Voluntary Tax Compliance and the Incidence of Penalties and Interests in Ghana.

15 July 2023

Introduction

In every society where laws are established there are always provisions relating to defaults which enforcement in many instances are in the form of some penalty. Same is applicable in the world of taxation.

Penalties and Interests

Local legislations prescribe remedies for default by taxpayers. In Ghana, these remedies are contained in the Revenue Administration Act, 2016, Act 915 (as amended). The remedies for this discussion shall be limited to two categories which are:

1. penalties - which apply upon failure to file returns by the due date and

2. interests - which apply upon failure to pay taxes by the due date

The penalty for failure to file a tax return by the due date is GHS500 upfront and GHS10 for each day in default. For the failure to pay taxes by the due date, the interest is 125% of the Bank of Ghana rediscount rate/base rate compounded monthly applied on the tax not paid. In effect, you are being charged an interest for holding unto government’s funds unduly.

Effect of penalties and interests on compliance

In practice, in the Ghanaian setting, many taxpayers mainly small to medium businesses shy away from voluntary tax compliance mainly due to the cost of compliance principally resulting from the application and enforcement of the interest and penalty provisions.

For instance, an entity was set-up about 5 or more years ago. There were no business operations, so it was dormant. The owners of the business or management of the business were oblivious of the tax compliance requirements. They get a business contract and would like to use the company they set up long ago to execute the contract. As part of the requirement to secure the contract, a tax clearance certificate is required. The taxpayer is now compelled to go to the Ghana Revenue Authority. It is at this stage that all the non-compliance crops-up. The accumulated penalties and interests become very expensive for the taxpayer to clear.

By focusing on a four-year non-compliance with regards to just failure to file tax returns (annual corporate income tax returns) the total penalties are estimated to be circa GHS31,750. This is only one tax type, other tax types have not been included and failure to pay taxes by dues dates, if any have not been included. Further, it is not as though these entities or taxpayers have this much cash available to pay for these. So many taxpayers resort to the easy way out by incorporating a new company. Thus, the problem the penalties and interest sections seek to cure becomes all for naught.

Policy direction and recommendation

In our considered opinion, there should be a policy direction which should translate into amendments of legislation where applicable to encourage voluntary compliance. Such policy directions can include:

1. reduction in the penalties applicable to voluntary compliance rather than GRA discovering the non-compliance themselves. This was what the waiver sought to do, however, this has ended and the period covered was years of assessments up to 2020. If this is continued, to cover more years, it has a tendency to rope a lot of taxpayers into the GRA database.

2. Promotion of proper education on the highlight of the tax compliance obligations of various taxpayers. This can be on radio, television social media and other means deemed fit and should be done regularly. By a stretch to the extreme, these can be included in the curriculum of students right from the junior high levels.

3. Promote that tax related matters should be spearheaded or handled by tax consultants or applicable tax experts on behalf of taxpayers. Once this is done, to a large degree taxpayers are likely to be well informed of their tax obligations.

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, +233 509380617. Thank you.