The Revenue Administration (Amendment) Act, 2020, (Act 1029) has amended four sections of the Revenue Administration Act, 2016, (Act 915). The amendments under Act 1029 comprise modifications of the penalty for making false and misleading statements. The Amendment of Act 1029 provides that:
- A person who
- makes a statement to a tax officer that is false or misleading in a material particular; or
- omits from a statement made to a tax officer, any matter or thing without which the statement is misleading in a material particular is liable to a penalty of
- one hundred percent of the tax shortfall where the statement was made without reasonable excuse; or
- thirty percent of the tax shortfall in any other case.
In other words, a person is liable to pay one hundred percent of the shortfall, i.e., the underpayment of tax as a result of the inaccuracy of the statement he made to mislead a tax officer. And he is liable to pay thirty percent of the shortfall in any other case. In doing so, the penalty imposed shall cumulatively increase by twenty percent for each subsequent application of this law to the person who commits the offence of making false and misleading statement to a tax officer.
Apart from the fact that Act 1029 provides exemptions to the penalty for making false and misleading statement, this article assesses the modifications made under Act 1029 from Act 915. In addition to that, this article looks at the conduct of the Commissioner-General (CG) of the Ghana Revenue Authority (GRA) in tax assessment and how Act 1029 has dealt with false and misleading statement.
The meaning of tax assessment, statement making and tax shortfall
According to Act 915, an assessment means a determination of the amount of tax liability made under a tax law, whether by the CG or by way of self-assessment. Also, Act 915 provides that a statement is made to a tax officer when the statement is made orally, in writing or in any other form to a tax officer acting in the performance of duties under a tax law.
And a tax shortfall means the underpayment of tax that, in the opinion of the CG, may have resulted if the inaccuracy of the statement had gone undetected. By a margin of between thirty and fifty percent in shortfall, the person is treated as making a false or misleading statement to a tax officer; by a margin of 51 percent or more, the person is treated as making a false or misleading statement to a tax officer without reasonable excuse.
Modification of penalty for making false and misleading statement
From the above, as under Act 915, the amendment provided under Act 1029 says that the penalty imposed for the offence of making false and misleading statement shall be cumulatively increased by 20 percent for each subsequent application of this section to the person within the last five years.
What this means is:
If penalty for first offence = GH¢100
Then the penalty for second offence = GH¢100+20 = GH¢120
Third offence = GH¢120+24 = GH¢144
Fourth offence = GH¢144+28.8 = GH¢172.8
Fifth offence = GH¢172.8+34.56 = GH¢207.36, in that order.
Thus, if you have to be penalize multiple times within any five-year period, it shall cumulatively increase the amount by twenty percent (20%) of penalty each time.
In view of the amendment under Act 1029, it says that penalty shall not be imposed on a person if that person voluntarily discloses to the CG an error inadvertently made by that person before the error was discovered by a tax officer, or before the next audit of the person. Meanwhile, under Act 915, it provided that the penalty be reduced by twenty percent (20%) of the shortfall if the person voluntarily discloses the error before its discovery by a tax officer or before the next tax audit of the person.
On top of that, the amendments under Act 1029 has inserted some exemptions in case a person is liable for making a false and misleading statement to a tax officer, and these are:
- If the person liable to pay tax has been assessed by the CG in respect of the tax or any matter relating to the tax;
- Unless the person liable to pay the tax makes full disclosures and declares and pays the liabilities before conclusion of the audit or investigation; or
- If the person liable to pay has been notified by the CG or by the person acting on behalf of the CG of an enforcement action relating to the failure to comply with an enactment administered by the CG unless that person immediately pays off any taxes assessed or due.
From the above explanation, it is important to understand that the CG conduct of tax assessment is key to avoid making false and misleading statements in tax returns.
Tax assessment and how Act 1029 has dealt with false and misleading statements
The determination of the tax payable by a person is effected through a procedure called tax assessment. There are two types of assessment, which are: self- assessment and assessment by the CG. Under assessment by the CG, three other assessments exist – which are pre-emptive, adjusted, and other assessment.
