By Dr. John Maccarthy & Prof. John AMOH
Businesses worldwide seek to reduce costs and protect profits, with taxes representing one of their largest expenses.
It is therefore natural for companies to explore ways to minimise their tax burden. Within the bounds of the law, tax planning is a legitimate strategy.
Societies rely on taxes to fund essential services such as schools, hospitals, and roads. The tension between private efficiency and public responsibility lies at the heart of the tax debate.
In Ghana, this issue has become pressing. On one hand, tax planning is rational and legally supported. On the other, tax avoidance, while legal, raises ethical concerns, erodes public trust, and undermines the social contract national development. At the extreme end of the spectrum is tax evasion, which is unequivocally criminal.
The distinction is not merely about legality; it pertains to governance, accountability, and fairness. Companies that adopt responsible tax strategies demonstrate transparency and long-term thinking, while those that exploit loopholes risk damaging both their reputation and Ghana’s revenue base. At a time when the state heavily relies on tax income to manage debt, stabilise the economy, and fund development, the line between planning and avoidance becomes more than a technical concern— it becomes a governance imperative.
Tax Planning: Why It Is Governance-Friendly
Tax planning is more than a financial exercise; it is a governance practice that reflects transparency, accountability, and strategic foresight. Companies that carefully plan their taxes, utilising lawful incentives and allowances, demonstrate respect for both the letter and the spirit of the law.
In Ghana, the Income Tax Act, 2015 (Act 896), along with subsequent amendments, provides businesses with various reliefs and deductions. These include capital allowances, loss carryovers, and incentives for priority sectors such as agriculture and manufacturing.
When businesses take advantage of these provisions transparently and in line with policy intent, they strengthen their financial health while supporting national developments goals.
Additionally, responsible tax planning enhances credibility with regulators, investors, and lenders. It signals that management understands the rules, complies with them, and integrates taxation into broader risk management. For listed companies, this approach aligns with the Securities and Exchange Commission’s (SEC) Code of Corporate Governance (2020), which emphasises compliance, transparency, and disclosure.
In contrast, failure to plan exposes firms to avoidable costs. Neglecting tax planning can lead to inefficiencies and unnecessary expenses. Missed deadlines, poor record-keeping, and ignorance of allowable deductions can lead to unnecessary tax payments, penalties, or disputes with the Ghana Revenue Authority (GRA). Therefore, effective planning is not only a sign of good governance but also a safeguard against avoidable losses and damage to corporate integrity.
Tax Avoidance: When it crosses the line it becomes a governance dilemma
Tax avoidance occupies a grey area between legal compliance and ethical responsibility. Unlike tax evasion, which is illegal, avoidance relies on exploiting gaps and loopholes in the law. While technically lawful, it often conflicts with principles of good governance and social responsibility.
In Ghana, the Income Tax Act, 2015 (Act 896), along with amendments such as Act 915, empowers the Commissioner-General of the Ghana Revenue Authority to disregard arrangements considered artificial, fictitious, or lacking commercial substance. This reflects a growing regulatory determination to limit aggressive avoidance schemes which have eroded stakeholder confidence over time. Boards that pursue such strategies risk are perceived as exploitative, leading to reputational harm, and strained regulators relations.
Furthermore, complex avoidance structures are costly to design and defend. They often require expensive advisory services and may trigger litigation, making them unsustainable for small and medium-sized enterprises. The risks increase when global standards, such as the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, influence local enforcement practices.
Ultimately, tax avoidance is a governance issue. It tests whether boards are committed to ethical leadership primarily driven by short-term gains. Companies must ask themselves whether an avoidance strategy, once publicly disclosed, would enhance or diminish their reputation.
Tax Evasion: The Criminal Edge
Unlike tax planning or avoidance, tax evasion is outright illegal. It involves deliberately misrepresenting or concealing information to reduce tax liability. This includes underreporting income, overstating expenses, falsifying records, or failing to register and remit taxes altogether.
Examples in Ghana include:
- Businesses maintaining two sets of books to understate revenue.
- Importers undervaluing goods at the ports to reduce customs duties.
- Employers deducting PAYE from salaries but failing to remit it to the Ghana Revenue Authority (GRA).
Tax evasion directly violates the law and attracts severe penalties, including fines, interest charges, and possible imprisonment. Beyond legal consequences, it undermines the integrity of financial reporting, and weakens trust in financial reporting and investor confidence.
From a governance perspective, evasion represents a clear failure of accountability. Boards and executives that allow or encourage such practices not only expose their firms to sanctions but also compromise their fiduciary duty to shareholders and society.
In practice, the boundary between legitimate tax planning and questionable avoidance is not always clear. What begins as efficient structuring can quickly slide into aggressive arrangements exploiting loopholes never intended by lawmakers. For Ghanaian businesses, as the Ghana Revenue Authority (GRA) strengthens its oversight role, understanding this thin line is crucial.
Legitimate Tax Planning
A manufacturing company in Ghana may decide to use capital allowance provisions under the Income Tax Act, 2015 (Act 896) to reduce its taxable income. By purchasing new equipment and claiming allowable depreciation, the company lowers its tax liability while boosting productivity. This clearly complies with the laws and supports good governance by aligning with national policy objectives that promote investment in productive assets.
Drifting into Avoidance
The challenge comes when companies take additional steps that, while technically legal, depart from the spirit and intent of the law. For example, the same company may create an offshore subsidiary in a low-tax jurisdiction and route transactions through it. By shifting profits artificially, Ghana’s taxable income is reduced even though the real economic activity occurs locally.
