In The Era of Intensified Tax Audits, What Remedies are Available to the Taxpayer in Ghana?

In recent times, the Ghana Revenue Authority (GRA) has intensified its tax audit function such that it has become a very aggressive tool to crack down on defaulting taxpayers. Though this is a step in the right direction, a few issues need to be addressed for the process to be very fair to the taxpayer.

Section 41 of the Revenue Administration Act, 2016, Act 915 (as amended), describes the rights of the Commissioner-General with regards to tax decisions which include tax audit assessments. Section 42 provides for the rights of the taxpayer regarding objection to the tax decision of the Commissioner General. Section 43 states what the Commissioner-General can do when the taxpayer objects and Section 44 goes further to also alert the taxpayer of the right to appeal against the tax decision to the courts if dissatisfied with the decision. Presently, the board of the Tax Tribunal has been constituted. As such, before the courts are petitioned, the tax tribunal is to be consulted.

The Commissioner-General initiates the tax audit processes and serves the taxpayer with its assessment. Here, the taxpayer has the power to object to the assessment and must communicate any objection in writing to the Commissioner-General. The commissioner will either agree with the objection or otherwise. If he disagrees with the objection, the taxpayer can then appeal to the tax tribunal and if still not satisfied, the taxpayer can appeal in the courts. To put it simply, the Commissioner-General is not the final authority in settling tax matters.

That said, the issue at the heart of this article is the provisions of Section 42(5) which prescribes the circumstances in which an objection shall be entertained:

… an objection against a tax decision shall not be entertained unless the person has:

(a) in the case of import duties and taxes, paid all outstanding taxes including the full amount of the tax in dispute and

(b) in the case of other taxes, paid all outstanding taxes including 30% of the tax in dispute

These two provisions seem to be very draconian in nature especially where the assessment arrived at by the tax audit team is premised on a wrong understanding of the business of the taxpayer or if the tax audit team does not do a good job.

For instance, the tax audit team comes up with a tax liability assessment of GHS1m, however, the various transactions considered for this assessment are flawed in the first place. That means the assessment figure is also wrong. Now, if you ask the taxpayer to pay 30% of this wrong figure before you entertain an objection, where is the fairness? Needless to say, this has a huge cashflow impact on the business of the taxpayer.

There have been many instances where the tax audit team have used a somewhat lazy approach in the audit by picking all the general and administrative figures in the financial statement of the taxpayer and applied various withholding tax rates on the figures. This figure is then compared to the returns filed by the taxpayer and the difference is treated as a tax default by the taxpayer. This approach ignores the fact that the items that make up the general and administrative expenses may include reimbursements and transactions that are exempt from withholding taxes, transactions that do not meet the minimum threshold of GHS2,000 amongst others.

If this wrong basis leads to a higher figure as the tax liability assessment amount, the taxpayer is already handicapped. Where is the canon of fairness at play? Simply, some of the audit work and the audit assessment arrived at are problematic.

Further, most of the time the tax audit team take long(months) to come out with their audit report but give the taxpayer just a few days to respond so they can finalise their report. Why?

We are inclined to believe that the purposive intent of Section 42(5) was premised on the understanding that the audit work carried out is the right one and any third party or independent person will arrive at the same assessment. However, in practice, some of the audit work is problematic and very unfair to the taxpayer.

Having said that, we have encountered some tax audit teams that do a very good audit work. They do detailed work, drilling down to the various ledgers, supporting or underlying invoices, having proper discussions with the taxpayer, educate where applicable, welcome the opinions of the taxpayer and shared information in a very good manner. Thus, at the end of the process, the taxpayer is willing to pay the assessment since it is fair and represents the real situation of the taxpayer..

However, where the audit work is not fair or the assessment is wrong what is the way out?

1. The taxpayer should at all times engage the services a tax consultant to assist it through the entire tax audit processes. Where applicable a tax health check should be done by the tax consultant prior to the coming in of the tax auditors. This helps remedy most of the defaults, put the records and documents with various supports in order.

2. A provision should be inserted in the Act 915, that says that the tax in dispute amount should be arrived at using proper tax auditing principles and relevant tax legislation such that if an independent person is asked to carry out the tax audit, the assessment arrived at will not be materially different from the first assessment.

3. The payment of 30% of the tax in dispute amount should be reduced to a lower rate. It is because the taxpayer has an issue with the tax amount that is why it is in dispute, so why should they have to pay before the objection will be entertained? Cognizance is given to the supreme court ruling in the case of Richard Amohene vrs GRA where the supreme held that the 30% is lawful. That is not the import of the recommendation here.

4. The tax audit should not be approached with the mentality that the tax audit team should by all means find the taxpayer guilty.

5. The tax audit process should be transparent and fair. There should be a meeting with the taxpayer to commence the audit, the audit findings should be duly discussed with the taxpayer and ample time given for the taxpayer to counter the findings with appropriate documentations and relevant tax legislations before the final audit report is issued.

6. The composition of the tax audit teams should be a mix of people with sound technical appreciation of the relevant tax legislations applicable to the taxpayer and good interpersonal skills.

7. Lastly, the canon of fairness should be exhibited at all stages of the tax audit until the issue is closed.

PS: In our next article, we shall be discussing whether the Commissioner General has the power or the authority under the tax laws to determine what salary amount an employer must pay an employee for tax purposes.

This was authored by SineCera. SineCera is firm of chartered accountants that provide tax, business advisory, accountancy and corporate secretarial services in Ghana. Reach us on info@sineceragh.com or +233 509380617.