Act 916 provides that a person is obliged to file a tax return, and this entrenches self-assessment as a form of assessment in Ghana. The objective of the self-assessment is to build trust on you by declaring and meeting your obligation, provide clear collectable taxes, minimize objection and also to minimize tax arrears.
Under this system, a taxpayer files his or own estimate of income, computes tax at appropriate rate and pays by quarterly installments. Within six months from the end of your accounting period, the taxpayer is required to file his or her returns and accounts stating his or her actual income and actual tax.
This type of assessment is done by the person himself based on his determination of taxes payable and not the determination of the CG. Self-assessment is a type of tax assessment whereby a taxpayer is responsible for accurately computing and reporting their tax liabilities, meaning that taxpayers must show all their taxable income and claim only the deductions and reliefs to which they are entitled.
The current law covering self-assessment is being amended to remove the restrictions and wide discretionary powers of the Commissioner-General so as to conform to universal practice, concepts and norms. Self-assessment is defined under 915 as an original assessment under a tax law that is occasioned by a person filing a tax return rather than by the Commissioner-General making an assessment, and includes the matters identified in the Second Schedule.
Paragraph 3 of the Second Schedule of Act 915 stipulates that the assessment of tax is deemed to have been made equal to the net amount of tax due as seen in the tax return. It is paid in a particular financial year-end.
Here, it is the individual’s responsibility to work out the estimates or amount of tax the person has to pay in accordance with the law. Based on such estimates, the taxpayer determines the tax payable and submits same to the CG in the form prescribed for such purposes for consideration.
It is worth noting that the Commissioner-General may however, based on relevant circumstances and information available to him, reject the estimates submitted by a taxpayer if in his opinion the self-assessment is outrageous. In this case, when he disagrees the adjusted assessment is essentially the variation of the self-assessment enforceable pending an objection and appeal. In such a situation, Act 1029 says the taxpayer shall not be liable for any penalty as his self-assessment has been adjusted by the CG.
- Assessment by the Commissioner-General
Aside from the individual doing self-assessment, Act 915 provides for instances when the Commissioner-General assesses tax payable by a taxpayer. The Act identifies some types of assessments done by the Commissioner-General (CG): pre-emptive assessment and adjusted assessment. Below is an explanation of these sub-types.
- Pre-emptive assessment
Under Act 915, the CG has the power to make a pre-emptive assessment of tax payable by a person. With regard to pre-emptive assessment, the idea is that given the circumstances of the taxpayer, there is a likelihood that the taxpayer will not be in a position to make the payments to the state. So, in order to prevent that from happening, the CG assesses the person pre-emptively to ensure that the person makes the necessary payment.
According to the Act, for the CG to make such an assessment, the person must fall under the following circumstances:
- Where the person becomes bankrupt, is wound-up or goes into liquidation.
- Where the CG believes on reasonable grounds that the person is about to leave the country indefinitely.
- Where the CG believes on reasonable grounds that the person is about to cease activity or business in the country.
- Where the person has committed an offence under a tax law.
- The CG considers it appropriate, including where the person fails to maintain adequate documentation as required.
Once these have been met, the CG may make a pre-emptive assessment of tax payable or to become payable by a person under a tax law, whether or not the person is required to file a tax return. The basis of the pre-emptive assessment is using his fair judgment or information reasonably available to him. Therefore, the taxpayer stands no chance to be punished for making false and misleading statement.
- Adjusted assessment
This has to do with correcting the tax liability of the taxpayer by the CG. The CG may adjust an assessment in a manner that ensures the taxpayer is liable for the correct amount of tax. The CG is to use his or her best judgment and information reasonably available in making an adjusted assessment. The Act provides that where an adjustment by the CG is pursuant to a decision of the Court, the CG shall not adjust such an adjustment. However, an exception to this is when the decision of the Court has been vacated.
Also, when a person fails to file a tax return on time, the CG may – using best adjustment and information reasonably available – assess the person. Thus, the CG can look at the projections of similar placed entities and make an assessment. When he makes an assessment, although the taxpayer can disagree, however he is not liable for any shortfall on the part of the assessment made by the CG.
>>>The writer is a research assistant at Center for Data Processing and Geo-Spatial Analysis (CEDPA), and a graduate of GIMPA Law Faculty. Email: [email protected]