enact the Revenue Administration Act, 2016 (Act 915) as amended (“Act 915”) specifically provides for interests for failure to pay taxes by due dates. Act 915 imposes a penalty of GH¢500 for failure to file tax returns on time and an additional GH¢10 for each day of default. Under Act 592, the penalty imposed for same was two (2) currency units (equal to GH¢2) for a corporate entity and a currency unit (equal to GH¢1) for individuals/ self-employed persons, for each day that the default continued. This has been unified under the current regime with no distinction between individuals and corporate entities. More so, the penalty has been adjusted by an upward review – implying that a taxpayer would now pay about GH¢530 in penalties for a return that is filed a month after its due date as against GH¢31 and GH¢62 for individuals and entities respectively, under the erstwhile regime. Notwithstanding this, in the case of Communications Service Tax (“CST”), Act 915 introduces a penalty of 2,000 currency points (equalling GH¢2,000) exclusively for failure to file CST returns on time and a further 500 currency points (equalling GH¢500) for each day the default continues, which was hitherto not provided for, except by the CST Act, 2008 (Act 754) as amended. Yet, the late filing of returns for all other indirect taxes and industry-specific taxes aligns with the general, penal provisions of Act 915. Regarding the failure to pay taxes on time, Act 915 imposes an interest of a 125% of the Bank of Ghana’s statutory rate (monetary policy rate) on the tax payable, compounded monthly commencing from the date the tax becomes payable to the date it is finally paid. Where the default is exposed by a tax audit, the practice of the Ghana Revenue Authority (“GRA”) has been to impose the interest up to the date the review is completed, or the tax audit report is issued. Conversely, under Act 592, a penalty/sum [as the law did not call it an interest] equal to 10% of the tax unpaid was imposed, in the event where the failure was for a period of not more than three (3) months; and 20% of the tax unpaid, in the event where the failure was for a period exceeding three (3) months. This applied to all tax types administered under the Act – Act 592 – except for withholding taxes that witnessed a respective 20% and 30% imposition in a similar fashion as above. An additional 5% was imposed on the sum of the tax and penalty accrued where the amounts remained unpaid after notice had been served on the taxpayer. It is worthy of note that the interest regime under the current law imposes same for underestimation of one’s tax liability for a year of assessment and subjects any difference beyond the permissible 10% margin of error to monthly compounding at 125% of the Bank of Ghana’s statutory rate. Yet, Act 592 imposed a penalty of 30% of the tax differential between the tax computed based on the taxpayer’s estimate and the tax computed based on 90% of the actual chargeable income of the taxpayer. Models of Some African States A review of the interest regimes of some African countries is briefly laid out below as the central topic under this section. South Africa – The South African Revenue Service (SARS) imposes a penalty for understatement of tax by applying a percentage-based penalty ranging from 5% to 200% of the tax unpaid. Nigeria – A 10% penalty is applied on the unpaid amount, plus interest at the commercial rate for late payment of taxes by companies while late payment of Petroleum Profit Tax (PPT) or Hydrocarbon Tax (HCT) attracts a penalty of 5% of the tax unpaid. Kenya – The Kenya Revenue Authority (KRA) imposes a penalty of 5% of the tax due and an interest of 1% per month, for late payment of taxes. Namibia – For late payment of provisional tax and withholding tax (“WHT”), a penalty of 10% per month and interest of 20% per annum (both penalty and interest not exceeding the amount of tax outstanding) is imposed; interest of 20% per annum for income tax paid late, and up to 100% of the underpaid amount is charged for tax underestimations. Senegal – For late payment of taxes, a 5% interest on the tax due plus a further 0.5% duty per month or portion of month is imposed. If such payment is triggered by a tax audit, penalty applicable for WHT and Value Added Tax (“VAT”) is 50% and for other taxes, 25%. Uganda – Failure to pay tax by the due date attracts interest at a rate of 2% and is capped to the aggregate of the principal tax and penal tax. Morocco – A penalty of 5% is implied for late payment of tax in the event the payment is made within 30 days after the due date; 10% penalty in the event the tax is paid after the abovementioned 30 days; 20% penalty in the event of non-payment or late payment of VAT and other WHTs; and 5% interest for the first month of late payment of tax and 0.5% interest for the following months. Mauritius – If tax is not paid on time, a penalty of 5% of the tax due is payable. In addition, interest at the rate of 0.5% of the tax unpaid for each month or part of a month is payable until the tax is paid. Administrative Inconsistencies The upward adjustment in penalties under the current enactment from GH¢2 and GH¢1 to GH¢500 on spot and