Source: Francis Timor-Boi (Tax analyst)
In some countries, willful failure to file tax returns is a crime and the punishment can be a jail term.
Filing annual tax returns is such an important exercise in the United States that, it was reported that the eligibility of the $ 1.9 Trillion Covid relief package was based on Americans’ most recent filed tax returns. But the situation is not the same in Ghana, even though failure to file tax returns attracts a penalty of GHȼ500 and an additional GHȼ10 per day that the default continues. The amount can be very substantial if the law is fully enforced. Some observers say that the rules are somehow relaxed, especially in the case of individuals. This is partly because in the past the filing of personal tax returns was traditionally manual. Enforcing the law meant that, individuals had to submit a large volume of papers to the GRA. However, with the introduction of online filing of returns, the process is expected to be seamless and therefore the GRA should be in the position to enforce the law on tax filing.
Some employees also claim that they do not know they are supposed to file their personal tax returns and to such people, as far as their employers deduct and pay their PAYE, that is enough. The GRA should thus educate those individuals who do not know the obligation to file tax returns.
- Personal Tax Returns Requirement:
The general basis of personal taxation is that individuals are required to declare all income from whatever source to the Ghana Revenue Authority. This includes income from employment including part time employment income, income from investment and income from business, including even gifts received during the year. This is a constitutional requirement as provided for under Article 41 (j) of the 1992 Constitution:
“The exercise and enjoyment of rights and freedoms is inseparable from the performance of duties and obligations, and accordingly, it shall be the duty of every citizen – (j) to declare his income honestly to the appropriate and lawful agencies and to satisfy all tax obligations”.
Section 124 (1) of the Income Tax Act, 2015 (Act 896) provides that “a person shall file with the Commissioner-General not later than four months after the end of each year of assessment a return of income for the year”. The only exemption is provided for under section 125 of Act 896. For individuals, the time for filing is 30th April each year.
- Are Employees required to file Personal tax returns?
Employees are required to file their personal tax returns. Prior to 2016, employees were not required to file their tax returns because the tax law exempted them from filing if their only source of income for the whole year was from employment. The assumption was that the employer will deduct the taxes and file on behalf of the employees. The law before 2016 was as follows:
Section 125 of the Income Tax Act, 2015 (Act 896). 125- Return of income not required
(1) Subject to subsection (2), a return of income for a year of assessment is not required under section 124 from
(a) a resident individual
i. who has no tax payable for the year under section 1(1)(a); or
ii. whose tax payable for the year under section 1(1)(a) relates exclusively to income from employment subject to withholding under section 114; or
(b) a non-resident person who has no tax payable for the year under section 1(1)(a).
Based on this provision, employees were not filing their personal income tax if they do not earn any other income.
The law was amended in 2016 and since then, employees/individuals who earn income in a year are obliged to file their tax returns. The exempted from tax filing was removed from the section 125 list by the Income Tax amendment (No.2), 2016 (Act 924). Now it is only persons who did not earn any taxable income who are exempted from filing the returns. The new provision is as follows:
“Section 125- Return of income not required
A return of income for a year of assessment is not required from;
a. a resident individual who has no tax payable for the year, or
b. a non-resident person who has no tax payable for the year.
The old provision dealing with employees was deleted , making it mandatory for employees to file their personal tax returns. The deadline for filing 2020 Tax returns is 30th April 2021. A person may however elect to file tax returns voluntarily even if not required by the tax law
- Punishment for failure to file tax returns after 30th April 2021.
The Revenue administration Act, 2016 (Act 915) imposes severe penalty for failure to file tax returns in Ghana. It is provided under section 73 of Act 915,
“A person who fails to file a tax return as required by a tax law is liable to pay a penalty of GHS 500 and a further penalty of GHS 10 for each day that the failure continues”.
So come 1st May 2021, the GRA can assess defaulters of GHS 500 and additional GHS 10 that the default continues. In come cases, one can be prosecuted and imprisoned for failing to file the tax returns.
