Every citizen of Ghana who earns income has an obligation to declare their income honestly and pay the right taxes, at the right time as stipulated by law. Taxes are major sources of revenue to the state for the funding and provision of public goods and services such as security, health care, education, utilities, and other social services. Chapter 5 of the 1992 constitution of Ghana guarantees our fundamental human rights and freedoms as citizens of Ghana. But the enjoyment of such fundamental rights and freedoms under the constitution comes with the responsibilities to honour our tax obligations as outlined in article 41(j) of the constitution.
Section (1) (1) of the Income Tax Act 2015, Act 896, imposes tax obligations for a year of assessment on individuals and entities which earns chargeable income for the year or receives a final withholding payment during the year.
Since taxpayers are required to honour their tax obligations, this article is to highlight the importance of annual tax filing and the nuances in the process.
- Important Dates in Taxation
The Income Tax Act provides that, the obligation of tax payment is a yearly affair known in taxation as “YEAR OF ASSESSMENT”. The year of assessment for Ghana, is the Gregorian calendar year, starting from 1st January and ends on 31st December each year which serves as the basis for calculation of tax liabilities. Another date of importance in taxation is the “BASIS PERIOD”.
The basis period for an individual or partnership, is the calendar year whiles that of a company or trust is the accounting year of the company or trust. A company or trust can change their accounting year (Basis Period) with the permission of the Commissioner General (CG) but individual or partnership CANNOT change their basis period as stated in Section (18) of Act 896.
The CG may allow a trust or company to change its accounting year, mostly, on certain conditions, of which a breach on the part of the trust or company may lead to a revocation of the approval. This measure is employed to counteract tax evasion because a change in the accounting year of a trust or company alters the time at which the trust or company is required to pay tax by instalments and on assessment.
- Tax Payment Procedure
Although payment of taxes is an annual obligation, the government machinery cannot wait till end of the year for taxes to be paid before government can function. Due to this challenge, the collection of taxes is structured in a way to ensure inflow of funds year-round for the execution of government business. Some of the methods employed in collection of year-round taxes are:
- Tax payable by Withholding,
- Tax payable by Quarterly Instalment, or
- Tax payable on Assessment.
- Tax Payable by Withholding
This method ensures that, an appropriate rate of tax is charged on certain income types by some persons elected by GRA as their agents on payments they are required to make to the income earners. Some taxes payable by withholding includes:
- Withholding by Employers
- Withholding from Investment
- Withholding from Supply of Goods, Service Fees and Contract payments.
Taxes withheld under this method are either a FINAL WITHHOLDING TAX or TAXES WITHHELD on ACCOUNT. Taxes withheld on certain incomes are final withholding taxes. This means by payment of such withholding taxes; the recipients of those income have satisfied their tax obligations under Section (1)(1)(b) of Act 896 and are not required to account for those income in the annual tax filling.
The other type of taxes withheld is done as a payment on account. This means, the payment by the withholdee to the agent only satisfies some obligations of the withholdee on the income they received, and the final tax liability can only be determined during the filling of annual tax return.
- Tax Payable by Quarterly Instalment
Some taxpayers also pay taxes by quarterly instalments, if they derive or expect to derive assessable income during a year of assessment from a business or investment, or from an employment where the employer is not required to withhold tax under Section (114) of Act 896.
An instalment taxpayer shall pay tax in instalments where the basis period of that instalment payer is a twelve month period beginning at the start of a calendar month, on or before the last day of the third, sixth, ninth and twelfth months of the basis period; or in any other case, at the end of each three-month period commencing at the beginning of each year of assessment and a final instalment on the last day of each year of assessment, unless it coincides with the end of one of the three month periods.
- Tax Payable on Assessment
Tax payable on assessment, is made by way of self-assessment, where a person is obliged to file a tax return; and the CG making an assessment in other cases, including where a self-assessment is adjusted. Where a person fails to file a tax return on time, the CG may use best judgement and information reasonably available to assess the tax liability of the person.
- Annual Return of Income (Annual Tax Returns)
Subject to Section (125), a person shall file with the CG not later than four months after the end of each year of assessment a return of income for the year as stated in Section (124) (1) of Act 896. A return of income of a person for a year of assessment shall be, subject to any instructions by the CG to the contrary:
- be in the prescribed form and specify the assessable income of the person for the year from each EMPLOYMENT, BUSINESS or INVESTMENT.
