“Three things are certain, competition, death and TAXES” – Unknown
The review and introduction of new taxes at the beginning of the year brought heightened apprehension among the Ghanaian taxpayer. High cost of borrowing, rising energy/utilities cost, sluggish local currency (at the time) against major trading currencies, high inflationary pressures among others made analysts questioned the rationale for government to take this unpopular stance on taxation. Some were taken off completely (1% interest on earnings**) but majority passed for implementation and enforcement.
To probe further on the need to understand the basics and how to get the best policies in taxation going forward, Ghana Talks Business’ Paa Swanzy-Essuman had an interview with Tax Consultant and Lecturer at the Ghana Institute of Management and Public Administration (GIMPA), Mr. Abdallah Ali-Nakyea to get his perspectives on this timeless debate on taxation. Aside lecturing and consulting on taxation, Mr. Ali-Nakyea is also the managing partner of the law firm Ali-Nakyea & Associates (Tax Attorneys). In this interview Mr. Ali-Nakyea throws an insightful light on the principle of ring fencing used in taxation and push for more training for the tax authorities’ human resource who would be handling the collection of revenue and also put in place the appropriate legislation for the country to derive much from its natural resources. He argues that there needs to be transparency in the handling of the debt stock owed the BDCs and also the recent hue and cry about taxing pensions is much ado about nothing since it is illegal to take such move.
Paa Swanzy-Essuman= GTB
Abdallah Ali-Nakyea= Ali-Nakyea
GTB: On your advice that government put in place systems to track income of businesses as it seeks to broaden the tax base which for years has been a challenge, what ways and best practices do you advice government and the GRA to embark on to achieve this?
ALI-NAKYEA: I always say that in Ghana we have all the laws, processes and procedures that we need to be able to tap in the revenue and broaden the tax net. I say that because the Taxpayer Identification Number (TIN) is not new, it was implemented in Ghana more than five years ago and so every taxpayer or everybody required to pay tax in Ghana is supposed to have a TIN, now that becomes the reference point in getting you file your returns and comply with the tax laws by paying your taxes. Can you imagine how everybody is rushing in to get voters identification number? Why? Because they want to exercise their franchise on the D-Day. Why are they not exerting the same kind of exuberance in getting TIN? Why will they want national health I.D? So you can access healthcare. Now get a number by which you can also contribute to enjoying these facilities that is rather a problem. So the first line is to ensure that the law is already there, systems and procedures are there now the issue is enforcement. No one is expected to undertake any business or get paid for any job done, services rendered if he doesn’t produce TIN. Because if produce that and the person pays you, the payer can then give your information to the revenue authorities and they will follow up on you to make ensure that if there is any difference to be paid you will pay up. I always give the example of what I found in Cote d’Ivoire; if you are a registered taxpayer and you have a TIN, when you undertake any job, provide any service or rent out your property, if you are being paid nobody is to withhold tax from you because you are already captured in the system. All what is required from the person paying you is to inform the revenue authorities of your name, address, location and your number. And so, before you go to the revenue authorities to report that I have paid ABC Company so much, they would be proved whether he has come to pay his returns. In this way you find out that the taxpayers rather come into the net and you don’t go after them. Because if you don’t have a TIN when I am paying you I will withhold. That will have a significant impact on your revenue because withholding tax is on your gross amount; you have not yet taken care of expenses so if you are not careful and your margins are below the tax rate, suppose the withholding is 10% and your margins are 5%, you are a net loser. So everybody wants to be registered, be noted, known to the revenue authorities and therefore be exempted automatically from withholding tax. Now in Ghana even when you are registered and complaint, you still have to meet certain criteria before you are given exemption from withholding tax. So there is no incentive to be complaint. I thought one of the critical incentives for tax compliance is to ensure that those who are complaint are automatically exempted from withholding tax then it will be an incentive for others to wish to be in that category. It’s like going for fish and putting the feed at a spot, they will swim to come there and that is where your net is but if you don’t put any feed and cast your net, of course they will swim away. Government is the biggest employer, biggest demander and so if anybody wants to offer services to the state they must have a TIN. They would be nobody operating within the country without an I.D. Example, you don’t have to be an employee to have a social security number because there is voluntary contribution so if you are doing your work and you want to save a bit towards your pension you can do so. Now if it comes to tax, same way it has to be compulsory, you must have a number. If you are working and then decide to go and further your education, you only write to the revenue authorities and they suspend because you are not earning any income. Anytime you resume or get a job it is reactivated. It is not a difficult thing to do especially when the GRA is doing all it can to automate and then do the online filing with the TRIPS it will become easier for the taxpayer to sit at the comfort of his house, shop or office go online and file his returns because the key to logging into the website of the GRA will be your TIN.
