By Francis Yaw DAAH & Nathan DANQUAH
The issue of criminalizing tax breaches has generated a lot of views, not only in Ghana but also globally. There are schools of thought that favors criminalizing tax crimes whiles others consider it inimical to effective revenue mobilization.
This article is to assess whether the issue of criminalizing tax breaches has any impact on tax compliance and revenue mobilization in Ghana. It would also examine the case of using administrative penalties for tax breaches and conclude with pertinent recommendation.
The constitution and the tax laws
In Ghana, taxes are administered by the Revenue Administration Act, 2016 (Act 915) together with other specific tax laws. This law defines tax in section (9) (1) as “A duty, levy, charge, rate, fee, fine, interest, penalty or any other amount imposed by tax law or to be collected by or paid to the Commissioner General under a tax law. Tax is thus a creation of law, specifically positive legislation.
Article 174 (1) (2) of Ghana constitution provides as follows:
- No taxation shall be imposed otherwise than by or under the authority of an Act of Parliament
- Where an Act enacted in accordance with clause of this article, confers power on any person or authority to waive or vary a tax imposed by that Act, the exercise of power of waiver or variation, in favor of any person or authority, shall be subjected to the prior approval of Parliament by Resolution.
The above provision therefore makes it clear, that tax must necessarily be imposed pursuant to positive law, specifically, an Act of Parliament.
Taxes and revenue mobilization
The major reason for taxation is for the generation of government revenue. Thus, tax proceeds enable the government to fund its traditional functions of providing the enabling environments for its citizens to thrive.
According to Justice Oliver Wendel Holmes a US supreme court justice “Taxes are what you pay for a civilized society”. Thus, all living in a civilized world should contribute towards maintaining the state by paying taxes.
In Ghana, it is estimated that tax revenue constitutes about 70percent of government revenue and close to 14.0percent of gross domestic product (GDP). The above submission underscores the need to ensure payment of taxes as well as engendering voluntary compliance.
Generally, tax offences are classified as criminal or administrative depending on the statute governing tax administration. A crime is considered as conduct that are in breach of what are expressly prohibited by the law. The Revenue Administrative Act thus classifies certain offences under administration and others under criminal offenses.
Criminalizing tax breaches
The debate surrounding criminalization of tax breeches in Ghana is of interest to note. This has become topical given the recent imposition of custodial punishment on some individuals for the breach of section 80 of the Ghana Revenue Administration Act 2016 (Act915). The proponent of criminalizing breaches of tax laws justifies their stance by advancing the values below.
- For deterrence
It is imperative to established standards of adherence to laws set out to govern any civilized society. Deterrence is an action of discouraging an action or event through instilling fear of the consequences.
Taxes are for the general wellbeing of each citizen of the state, thus, when it is established that an individual or institution deliberately infringes on tax laws, the punishment should be such that it will serve as a warning to potential offenders.
It will thus act as general deterrent and also a specific deterrent for the individual that has been convicted and sanctioned.
Since criminal penalties such as fines and imprisonment are more punitive than CiviI and Administrative Penalties, it will discourage others from engaging in such acts and in effect strengthening the credibility of the penal provisions.
- For revenue
Another significant point raised to support the criminalization of Tax breaches is the role taxation plays in the country. Chiefly among these is the Revenue Generation for development.
The crucial role of mobilizing Revenue for the Government through taxes is paramount for the survival of Ghana. Thus, infringing on tax laws, positions such individuals or organizations as nation wreckers. This deliberate act of denying the state of the needed revenue should be met with equal measure to ensure that the state is not denied the needed revenue.
- For equity and fairness
One of the attributes of a thriving society is the ability to create a fair and just society. The nation Ghana is governed by laws with the tax laws being no exception.
Thus, the application and compliance with such laws will show a greater degree of fairness. In an instance where others comply and others blatantly refused to comply will create an unfair system.
To ensure equity and fairness in the system, criminalizing Tax breaches is sane and desirable. Those who breach tax laws benefit at the expense of compliant taxpayers.
To promote fairness and in a way reward those compliant when a criminal notice is established and the consequences thereof administered, it creates fairness and the preservation of the state.
