The need for an emerging lower middle income country like Ghana to increase tax revenue cannot be more appropriate than these era where there is a clarion call for a paradigm shift from “Ghana on Aid” to “Ghana Beyond Aid”.
This revenue mobilization agenda however, appears to be hitting a strong rock with the onset of the coronavirus pandemic. Many countries have seen a drastic decrease in their tax revenue drive since COVID-19 started at the beginning of the year 2020. Among many other things that would always erode the efforts of tax institutions in raking in the needed revenue is the culpability of taxpayers in tax related crimes.
Definition of terms
Taxation is a compulsory levy imposed by government of a country on its citizenry and inhabitants to raise money to finance government activities. Tax evasion on the other hand is when a taxpayer intentionally and deliberately misrepresents their taxable income to avoid paying higher taxes or not paying taxes at all to the government.
Tax Fraud, which may be synonymous with tax evasion occurs when a potential taxpayer consciously fails to pay taxes that are due, thereby defrauding the state. However, a crime may lexically be defined as an action or omission which constitutes an offence and is punishable by law. Tax Crime therefore, is a crime that is committed by infringing on the tax laws of the state. This may be perpetrated by illegal act fostered by institutional, administrative and operational means put in place by an individual or a given organization to deny the state of tax revenue.
Reasons for tax crimes
Taxpayers, like all humans are quick to assign reasons to justify tax crimes. Among reasons adduced for tax crimes includes: high tax rates, low income level, cumbersome tax laws and procedures. Others include lack of corresponding developmental projects in the country, corruption of public officials and lack of tax incentives. It may interest us to note that other potential taxpayers hide behind the cloak of low level of education to evade tax.
The reasons advanced not withstanding, they are contrary to section 78 of the Revenue Administration Act 2016, Act 915. The law states “Except as otherwise provided in this Act, a person who fails to comply with provision of a tax law commits an offence” and is liable on summary conviction to a fine or a jail term.
Some current trend of tax crimes
The quest to outwit the efforts of tax administrators to curb tax evasion has propelled tax crimes or evasion schemes to a sophisticated apogee. Tax crimes may be classified as being internal or cross-border. In this era of international taxation where taxing of citizens is contingent on their worldwide income, it is imperative for all in the tax industry to identify these schemes and ensure that appropriate corresponding remedies are found to stem the tide. Some of the current trends employed by taxpayers includes but not limited to the following:
- Failure to register and pay tax
- Failure to submit the required returns
- Falsification of records and information
- Storing of information on electronic devices that have been manipulated e.g. cloud and drives, etc.
- Lack of proper records
- Printing of own or computer generated tax invoices without authorization
- One off on-line business transaction
- Multiple business registration
- Under and over-invoicing of purchases
- Misapplication of tax rates
- Fragmentation of business activities
- Private homes being used for warehousing without notifying the authorities.
- use of wrong business addresses
- Multiple banks accounts in order to conceal income.
- Moonlighting, i.e. doing business activities in the night and dawn to outwit tax authorities
- Abuse of tax exemption policies
- Corrupt tax officials (Sec 83 of R.A.A)
- Tax refund crimes
- Off-shore payments made to foreign accounts of business entities
- Wrong labelling of goods imported into the country
- Re-routing of goods meant for exports back to the country after all taxes have been rated zero
- Agents designation used on imports documents in order to hide the true identity of the taxpayers
- Misclassification of products (wrong labelling)
- Abuse of free zone policy
- Income of some expatriates are paid outside the source of income in their home countries while a small fraction is indicated on PAYE schedules as salaries earned by these expatriates,
- Transfer pricing or inside trading where business entities trade with their related parties where prices at which goods and services change hands may not be at arm’s length contrary to section 31 of the Income Tax Act, 2015, Act 896.
The effect of COVID-19 and tax related crimes
The phenomena of tax evasion or fraud has serious repercussions on most developing countries that thrives highly on tax revenue like Ghana. With the outbreak of COVID-19, there has been a slowdown of world economic activities with Ghana being no exception. Thus, the cumulative effect of COVID-19 and tax related crimes on Ghana’s economy cannot be over emphasized. Domestic tax revenue for 2020 has been affected significantly because of the corona virus which has crippled many businesses globally. For example, the hospitality industry monthly contribution to tax revenue has reduced drastically. Most businesses either have shut down or have downsize staff population thus affecting PAYE and Company Income Tax (CIT).
When government is not able to raise the needed revenue because of coronavirus coupled with tax related crimes, the consequences are enormous. These may include; the inability of government to discharge its mandate of providing the necessary amenities to its citizens. Economically, it alters the distribution of incomes or wealth and tempers on the accuracy of macro-economic statistics like inflation and projections made for future considerations. It thus also undermines the state authority. Tax crimes may result in other ancillary crimes such as money laundering, terrorism financing, child trafficking and other illegal activities.
The way forward
The proposed solutions to curb tax related crimes especially in this era of COVID-19 includes the following:
- Frequent update of tax records
- Obtaining and comparing of information from third parties (Data Mining & Matching) from institutions like CAGD, BOG, SSNIT, etc.
- Creating of Tax Intelligent Agency (TIA) to seek for intelligence in relations to taxes.
- The sharing of intelligence with other security institutions like the FIC, CID, EOCO, NACOB, Police, BNI and National Security.
- Real-time access to a common data base platform with other organization like the MDA’s
- Consistent training and refresher courses on tax crimes and strengthening the legal frame works to fight the canker.
- Limiting of institutional intrusion to tax administration.
- Strengthening informant’s awards and whistleblowers schemes.
- Surveillance and used of modern tracking devices.
- Adopting of easier tax payment mechanisms
- Digitization of the tax system
- Collaboration with other sub-regional and international agencies and partners like GIABA.
Fighting tax related crimes during this period of COVID-19 is enormous. In view of the fear of contracting the virus, activities such as snap checks, swoop, invoice invigilating etc. has reduced. Some business activities are now transacted online making compliance checks difficult. There is the need to step up compliance and enforcement activities while observing the protocols. The need to fight tax crimes cannot wait any further and it must start now.
The writers are officers of the Ghana Revenue Authority, GRA. They have over 17 years of experience as Tax Auditors and Administrators and were members of the Special Revenue Mobilization Task Force of the GRA. They are final level students of the Chartered Institute of Taxation, Ghana.