Introduction
Some time ago in March 2017 on my way to a Ghana Revenue Authority (GRA) office to fulfil my corporate income tax obligation for the first quarter of the 2017 year of assessment as an instalment tax payer (i.e. for self-assessment), I met my good friend Mr. Derrick Kofi Boateng who was in his usual business mode.
Upon knowing my reason for visiting the GRA office, he shouted “Oh maasa” and started laughing, which was so loud that almost everybody in the office turned to look at us. Suddenly he stopped and said,
“But wait oooo… how can you be paying tax now when the 2017 year of assessment has not even ended? how did you know how much tax to pay when GRA is yet to determine the tax payable? And does it mean you will not pay tax again when the 2017 year of assessment ends?”
Now it was my turn to laugh too, but not that loud to attract people’s attention. I am very much convinced that most taxpayers are ignorant of this because the Tax Authorities have not widened their tax education to include some of these issues which is stipulated in the Income Tax Act 2015 (Act 896) as amended.
What is self-assessment?
Self-assessment simply describes a situation where a taxpayer estimates how much income he/she expects to make in any given year of assessment. Based on such estimates, the taxpayer determines the tax payable and submits same to the Commissioner-General in the form prescribed for such purposes for consideration. It is worthy to note that the Commissioner-General may however base on relevant circumstances and information available to him reject the estimates submitted by a taxpayer if in his opinion the self-assessment is outrageous
The Income Tax Act 2015, (Act 896) as amended requires taxpayers to file 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 made at the end of every quarter. According section 121 (1), an instalment payer shall pay tax by quarterly instalment if the person derives or expects to derive assessable income during a year of assessment. The GRA in employing the self-assessment method may not expect 100 percent accuracy and therefore allows a 10 percent margin of error, the final declaration should be at least 90 percent.
Due date of self-assessment returns is by the date for the payment of the first tax instalment i.e. if your basis period starts from January to 31st December, then you have up to 31st March to file your estimates for each year of assessment.
The Good
• The provision encourages self-compliance which is a major key for tax revenue mobilisation
• The Act realizing the dynamics in business operations during a year of assessment has made provision for taxpayers to adjust or revise already submitted estimates. Section 122(5) permits a taxpayer to file a revise estimates with the Commissioner-General together with a statement of reasons for the revision. However, 122(6) requires that the revised estimates should only be for the purpose of calculating instalments payable after the date the revised estimate is filed with the Commissioner-General.
• The Government is also able predict its tax revenue with some degree of certainty if this self-assessment is strictly followed.
• Government could also use this to widen the tax net especially those not who are not self or provisionally assessed.
• It equally assists companies in their tax planning strategies whiles strengthening its budgetary control i.e. to take advantage of relevant tax benefits.
• It also helps to companies to eliminate financial inefficiencies i.e. unbudgeted and unnecessary expenses are eliminated or avoided.
• It also helps an entity to ensure efficient cashflow and working capital management i.e. the knowledge of having to make quarterly tax payments puts a company in a better position to manage its cashflow so as to meet these payments as it falls due.
• A company’s tax burden is usually lessened at the end of the year of assessment as you don’t have to wait till end of year to make a bullet payment. Some companies even end up with tax credits due to overpayment.
The Bad
• When a default in filing estimates as stipulated in the Act, the Commissioner-General is empowered to estimate for the taxpayer base on the relevant information available to him. Section 123(3) stipulates 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 the GRA making estimates for you? Your guess is as good as mine.
• Despite the potential efficiency in cashflow and working capital management, a company in financial distress will find it difficult to raise the relevant cashflow to meet the tax payment as and when it falls due.
• With the upfront release of cash to pay taxes, there is a potential denial of future investment as cash that could have been used for viable investment is paid upfront to settle tax obligation.
• Unlike the promptness and speed with which GRA expects taxpayers to pay taxes when due, the same is not applied when a taxpayer is requesting for a tax credit or refund. A taxpayer will have to go through a series of process to validate the claim and sometimes be subjected to tax audit to confirm claim.
The Ugly
The ugliest things with the self-assessment filing comes in two forms: failure to file estimates and understating of the estimates.
As indicated, a failure to file for self-assessment means that you are indirectly asking the GRA to tell you how much income you expect to make and the tax payable for the year of assessment as per stipulated by section 123(3)
Also, a person who understates his estimate or revised estimate shall be liable to pay interest at 125% of Bank of Ghana (BOG) discount rate of the tax unpaid for the period for which the tax is outstanding compounded monthly especially where the under-declaration has been wilful.
The Ghana Revenue Authority could also visit taxpayer’s premises to audit the estimates and declarations that has been submitted to it in order to verify what has been submitted. Where a taxpayer is found to have been untruthful in his or her declarations, sanctions including prosecution at the law court will be applied.
Conclusion
My conclusion is rather of a question than a suggestion; Is GRA ensuring full compliance of the provisional and self assessment provisions in the Income Tax Act by taxpayers? Or as a corporate entity are you taking the lead to inform GRA of how much tax you expect to pay or you want GRA to determine that for you?
Let’s meet to discuss this in the tax class!