GH¢10 each day appears to be fair considering the change in value of the Ghana Cedi over time – from 2009 to 2016. However, it is biased for higher penalties to be imposed on specific industry returns or on returns of taxes of a similar character while lower amounts apply to all others. Taking the telecommunication industry for instance which is required to file CST returns, the imposition of GH¢2,000 and GH¢500 penalty appears discriminatory against the industry whiles the general penalty of GH¢500 and GH¢10 is imposed on other industries, even for specific returns (e.g., minerals royalty, excise duty, airport tax). To put this into perspective, how could a penalty of GH¢500 and GH¢10 apply to the returns of an indirect tax as VAT which rakes in much more tax revenue (by virtue of its higher 15% charge by standard-rated suppliers across industries) whiles a similar indirect tax (CST) which generates lesser revenue (by virtue of its 5% charge only from telecommunication operators) have a higher penalty of GH¢2,000 and GH¢500 imposed for similar non-compliance? Implications & Impracticalities The current regime of imposing interests on failure to pay taxes on time or underestimating corporate tax liability at a quarter above the statutory rate of the Bank of Ghana and further subjecting same to monthly compounding is rather harsh and ruthless – as it tends to balloon the interest amount even way beyond the original tax liability. Undoubtedly, interest may be imposed to preserve the earning capacity of the government’s finances for taxes unpaid, but this should not be applied in a way that makes it suggestive of an investment opportunity. Taxation is considered a topic with technicalities by many such that it is appreciated in entirety only by its practitioners – implying that a layman, though an educated elite, may encounter challenges fully grasping its concept and being compliant, without expert assistance which come often at excessively high fees. Further, as a matter of concern amongst tax practitioners, taxation is not adequately inculcated in the Ghanaian educational curriculum particularly at the basic level. It should therefore not be surprising to find taxpayers not complying fully with tax obligations, or not able to correctly estimate their annual tax liabilities (the case of self-assessment of corporate entities and businesses). Imposing such interest for failure to accurately determine and pay taxes on time would be very inappropriate and unfair to them, as well as injurious to their business’ health. What is even more worrying is that such non-compliances often go undetected by the taxpayers to inform corrective actions until tax audits have been performed on their affairs. For instance, a monthly-compounding interest charge (at the current policy rate of 21.5%) for a tax liability of say GH¢100,000 outstanding as of 31 December 2024 amounts to GH¢19,432. Practically, the GRA does not conduct regular audits yearly (as do external, statutory auditors) but after four or more years. Should the determination be applied to a tax liability payable within the 2021 year of assessment (4 years ago), that would be running to more than GH¢126,340 – being over a 100% increase of the actual tax liability, only because the penalty is being computed by compounding from that time (2021) to the present date (2025) and at a policy rate prevailing currently which could be higher depending on the country’s fiscal and macroeconomic variables. A tax liability of GH¢100,000 doubles which no known comparable and ethical investment scheme in Ghana would yield such returns within the same timeframe. This tax administrative policy stifles growing businesses and scares away foreign investors rather than ensuring compliance. Should the taxpayer suffer to such extent for a seemingly, unintentional negligence? If the GRA had conducted an audit earlier than the usual 3 to 4 years audit scope, such exorbitant interest charges could be avoided, and the taxpayer could find it easier to settle tax liabilities together with any accrued interests without causing a financial strain. Moreover, it is disheartening that when a taxpayer has asked for a rescheduling of the tax and interest assessed, the GRA imposes additional interests on both amounts. Our tax administrations should not be designed to frustrate businesses but to engage in fruitful partnerships with businesses to create tax certainty and convenience and assist with navigating the seemingly complex tax landscape of Ghana to attract and retain foreign direct investments which will contribute towards national development. Nonetheless, failure of the Commissioner-General of the GRA to pay a confirmed tax refund to a taxpayer after a specified period based on an application of the latter attracts a penalty of a lower 50% of the Bank of Ghana’s statutory rate without compounding. How is the Commissioner-General justified then in imposing on taxpayers as high as 125% of the statutory rate and compounding same on taxes owed to the State? Based on the reason that the taxpayer may manipulate the system to intentionally overpay taxes and earn higher interests on same from the Authority when tax overpayments