- Can you apply for Extension of time to file tax returns
Yes one can apply for extension if for some reasons you cannot meet the deadline, the Revenue Administration Act, 2016 (Act 915) has provisions for extension of time by 60 days. Section 30 of Act 915- provides that,
1) “A person who is required to file a tax return under a tax law may apply to the Commissioner-General for an extension of time to file the return.
2) An application under subsection (1) shall
a. be in writing;
b. state the reasons for the request for extension; and
c. be made before the due date for filing the return.
The Commissioner-General may, by written notice, extend the date if he is of the opinion that the applicant has shown reasonable cause for the extension.
- Cases where people were prosecuted
- In the case of Adkin V HMRC (2007) SSCD 323, a painter and a decorator failed to submit a tax returns for three years and the tax authorities imposed a daily penalty at the rate of £35. The taxpayer appealed on the grounds that, a penalty at £35 per day was too much especially considering the fact that, he had relocated to a different place, which had made it hard for him to obtain the relevant information to file the returns. The issue was whether or not the daily penalty was appropriate for failing to file his returns. It was held that, the penalty was appropriate.
- Another case was Foresight Financial Services V HMRC (2011) UKFTT 647. The company had only one employee who resigned during the year. The company failed to submit annual returns on the employee and the tax authorities imposed penalties for not filing tax returns. The company appealed on the grounds that, the only employee had left their employment and so the penalty of £400 (£100 per month for four months) was unreasonable. The appeal was dismissed.
- Penalty for false declaration
All incomes from business, investment, employment, and even gifts received which are taxable are supposed to be declared honestly. The Revenue Administration Act thus imposes hash penalties for telling lies in your tax returns and false declarations. Under Section 74 (1), as amended, a person who
a) makes a statement to a tax officer that is false or misleading in a material particular; or
b) omits from a statement made to a tax officer, any matter or thing without which the statement is misleading in a material particular is liable to a penalty of
i. 100% of the tax shortfall where the statement was made without reasonable excuse; or
ii. 30% of the tax shortfall in any other case.
There are criminal sanctions as well. False or misleading statements made, especially with the intent of evading taxes are treated harshly by the courts. Negligent, deliberate and fraudulent statements made by taxpayers can result in huge loses to the state. Section 81 provides that, a person who
a) makes a statement that is false or misleading in a material particular to a tax officer; or
b) omits from a statement made to a tax officer, any matter or thing without which the statement is misleading in a material particular,
commits an offence and is liable on summary conviction
i. where, if the inaccuracy of the statement were undetected, it may have resulted in an underpayment of tax in an amount exceeding fifty currency points [GHS 50], to a fine of not less than twenty-five penalty units [GHS300] and not more than two hundred penalty units [GHS2,400], or to a term of imprisonment of not less than 3 months and not more than 2 years or to both;
ii. or in any other case, to a fine of not less than five penalty units [GHS 60] and not more than fifty penalty units [GHS 600] or to a term of imprisonment of not less than 1 month and not more than 3 months or to both.
In the case of States v. Bok  156 F.3d 157 2d Cir, Bok was the president and sole shareholder of Abacus Construction. He failed to file his tax returns and that of the company. He eventually filed all returns but there were significant discrepancies between the company’s sales on the tax returns and the actual sales compiled from the company’s Bank Statement. Bok’s personal return did not include over $200,000 he had received from his company. He was indicted and tried on attempted personal tax evasion and making false statements on an income tax return. He was sentenced to 30 months in prison and 3 years of supervised release.
With the introduction of online filing of tax returns, the GRA should be capable of enforcing the law and charge all taxpayers who fail to file tax returns. Indiviuals can visit the GRA website to file their tax returns. With the establishment of the tax court, the GRA can prosecute defaulting taxpayers. The GRA can raise a lot of money from people who fail to file tax returns. GHS 500 from 1st May 2021 and a further GHS 10 each day. This will go a long way to achieve the GHS 60 billion revenue target the GRA has set for itself for 2021.