Effective Tax Refund Regime, a catalyst to boost voluntary tax compliance

Introduction

As we advocate for voluntary compliance in the filing and payment of taxes by taxpayers in accordance with applicable tax laws, it is trite to say that tax administrators are duty bound to exhibit fairness and justice with taxpayers, by fully complying with the very laws they seek to enforce especially in instances where tax laws confers some benefits to taxpayers.

I have been motivated to raise this concern due to calls from friends, and colleagues who are victims of tax overpayments with no means of getting a refund even though, there are certain specific provisions in the Revenue Administration Act, 2016 (Act 915) as amended which deals with how taxpayers and tax administrators are to oversee instances of overpayment of taxes.

This article is to examine the current tax refund practices in Ghana, by situating it in context with the provisions of the relevant tax laws and proffer my personal opinion on the matter with recommendations to improve the refund process to serve as a catalyst in improving voluntary tax compliance in Ghana. 

Overpayment of taxes and its causes    

Over payments caused by methods of payments of taxes 

Over payment of taxes occurs when upon the final determination of the tax liability of a person at the end of a year of assessment, it is confirmed that, the taxpayer has paid taxes during the year in excess of the tax liability arrived as payable at the end of that year of assessment.

From the provisions in section 1 of Act 896 on imposition of income tax, income tax is payable for each year of assessment by a person who has chargeable income for the year, and a person who receives a final withholding payment during the year.

Strictly speaking from the statement above, it is evidenced that the responsibility of taxpayers in payments of taxes is an annual affair, and the true determination of such liabilities can only be made at the end of the year of assessment. But to ensure the continuity of constant provision of public goods, tax laws are promulgated in such a way that, there is a steady and constant inflow of tax revenues year-round to provide the needed revenues for governments and authorities to finance its functions towards the citizenry.

There are three methods of income tax payments as stated in section 113 (1) of Act 896, as listed below.

The payment of tax:

• by WITHHOLDING under Division II 

• by INSTALMENT under Division III and 

• on ASSESSMENT under Division IV 

Tax is payable in the case of tax payable by withholding, at the time provided for in section 117; in the case of tax payable by instalment, on the date by which the instalment is to be paid under section 121; in the case of tax payable on assessment, on the date by which the return of income is filed under section 124; and in any other case not stated above, on the date stated in a notice for payment.

1. Taxes paid by withholding includes taxes paid under section 114,115, and 116 of Act 896 through the withholding from employment, investment, and business incomes by employers and resident persons.

1. Taxes paid under instalment includes taxes paid under section 121 of Act 896 through the payment of tax by quarterly instalment. An instalment taxpayer shall pay tax by quarterly instalments if the person derives or expects to derive assessable income for the year of assessment.

1. Taxes paid under assessment includes taxes paid under section 124 of Act 896 upon filing of return of income.

Payment on account

Payments on account are tax payments made by taxpayers in advance towards their yet to be determined tax liabilities. The payments serve as partial fulfilment of their yet to be determined tax liabilities. Payment by instalment and some payment under withholding are done on account, including payment of deposits. Since tax payment made under payment on account is not in settlement of the final tax liabilities of taxpayers, such payments are likely to create over or under payment situation upon the determination of the final tax liabilities at the end of the year of assessment.

Final withholding and final payments

Final tax payments or final withholding tax payments are payments made in final settlement of tax liabilities. Payment made under final withholding payment fully discharges the taxpayer from any tax responsibilities concerning that particular income. The final payment made in settlement of tax liabilities upon filing of return of income and final withholding from payments like dividend, rent on residential and commercial properties as investment income, fees to lecturers, invigilators, examiners, part-time teachers, endorsement fees, lottery winnings paid to resident person and all taxes withheld from payments to non-resident persons are final withholding payments.