- For economy stability
It is also pivotal to note that tax compliance is paramount for economic stability. It is therefore imperative for authorities to put in place mechanism to maintain economic stability. It is worth noting that criminalizing tax infractions will prevent the wantonness inherent in human nature and thus preserved the economy which will ensure the survival of the state.
- Others purposes
The criminalization of violations of tax laws also ensures the availability of criminal investigative and enforcement powers that are necessary to find the truth. The knowledge acquired will assist the country when need for international collaboration arise.
Last but not the least, criminalizing Tax breaches depicts the determination of the country to protect the needed funds for the development of the country for the collective good of citizens. The state authority is also deepened when individuals are adequately punished for committing tax crimes.
Using administrative penalties
The above points notwithstanding, criminalizing all tax breaches may be seen as an overkill. It is important to note that tax education in Ghana is not at the desirable level. The GRA is doing everything possible to reach out to all taxpayers and potential taxpayers to ensure they are educated of their responsibilities.
This effort notwithstanding, tax knowledge is still inadequate thus the need to intensify tax education. It is worrying to note that there is no conscious effort to inculcate knowledge of taxes at the basic and secondary school level.
There is the need for a concerted effort to adopt “catch them young approach” so as to inculcate these values and invariably reduce if not eliminate tax offences.
(i) Cases of minor offences: Criminalizing tax breaches has the potential of over-criminalization. Minor infractions may be unnecessary criminalized causing unnecessary hardship for individuals or entities. The use of civil penalties may adequately address such issues.
(ii) Discouraging entrepreneurship: Criminalizing Tax infractions may have the tendency of discouraging entrepreneurship and investment, a key ingredient for economic development. It is therefore better to resort to administrative sanctions than criminality.
In October, 2024, two (2) Managing Directors of different companies were found guilty of failing to pay Company Income Taxes (CIT) of their respective companies. This may serve as a drawback for business initiatives as well as an impetus for business owners to divert funds and their entrepreneurial skills elsewhere.
(iii) Excessive punishment: Furthermore, critics of criminalization contend that criminalizing tax issues may be overly punitive and also at variance with what is considered purely financial issues.
They are also of the view that measures should be put in place to make it difficult for anyone to breach a tax law. Even in a situation where there is an infraction the aim should be to retrieve the amount involve by civil actions. Thus, civil punishments are adequately punitive to deter potential offenders.
(iv) Time value of money: There is also the view that, the courts will be inundated with these breaches and it will take a long time to determine such cases. Given the time value of money such delays may not augur well for the state. With the creation of Independent Tax Appeals Board (ITAB), tax justice should not lead to incarceration.
Conclusion and way forward
It is evidently clear in the light of the above submission that there are strong views supporting criminalizing tax breaches as well as opposition to that view.
It must however be emphasized that when tax crimes are only handling administratively, achieving the desired goal of full voluntary compliance will not be realized.
The state needs a coercive mechanism that will enable it handle beaches while at the same time maintaining an enabling environment for individuals as well as businesses to thrive.
The revenue Administration Act 2016. (Act 915) is designed to create a balance between criminalizing some tax offences whiles treating other offences administratively. Thus sections 78 to 83 are structured to handling those offences as crimes that can lead to fines or imprisonment or both. Sections 70 to 76 stipulate offences that is handle Administratively.
The future of Ghana hinges on her ability to mobilize Revenue from taxes. This goal can be attained when infractions are adequately handled through criminal prosecution. As we seek to balance criminalizing tax infractions and administrative redress, it will be prudent to ensure that the law bites as it should and thus protect the nation.
>>>References:
- Revenue Administration Act, 2016 (Act 915)
- The 1992 Constitution,
- Revenue Statistics 2023 (OECD)
- Income Tax Act, 2015, Act 896.
>>>The writers are officers of the Ghana Revenue Authority at the Accra Central & Accra East Area Enforcement and Debt Management (EDM) Units respectively. They are members of the Chartered Institute of Taxation, Ghana (CITG). They can be reached via 0244542671, 0242205435, [email protected], [email protected]