- show the chargeable income of the person for the year and the tax payable with respect to that income under Section (1)(1)(a) by considering the taxes paid by the person for the year by withholding, instalment or assessment for which a tax credit is available under sections (120) or (121) and the remainder of the tax to be paid or credit due the tax payer.
- The return must be accompanied by any relevant information including withholding certificates supplied to the person under Section (118) of Act 896 with respect to payments derived by the person during the year and any other information that the CG may require.
The annual tax return can result in three outcomes on the tax position of the taxpayer, namely:
- A confirmation that all taxes withheld equals the tax liability of the taxpayer for the year of assessment which satisfies Section (1)(1)(a).
- The revelation that, the taxes paid during the year are less than the tax liability of the taxpayer for the year hence, a final tax payment required from the taxpayer to satisfy Section (1)(1)(a).
- The revelation that, the taxpayer has paid more than their tax liability for the year, hence an application for tax refund or a recognition of tax credit can be made by the taxpayer.
There are Chartered Tax Practitioners and approved Tax Practitioners in the country who are available to assists entities and individuals in their tax filling.
- Extension of Time to File Tax Return (S30 of Act 915)
A person who is required to file a tax return under a tax law may apply to the CG for an extension of time to file the return. The application for the extension shall be in writing; state the reasons for the request for extension; and be made before the due date for filing the return.
The CG may, by written notice, extend the date by which the return is to be filed if the CG is of the opinion that the applicant has shown reasonable cause for the extension. The CG may grant multiple extensions, but the extensions shall not in total EXCEED SIXTY DAYS from the date the return was originally due to be filed. The grant of an extension of time under this section does not alter the date for payment of tax as specified in the tax law under which the return is to be filed.
- Failure to File Tax Return on Time (S31 of Act 915)
Where a person fails to file a tax return by the due date as required by a tax law, the CG may, for the purpose of Section (35) of Act 915, appoint another person to prepare and file any information that the CG may require, including information required by the return. The CG shall assess the tax liability of the person as required by the tax law, including by way of adjusted assessment, and for this purpose may use any information in the possession of the CG.
- Penalty for Failing to File Tax Return (S73 of Act 915)
A person who fails to file a tax return including annual tax return as required by a tax law is liable to pay a penalty of FIVE HUNDRED CURRENCY POINTS (GHs500.00) and a further penalty of TEN CURRENCY POINTS (GHs10.00) for each day that the failure continues.
In the case of Communications Service Tax, the penalty is TWO THOUSAND CURRENCY POINTS (GHs2,000.00) and a further penalty of FIVE HUNDRED CURRENCY POINTS (GHs500.00) for each day that the failure continues.
A penalty imposed under this section applies separately for a failure to file an estimate and a failure to file a tax return incorporating the final amount. Where a person fails to submit the tax return, FOUR months after the imposition of the penalty for non-submission, the CG may, in addition to the penalty imposed, PROSECUTE the person to compel the person to submit the return.
- Importance of Filling an Annual Tax Returns
The importance of filling an annual tax returns by the citizenry have been outlined below:
- To satisfy the CIVIC DUTY imposed on us by the constitution.
- To satisfy the legal requirement and avoid the payment of penalties and possible prosecution.
- To enable taxpayers, apply for certain tax reliefs since some tax reliefs can only be applied for upon filling of annual tax returns.
- To enable taxpayers to acquire tax clearance certificate to prove that they are in good standing on their tax affairs.
- To get evidence to satisfy some legal and administrative requirements when undertaking certain transactions or assuming certain public positions.
The annual income tax filling for 2020 year of assessment is due in four months after the end of the year of assessment which elapse on 30th April 2021. Any taxpayer who is not capable of filling their return within the stipulated period must apply for extension to the CG now, by showing a reasonable cause in their application.
This article is a clarion call on my FELLOW GHANAIANS to wake up for us to do the right thing by declaring all our income faithfully and pay the appropriate taxes by filling our annual tax returns.
“Wз ye bзma yen ayз Oman ba pa” (This will make us good citizens)!
[email protected]: 0244 423 960
The author is a Member of ICAG and an Associate Member of the Chartered Institute of Taxation Ghana.