The use of the three methods of payments of taxes enumerated above may results in the following scenarios:

1. The taxes paid on account during the year will be just enough to settle the final tax liabilities of the taxpayer for the year. In this instance, there will be no further responsibilities on the taxpayer.
2. The taxes paid on account may not be enough to satisfy the tax liabilities of the taxpayer after deducting the tax credit from the tax due. This will create additional liabilities which GRA will require the taxpayer to settle, of which in default of settlement will trigger the imposition of interest by GRA calculated at 125% of the MPC rate compounding monthly till the date the liabilities are settled.
3. The taxes paid on account may be in excess of the final tax liabilities of the taxpayer after deducting the tax credit from their tax liabilities resulting in an overpayment of tax situation. This overpayment of tax situation will require a refund from GRA as outlined in Act 915.

Tax Refund

A tax refund is a reimbursement to a taxpayer of any excess taxes paid to the government. This usually happens when taxpayers pay more tax during the year than they actually owe as demonstrated in point “c” above. Any registered taxpayer who pays taxes in excess, is eligible for a refund if they are cleared by GRA that they do not owe any other taxes to GRA.

The Revenue Administration Act, 2016 (Act 915) has outlined the process and procedures to be followed by taxpayers and GRA on tax refunds. I will outline the provisions in the law on tax refund and compare with the current practice to demonstrate whether the laws are being implemented as expected.

Tax Refund Process in Act 915

Application for tax refund (Section 66 of Act 915)

Section 66 of Act 915 talks about how to apply for a tax refund. It states that, a person may, within THREE (3) years of the relevant date, apply to the Commissioner General (CG) for a refund of taxes paid in excess of the tax liability of that person.

The application must comply with a form prescribed by the CG, it should be in writing, and it should contain an explanation as to how the excess tax was calculated and attach evidence relevant to that calculation.

The phrase “relevant date” means the later of the event that gave rise to payment of the excess tax, the date on which a tax return is filed by the person with respect to the payment, and the date of payment.

Refund decision on application (Section 67 of Act 915)

The CG shall, within SIXTY (60) days of receipt of an application for a refund under section 66, consider and make a decision that the CG considers appropriate. The CG may reject the application where the CG is of the opinion that the applicant has not paid excess taxes or if satisfied that the applicant has paid excess tax, make a refund to the applicant.

Despite the two probable decisions from the CG above, where the CG is not satisfied that the applicant has paid excess tax, the CG may request further information as may be reasonable in order to make a final decision on the application. The CG shall serve the applicant with a written notice of the decision made under subsection (2) or (3) within THIRTY (30) days.

Pursuant to subsection (3), the CG shall reconsider the application and make a decision by serving notice on the applicant within SIXTY (60) days of receiving the original application.

Payment of tax refund (Section 68 of Act 915)

Where the CG is satisfied that a person has paid excess tax, either on application for a refund by that person, or by reason of an order of a court or tribunal, the CG SHALL: 

• apply the excess in reduction of any outstanding tax liability of the person; and
• refund the remainder to the person within NINETY (90) days of making the decision.

Where the CG accepts to refund part of the excess tax applied for by a person, the CG SHALL refund the amount accepted, irrespective of whether the person files an objection against the decision of the CG. Where, the CG fails to refund the excess tax to the person within NINETY (90) days as specified in subsection (1)(b), the CG is liable to pay interest on the amount.

The interest is calculated as FIFTY per cent (50%) of the statutory rate (MPC) and is for the period commencing on the earlier of the date the CG makes a refund decision under section 67 and the day the person files an objection against the tax decision that gave rise to payment of the excess tax; and ending on the day the refund is made.

Interest paid by a person under a tax law with respect to tax not paid on time shall, to the extent that the tax is found not to have been payable, be refunded to the person, with any interest under subsection (4). Where the CG refunds tax in error, the CG may recover the refund as a tax liability.

Ghana Revenue Authority General Refund Account (Section 69 of Act 915)

To ensure effective tax refund process, section 69 of Act 915 enjoins the Minister for Finance to set aside an amount of not more than SIX percent (6%) of the total revenue collected under this Act and any other enactment administered by the CG, in an account designated as the “Ghana Revenue Authority General Refund Account (GRAGRA).”.

