As citizens are enjoined in article 41(j) of the constitution to declare their income honestly and pay the right taxes, at the right time as stipulated by law as they enjoy their fundamental human rights enshrined in the 1992 constitution, there have been avalanche of questions to me from readers and the public, all bothering on “what follows, after filing of the annual tax returns”.
This article is to provide some answers from tax legislation, and tax practice in Ghana on the question, then compare and contrast with best tax practices from other countries to guide legislation, tax administration and policy making in tax administration and practice in Ghana, going forward.
- What is required in Tax Administration after Tax Filing.
Ghana Revenue Authority (GRA) being the tax administrators in Ghana, is required to conduct an audit on all the returns which have been filled for the year of assessment to verify and confirm the information contained in the returns. The audit can be conducted at the premises of GRA known as Desk Audit which is mostly used to audit returns of individuals. GRA can call for any additional information or explanation from the taxpayer during the desk audit. Another form of audit is Field Audit, which is mostly used to audit returns of entities.
Audit of returns 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) of Act 896.
- 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) of Act 896.
- 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.
A scenario in point “a” above, ends the process and does not require any further actions from the taxpayer or GRA.
GRA will issue a notice of indebtedness to the taxpayer in scenario “b” for settlement within a stipulated period, mostly thirty days period. Failure to comply by the taxpayer can lead to accumulation of interest and prosecution by GRA for recovery.
The bane of taxpayers is when scenario “c” occurs, leading to a tax refund. The frustration of taxpayers in such situations is part of the reasons why some taxpayers refuse to file their tax returns.
- Legal Position on Tax Refund (S(66) of Act 896 and S(68) of Act 915)
Where the Commissioner-General(CG) is satisfied that tax has been paid by a person in excess of the tax liability of that person to which the payment relates (as in scenario “c” above), the CG shall apply the overpaid tax in reduction of any amount due by that person in respect of other taxes and any amount due to GRA and REFUND the remainder to that person within THREE MONTHS of becoming satisfied.
An application for tax refund can be made by a taxpayer to the CG for consideration or a court can order the CG to refund tax.
Tax refund is an anticipated phenomenon, hence the reason why a special account (Ghana Revenue Authority General Refund Account) has been set up by law from which certified refunds due shall be paid out.
Act 915 is the legislation which governs tax administration in Ghana. Section (68) of Act 915 provides the guide in tax refund process as follows “where the CG is satisfied that a person has paid excess tax, either on application for a refund by that person, or by reason of an order of a court or tribunal, the CG shall:
(a) apply the excess in reduction of any outstanding tax liability of the person; and
(b) refund the remainder to the person within NINETY days of making the decision.”
The position of the two legislations on the subject is clear and unambiguous.
- GRA’s Current Practice on Tax Refund
Currently, after successful submission of annual tax returns, the following processes are carried out by GRA:
- For individuals under the PAYE system, after a desk audit confirms that a tax refund is due to the taxpayer, a notice is sent to the taxpayer which states the amount of taxes expected to be refunded to the taxpayer.
- Instead of making that refund payment within the ninety days period stated in S(68)(1)(b) of Act 915, GRA rather state in the notice to the taxpayer that a refund will only be made to the taxpayer after GRA has performed a field audit of the employer of the taxpayer.
- This field audit of the taxpayer’s employer in most instances takes a longer period or forever and it makes it almost impossible for taxpayers to get their tax refund.
- It takes endurance and perseverance of a taxpayer to follow this rigorous and laborious process to eventually receive a refund of excess taxes paid under the PAYE scheme.
- For entities, even if desk audit is conducted, a field audit would be required by GRA to verify and confirm certain assertions in the annual financial statement and the annual tax returns before a report will be issued to confirm a tax liability or tax credit. —-My opinion on the practices and processes used by GRA concerning tax refund has been outlined below.
I agree with GRA to conduct a field audit as part of the processes for the CG to satisfy himself that indeed a tax refund is required to be made to an ENTITY.