Other avoidance practices include:
- Transfer pricing manipulation: inflating or deflating prices of goods and services exchanged between related entities to shift profits.
- Artificial debt structures: loading a Ghanaian subsidiary with excessive intra-group loans to erode local taxable income through interest payments.
- Overstating deductions: inflating claims for management fees or royalties to parent companies without genuine commercial justification.
Under Ghana’s tax regime, such practices fall under scrutiny. The General Anti-Avoidance Rule (GAAR) in Act 896 empowers the Commissioner-General to disregard or re-characterise arrangements that are artificial, fictitious, or lack commercial substance. The Specific Anti-Avoidance Rules (SAARs) in Act 915 provide further controls, especially around transfer pricing, thin capitalisation, and controlled foreign company rules. In other words, what may appear as “clever” tax planning on paper can be reclassified and rejected if their purpose is to erode Ghana’s tax base.
Intent often draws the true dividing line. Tax planning seeks efficiency within the framework of the law, supporting both business growth and national development. Avoidance, by contrast, seeks to exploits legal gaps or constructs artificial structures designed only to minimise tax. If the primary aim is to defeat the purpose of the tax law, the strategy is no longer planning; it is avoidance.
Why It Matters for Businesses
The GRA increasingly applies a “substance-over-form” principle, examining the economic reality of transactions rather than just their legal structure. This means aggressive tax structures may not hold up under audit. A strategy that looks legally sound may still be challenged, disallowed, and penalised if the intent is determined as avoidance.
The Governance Test
Ultimately, businesses must ask: If this strategy were made public, would it reflect well on our integrity and governance standards? If the answer is no, then the approach has drifted across the thin line into avoidance. Boards and executives should treat this as a governance issue, not just a financial one.
Prudence for Ghanaian Businesses
For Ghanaian businesses, the distinction is clear: tax planning operates within the law, tax avoidance takes advantage of legal gaps, and tax evasion breaches the law. Good governance necessitates responsible planning, firm rejection of evasion, and extreme caution with avoidance because of its ethical, legal and reputational risks.
Boards of directors must recognise that accountability extends beyond shareholders to include employees, regulators, customers, and society at large. Aggressive avoidance may enhance short-term profits, but it can jeopardise national development and create serious reputational risks. Transparency is equally critical; tax strategies should be clear, defensible, and aligned with company values, since secrecy can damage trust among key stakeholders.
Ultimately, governance in taxation requires ethical leadership and a long-term perspective. While avoidance exposes firms to penalties and regulatory challenges, transparent planning fosters credibility, financial resilience, and investor confidence. The true test of governance is whether a tax strategy, if made public, would enhance or harm a company’s integrity.
Why Responsible Tax Conduct Matters for Ghanaian Businesses
For Ghanaian businesses, the distinction between tax planning and avoidance is not merely technical; it poses a governance challenge with legal, financial, reputational, and national implications. It calls for responsible planning, rejected of evasion, and careful navigation of avoidance due to its ethical, legal, and reputational consequences.
Legal Risk and Compliance Pressure
The law is clear: under the Income Tax Act, 2015 (Act 896), the Commissioner-General has broad powers to disregard artificial or fictitious transactions. A company that engages in aggressive avoidance risks reassessments, back taxes, penalties, and interest charges. These liabilities often outweigh the initial tax savings. The introduction of the General Anti-Avoidance Rule (GAAR) further empowers the tax authority to go beyond the legal form of a transaction and assess its commercial substance.
Reputational and Governance Costs
Corporate tax conduct is now a governance benchmark. Listed firms, in particular, face scrutiny under the Ghana Stock Exchange’s listing rules and the SEC’s Code of Corporate Governance (2020).
A company perceived as exploiting loopholes undermines stakeholder trust, risks reputational backlash, and may even see its share price affected. For boards seeking to demonstrate accountability beyond shareholders to employees, customers, and wider society, tax behaviour is becoming a litmus test of integrity.
Financial Sustainability
Complex avoidance structures come at a cost. They require expensive advisory services, ongoing monitoring, and often invite litigation. For SMEs already stretched thin, this approach is rarely sustainable. In contrast, transparent planning not only reduces risk but also builds credibility with regulators, lenders, and investors. Such credibility can lead to easier financing, long-term partnerships, and resilience under regulatory change.
National Development Responsibility
Aggressive avoidance erodes Ghana’s tax base, limiting resources for infrastructure, healthcare, and education the very systems businesses depend on. In the long term, companies that align their tax strategies with national priorities strengthen their licence to operate, positioning themselves as responsible partners in development rather than exploiters of tax loopholes.
Conclusion and Call to Action
The distinction between tax planning and tax avoidance is not just about saving money; it is about governance, ethics, and leadership. For Ghanaian businesses, the real choice is whether to balance efficiency with fairness, maintain compliance with integrity, and weigh short-term gains against long-term trust.
- Policymakers must continue to refine GAAR and Specific Anti-Avoidance Rules (SAAR) to close loopholes.
- Boards and executives must embed tax oversight into governance frameworks, treating it as a matter of fiduciary as well as ethical responsibility.
- Auditors, professional bodies, and civil society must play their part in holding firms accountable.
Ultimately, tax revenues finance the environment in which businesses need to thrive. Companies that plan responsibly strengthen Ghana, while those that drift into avoidance risk losing both their reputations and their long-term social license to operate.
Dr. J. MacCarthy and Prof. J. Amoh are both tax lecturers at the Faculty of Accounting and Finance, in the University of Professional Studies, Accra, where scholarship meets professionalism.
Email: [email protected] and [email protected]