The GRAGRA shall solely be used by the CG to make payments for refunds due under this Act; and refunds due under any other tax law. Where at the end of a calendar year there is an amount outstanding as credit in the GRAGRA after refunds certified by the CG have been paid, the outstanding amount shall be paid into the Consolidated Fund by the CG in accordance with the Financial Administration Act, 2003 (Act 654) and the Financial Administration Regulations, 2004 (L.l. 1802).

Pointers to note.

Taxpayers are to note that tax refunded in error under section 68(6) of Act 915 is payable in SEVEN (7) days after the CG serves notice requiring payment of the amount so all applications for tax refunds must be accurate and meritorious. Despite the requirement to retain documents for a period of at least six years from the relevant date, taxpayers shall where, seeking tax refund, maintain documents relevant to calculation of the refund until the refund is made.

Observations on current tax refund practice at GRA 

It is shocking to note that despite all the processes outlined in Act 915 on tax refund, in practice, tax refund is one of the impossible feats to achieve as taxpayers in Ghana especially by individual taxpayers. Entities are sometimes able to get a refund after undergoing laborious and hectic follow up process upon application with a blatant disregard of the timelines outlined in Act 915. Refund applications sometimes take years even if they eventually get refunded with no regard to the FIFTY per cent (50%) of the statutory rate (MPC) interest required to be paid to taxpayers in instances where the refund is not paid within time.

Conclusion   

Although the chances of getting tax refund in Ghana especially by individual taxpayers currently, is almost non-existent, it is my opinion that, this unfortunate situation must be tackled head on by stakeholders to fashion out an effective and efficient way of auditing individual’s Personal Income Tax (PIT) filings to confirm their overpayments and effect the necessary refunds by leveraging on digitalisation and digital payments (mobile money) to serve as a catalyst to motivate the citizenry and inculcate the culture of voluntary tax compliance in Ghanaians.

Recommendations   

Based on my observation of the bottlenecks in the tax refund regime, I recommend among the following for consideration:

1. Upon filing of the PIT return by individuals, GRA must review the return and confirm any overpayment positions on the tax ledgers of the individuals on the taxpayers portal. The current practice where all overpayments are wiped with only instances of underpayment which get shown for taxpayers to settle must be corrected.

1. Taxpayers who have tax overpayments are to make their application for refund within three (3) years as stipulated in section 66 of Act 915 to prevent them from losing the opportunity to receive their refund.

1. As part of the documentations to be attached with the application, individuals must remember to add their form 51, tax receipts, expenditure receipts, and documents in support of all reliefs they took in the PIT filing and entities must attach the tax audit report which confirmed the overpayment and any other relevant documents in support of the application.
2. GRA should leverage on their online tax management tool (taxpayers portal) to swiftly conduct investigations of tax refunds and maximise the benefits and power of mobile money and digitalisation to refund overpaid taxes to taxpayers as required by law.
3. GRA should ensure compliance with sections 66,67, and 68 of Act 915 by taking the necessary steps to review tax refund applications and communicate the CG’s decision and effect the refund to taxpayers within time.
4. Policy makers and tax administrators should not equate tax administration to only tax collection, but a comprehensive activity to enforce tax laws to the benefit of all stakeholders. That said, GRAGRA should not be seen as another source of income to the consolidated fund, but it should be used for its refund purpose to bring faith, trust, and confidence in our tax system to boost voluntary tax compliance.

This article is my personal and professional opinion as a tax practitioner in the discharge of my duties as a GHANAIAN CITIZEN who seeks the success of Ghana, and it is not a representation of the opinion of any institution.

Ibrahim Asare (CA, MCITG, ADTP, BCom, and HND)

ibasare@gmail.com; ibrahim@ibasare.com; @ib_asare; 0244 423 960

(The author is a Chartered Tax Practitioner- a Member of ICAG and a Member of the Chartered Institute of Taxation Ghana).