But for GRA to state in its notice to individual taxpayers that, a tax refund, which has been confirmed after their audit of the individual’s returns would only be made to the taxpayer after a field audit of his employer has been conducted baffles me. This practice is in variance with provisions of S(66) of Act 896 and S(68) of Act 915. The current practice by GRA serves as disincentive for individual taxpayers to file their tax returns as they see no benefits in doing so, aside satisfying the legal and civic responsibility.
- Lessons from Best Practice in Some Countries.
From my readings on tax administration, particularly tax filing and tax refunds in countries like India, Australia, Canada, USA, and South Africa indicates a smooth, easy and near flawless system. It was revealed that all these countries have laws which are emphatic on the processes and the various duties and responsibilities of taxpayers and tax administrators.
Although the use of online and manual process are available for tax filing, it was observed that the use of online applications to manage the tax filing and tax refund payment process was highly prevalent and most preferred means.
It was startling to learn how the provisions of the laws are applied by taxpayers and tax administrators in a seemliness manner leading to resounding confidence by all parties in the system.
In most instances, the processes of auditing and payment of refund could be achieved as early as five days to about sixty days after tax filing. The refund is mostly paid into a pre-validated account of the taxpayer which is provided as part of the requirements in the tax filing process.
Since taxpayers actually receive any legitimate refund due them after their tax filing, some taxpayers have resorted to the reliance of receipt of tax refund as a saving measure and are always eager to comply with the law by filing their tax returns.
It’s not surprising that, there is a high rate of voluntary tax compliance in those countries because taxpayers will take keen interest in any process which has integrity and accrues an immediate legitimate benefit to them.
- Analysis of Tax Refund Administration in Ghana and the Five Other Countries
From my readings, I observed that, tax administration in Ghana on tax filing and tax refund is not far apart from the best practice in the other five countries mentioned above. Some of the commonalities will be highlighted and commentaries will be provided on the dissimilarities between the two systems.
From legislation, I observed that the provisions in the two statutes in Ghana specifically S(66) of Act 896 and S(68) of Act 915 have been well worded and have the essential provisions found in the statutes of the five other countries already mentioned above. These laws provide the processes to follow in assessing any refund payable and the provision of timelines for payment of refund by GRA. The availability of appropriate statutes on the subject matter is the first and foremost ingredients required in ensuring a successful and efficient system.
It is well noting that, although tax filing in Ghana has been a manual process for all these years, it’s refreshing to mention that GRA has recently introduced an online system of tax filing known as Integrated Tax Application and Preparation System (iTaPS). Even though, the system is new and not much education has been provided by GRA to taxpayers, I am very confident that its usage will catch up with taxpayers due to the enormous benefits the system offers through the elimination of the various challenges daunting the manual tax filing process.
I recommend the involvement of NCCE, Civil Society Groups, and other stakeholders in the dissemination of information on iTaPS to the populace.
The most area of discontent between tax administration in Ghana and the five countries reviewed above is the implementation of the various statutes. It was observed that whereas the tax administrators in the five countries wed above do implement the provisions in their laws on tax refund, GRA has resorted to the use of their own processes and practice which are not in congruence with Ghanaian statutes leading to a chaos situation of near impossibility for individuals to receive their legitimate tax refunds.
As noted that, S(66) of Act 896 and S(68) of Act 915 provide simple and clear procedures and processes in the payment of tax refund after the satisfaction of the CG, taxpayers and stakeholders are expectant that GRA will rightly apply the law, going forward, to reignite the needed confidence of taxpayers in the tax administration in Ghana. It’s my believe that GRA will eschew all practices which are inimical to voluntary tax compliance with no grounds in law and ensure that, the payment of legitimate tax refund to taxpayers are made in accordance of law. This remedial practice will curb the current apathy in tax filing by taxpayers.
In conclusion, with the introduction of iTaPS, if GRA applies the laws on tax refund as expected, tax administration in Ghana would be mentioned as one of the best practice and voluntary tax compliance will increase tremendously leading to a more efficient and effective tax administration.
“As a citizen and not a spectator, I am duty bound to give my professional perspective to improve tax administration in Ghana”.
The author is a Member of ICAG and an Associate Member of the Chartered Institute of Taxation Ghana.
E-mail: [email protected] Cell phone No.: 0244 423 960