Introduction

Some time ago in March 2017, when I was on my way to a Ghana Revenue Authority (GRA) office to fulfill my corporate income tax obligation for the first quarter of 2017 assessment year as a tax payer to deadlines (ie for self-assessment), I met my good friend, Mr. Derrick Kofi Boateng, who was in his usual mode of business.

Knowing the reason for my visit to the GRA office, he yelled “Oh maasa” and laughed so hard that almost everyone in the office turned to look at us. She suddenly stopped and said:

“But wait oooo… how can you be paying taxes now when the assessment year of 2017 isn’t even over? How did you know how much tax to pay when GRA has yet to determine the tax to be paid? And does that mean it will? ” Will I not pay taxes again when the 2017 tax year ends?”

Now it was my turn to laugh too, but not so loud as to get people’s attention. I am very convinced that most taxpayers ignore this because the Tax Authorities have not expanded their tax education to include some of these topics that are stipulated in the Income Tax Law of 2015 (Law 896) and as amended.

What is self-assessment?

Self-assessment simply describes a situation where a taxpayer estimates how much income they expect to earn in a given assessment year. Based on said estimates, the taxpayer determines the tax to be paid and submits it to the General Commissioner in the manner established for such purposes for his consideration. It is worth noting that the Commissioner General may, however, based on the relevant circumstances and information available to him, reject estimates submitted by a taxpayer if, in his opinion, the self-assessment is outrageous.

The Income Tax Law of 2015 (Law 896), as amended, requires taxpayers to submit tax estimates for the year to the GRA and also determine the amount of tax to be paid, based on their own assessments. The estimates are then divided into four, and payments are made at the end of each quarter. Pursuant to section 121(1), an installment payer will pay tax in quarterly installments if the person earns or expects to earn taxable income during an assessment year. The GRA employing the self-assessment method may not expect 100 percent accuracy and therefore allows a 10 percent margin of error, the final statement must be at least 90 percent.

The due date of the self-assessment returns is the date of payment of the first tax installment, that is, if your base period starts from January to December 31, then you have until March 31 to submit your estimates for each evaluation year.

The good

• The provision encourages self-enforcement, which is an important key to mobilizing tax revenue.

• The Law that carries out the dynamics in commercial operations during an evaluation year has provided that taxpayers adjust or revise the estimates already presented. Section 122(5) allows a taxpayer to file a revision of estimates with the Commissioner General together with a statement of the reasons for the revision. However, 122(6) requires that revised estimates are only for the purpose of calculating installments payable after the date of filing of the revised estimate with the Commissioner General.

• The Government is also able to predict its tax revenue with a certain degree of certainty if this self-assessment is strictly followed.

• The government could also use this to widen the tax net, especially those that are not self-assessed or provisionally assessed.

• It also assists companies in their tax planning strategies while strengthening their budgetary control, that is, to take advantage of relevant tax benefits.

• It also helps companies eliminate financial inefficiencies, that is, unbudgeted and unnecessary expenses are eliminated or avoided.

• It also helps an entity to ensure efficient cash flow and working capital management, ie the knowledge of having to make quarterly tax payments puts a company in a better position to manage its cash flow to meet with these payments when due.

• A company’s tax burden is generally reduced at the end of the assessment year, since it is not necessary to wait until the end of the year to make a single payment. Some companies even end up with tax credits due to overpayments.

The bad

• When the estimates provided for in the Law are not presented, the General Commissioner is empowered to estimate in favor of the taxpayer based on the pertinent information available. Section 123(3) provides that “For the purposes of section 121, the estimated tax payable by the person for the year of assessment is the amount estimated by the Commissioner General. Imagine that the GRA makes estimates for you? Your guess is so good mine.

• Despite the potential efficiencies in managing cash flow and working capital, a company in financial distress will have difficulty raising the corresponding cash flow to meet taxes as they come due.

• With the release of cash in advance to pay taxes, there is a potential denial of future investments as cash that could have been used for a viable investment is paid in advance to settle the tax liability.

• Unlike the promptness and speed with which the GRA expects taxpayers to pay taxes when due, the same does not apply when a taxpayer requests a tax credit or refund. A taxpayer will have to go through a series of processes to validate the claim and sometimes be subject to a tax audit to confirm the claim.

The ugly one

The ugliest things with self-assessment submission come in two forms: not submitting the estimates and understating the estimates.

As stated, failure to submit the self-assessment means that you are indirectly asking the GRA to tell you how much income you expect to earn and the tax to be paid for the year of the assessment as stipulated in section 123(3)

In addition, a person who underestimates their estimate or revised estimate will be subject to paying interest at 125% of the Bank of Ghana (BOG) discount rate of the tax not paid during the period in which the tax is outstanding compounded monthly, especially where the underdeclaration has been deliberate.

The Ghana Revenue Authority might also visit the taxpayer’s premises to audit the estimates and returns that have been submitted to it in order to verify what has been submitted. When it is determined that a taxpayer has not been truthful in their declarations, sanctions will be applied, including prosecution before the courts of justice.

Conclusion

My conclusion is more of a question than a suggestion; Is GRA ensuring full compliance with the provisional and self-assessment provisions of the Income Tax Law by taxpayers? Or are you as a corporate entity taking the initiative to inform GRA how much tax you expect to pay or do you want GRA to determine that for you?

Let’s meet to discuss this in tax class!