GTB: The finance minister some weeks back at the Graphic Business Breakfast meeting advised businesses to do self-assessment is there a particular sanction if businesses fail to do this? How does self-assessment help businesses?
ALI-NAKYEA: Self-assessment is very beneficial because prior to the self-assessment what we had we had in the country was called provisional assessment. At the beginning of the year the Commissioner-General will to the best of his knowledge of what he thinks you will make serve you an assessment and there are processes you may object if you find it excessive or accept. When you object and he revises it you have to pay on quarterly basis. But on the self-assessment, you the taxpayer, you are given an opportunity to assess yourself. Determine for yourself what you think your liability will be so you do your own projection what contracts you anticipate to get, the inflows, the cost associated, you can even say you don’t think you will make any gains in the year under review. Once you file it the commissioner-general accepts it as if he served it on you. Whatever you decided you were going to pay you have to pay it on quarterly basis. Now if you do not file a self-assessment it is detrimental to you because the commissioner-general can chose to raise that assessment for you. The challenge with the self-assessment is that it’s a projection now you have the right to able to revise it if circumstances change because you may not well know you will get an offshoot of a contract that mean so much so your projection could have been too slow, you have the opportunity to revise your assessment before the end of the year. But if you don’t, and at the end of the year your actual exceeds the self-assessment you make by a margin of 10% meaning your self-assessment should be at least 90% of your actual then you are safe. If the actual is more than that then it means you were holding unto government money all that period-you understated and so you will pay a penalty on the difference between the tax you should have paid on the self-assessment and the tax on the actual. The penalty used to be 30% of the difference in the Act 592 now it has been increased to 125% of the Bank of Ghana rediscount rate so if you work it out with the rediscount rate close to about 27% now you will be in the region of 63-66% a rise from the former 30%. At the end of the year you are going to file your returns and the revenue authority will look at your actual returns and the self-assessment if you overpaid you will get a refund but if you underpaid you top up. The idea is to make sure that your self-assessment is objectively as close as possible to the actual.
GTB: Rationale/ advantages behind taxing pension income to formal workers when loads of income earners in the informal sectors are not paying taxes at all
ALI-NAKYEA: I don’t remember him (finance minister- Seth Tekper) calling for taxation of pensions. I only remember that he started with the background analogy in some jurisdictions where if you are working, you will not be subjected to tax or the tax rate you are paying is reduced because when you are on pension- the prefer to tax you lower now so you can get enough to save towards pension and follow you up to continue taxing you when you are on retirement. The second situation is, you are going to pay tax on your income now when you are on retirement and you are being paid your pension no tax, that is the position that Ghana has currently. Indeed if he had called for taxing of pension that would have not been proper because the constitution is clear in article 1993 that pensions are exempt from tax. There’s no way to call for taxation of pension without an amendment to the constitution. Remember that any law that is inconsistent with our constitution to the extent of the inconsistency, those provisions will be null and void. And then if you take the pensions act, it is also clear that pensions are not taxable. The only provision it made was that, we used to have only the SSNIT contribution now we have a new pension’s act that allow a third tier. The first tier is the contribution by the employees 5.5% and the employers 13.5% and then there is room for a third tier if you can contribute to another scheme which will be invested by a private investment company as approved by the pensions act. Now that third tier is an investment towards your retirement so the provision in the pension act is that if you are in the formal sector you should not be able to access that investment until after ten years if you access before the ten years you pay tax (it then becomes an investment returns and not a pension) if you are in the informal sector five years. So if that analysis is what people say he is taxing pension, he is not taxing it is a provision in the law. So a pension in the sense of a pension and the exemptions of section 7 of the Internal Revenue Act it is clearly stated there, pensions are exempted from tax. And it is also clear in the Income Tax Act, pensions are not taxable.
Author: Paa Swanzy-Essuman || firstname.lastname@example.org