in Ghana are rarely refunded even though the law provides for them? GRA-Taxpayer Relationship The conduct of some GRA officials in dealing with taxpayers has been one of hostility rather than partnership in nation building especially in cases of enforcing compliance. There is no problem with ensuring that taxpayers comply with tax regulations, but this should be done with judgement and mutual respect rather than out of emotions. Enforcing compliance should not necessarily imply that we play by the rule book – we may need to balance the law against practicality sometimes – but the case with some staff of the GRA is different. For instance, it is not ethically right and morally appropriate to forcefully demand tax payments from a taxpayer who has overaged receivables (despite strategies to liquidate these and is therefore financially distressed) and threaten to restrain them because they are unable to pay indirect taxes within 30 days of issuance of invoices to their clients. How do we expect them to pay taxes out of unreceived invoice amounts? Would a restraining action pay the taxes? It would only halt its operations, stall its receivable collection management, and place government’s tax revenue at risk. But where the taxpayer shows concern and makes effort by making some prefinances despite its dire circumstances, it is only in good faith that the tax authority should act considerately by discussing with the taxpayer their unique circumstances and reaching a mutually beneficial agreement rather than applying hard and fast rules regardless of how they impact the taxpayer. For some of these officials, while acting in line of duty, they exhibit unprofessional attitudes against taxpayers and make it obvious that meeting their tax revenue targets at all costs means more to them than taxpayers’ crises. Appeals & Policy Recommendations The Ministry of Finance (“the Ministry”) should carefully consider the implications of the current penal tax regime of the country and table an amendment before Parliament for consideration. The proposal could adopt a percentage-based model like the case of Senegal, Kenya and Mauritius and complement it with a capped model similar to the Namibian and Ugandan models. Alternatively, the proposal could align with Morocco’s graduated model providing for various penalties based on the degree of culpability. Adopting a compounding-based model, which is also used in Tanzania, could be very detrimental to taxpayers especially where the frequency of compounding is daily or monthly which earns interest in excess of the purchasing power of the tax unpaid. It should be fair and just and enhance compliance, while protecting taxpayers’ interests, and not necessarily deter tax non-compliance. Tax penalties and interests should be uniformized across industries and sectors. The current case where failure to file CST returns on time triggers a penalty of GH¢2,000 and a further GH¢500 for each day of default appears to be unfair to the telecommunication industry whiles a lower penalty applies to other business and priority sectors. Tax penalties should either be generalized or tax type specific but not industry biased. Tax audits should be conducted preferably, biennially to reduce the gravity of penalty and interest charges on taxpayers. Possibly, where field audits cannot be undertaken regularly, yearly desk audits should be considered to inform taxpayers of any outstanding tax obligations and reduce the monetary implications of penal charges. There should also be a system in place where taxpayers can request to be audited by the GRA. The Ministry should reintroduce tax amnesties to enable taxpayers take advantage of interest and penalty waivers on taxes paid and returns filed voluntarily or by reason of an assessment by a certain time. This would instil in taxpayers some level of confidence and certainty in the tax system of Ghana and allow for free conduct of business without fear of the future. Tax amnesty has not been existent in Ghana for a long while following the previous one which covered up to the 2020 year of assessment. The client-facing staff (the enforcement unit) of the GRA should be trained and exposed to more efficient ways of approaching taxpayers with tax debts knowing that delinquency in meeting tax obligations does not necessarily imply non-compliance. There should be that aptitude to have some discretion with taxpayers by reason of the uniqueness of their circumstances, prioritizing their needs over the attainment of branch-level targets, and dealing with taxpayers professionally rather than emotionally and strictly by the law. Practicality should fairly balance with legality. An administrative guideline for this could be in order. It is imperative that the interest and tax penalty regime of Ghana be reformed to align with current trends in the subregion or entire African region, meet taxpayer expectations, and foster tax compliance. In that way, a conducive business environment is created, and the tax landscape becomes friendly to attract and retain foreign investments and sustain indigenous and locally owned enterprises. Need say more, GRA’s cordial relationship with taxpayers cannot be overemphasized.
