TAXATION – TUTORIAL QUESTIONS

QUESTION 7
Tax can only be collected when it is due. Where the tax is due, there are two principal modes of collection. These are judicial and non-judicial. The question is better with in three parts. The first part will deal with conditions under which a tax becomes due. The second part will deal with the judicial mode of tax collection. The third which is the main thrust of this question will outline the four non-judicial modes of tax collection.

Under the law, the commissioner can collect tax only when the tax is due. And tax becomes due under different circumstances. For a tax payer subject to self-assessment under s. 78, the due date is when he files his assessment with the commissioner.

Under s 72(7) the commissioner may demand tax earlier than the basis period where the tax payer dies during the basis period or becomes bankrupt or is wound-up or goes into liquidation, or is about to leave Ghana indefinitely or is about to cease activity in Ghana, under those circumstances, the due date is the date the commissioner shall specify in the notice demanding the tax.

For those who pay tax by installment, their due date is the date each installment is due as provided under division III of part X of chapter 1.

For everybody else, the due date is within 30 days of the date of service of the notice of assessment.

Where the tax is due as explained above, the amount due is treated in law as a debt due to the commissioner. The CIT may sue to recover it.

Apart from the court, several other methods of recovery are available, normally referred to as non-judicial methods. The law specifically provides for the following:

1. Collection of Tax by distress: Under section 136 of Act 592, the CIT can distrain the movable property of a tax debtor by issuing an order in writing specifying the person against whose property the proceedings are authorized, the location of the property and the tax liability to which the property relates;

2. Using landed property as security for unpaid tax: Pursuant to section 137 of Act 592, the CIT can use the landed property of a tax debtor as security for the unpaid tax. This process relates to land or buildings situated in Ghana. Where the CIT seeks to use this procedure the law requires fulfill the following conditions. i. Must issue a notice in writing to notify the tax debtor of the CIT’s intention to apply to the Chief Registrar of Lands to use the tax debtor’s building or land as security for the unpaid tax. ii. If the tax payer fails to the pay tax due within 30 days from the date of service of the notice, the CIT may by notice in writing direct the Registrar of Lands that the land will be used as security to the extent of the interest of the tax debtor and to the amount specified in the notice. iii. Where the notice is served on the Registrar, the law directs the Registrar to register the notice of direction as if it were a mortgage or instrument over or charge on the land. iv. Where the tax debtor pays the tax, the CIT shall write to the Registrar of Lands to cancel the direction.
The person making the payment is indemnified against all proceedings civil or criminal notwithstanding any law, contract or agreement to the contrary.

3. Recovery of money from the debtor of a tax debtor: Under Section 138 of Act 592, the CIT may by notice in writing require any other person who owes, holds or is about to hold money belonging to the tax debtor to pay that money to the CIT.

4. Recovery of tax from the agent of a non-resident: Section 140 of Act 592 allows the CIT to take money from the agent of a non-resident taxpayer by notice in writing to the agent The law indemnifies the agent in such a situation.
QUESTION 8
Tax can only be collected when it is due. Where the tax is due, there are two principal modes of collection. These are judicial and non-judicial. The question is better dealt with in three parts. The first part will deal with conditions under which a tax becomes due. The second part will deal with the judicial mode of tax collection. The third which is the main thrust of this question will outline the four non-judicial modes of tax collection.

Under the law, the commissioner can collect tax only when the tax is due. And tax becomes due under different circumstances. For a tax payer subject to self-assessment under s. 78, the due date is when he files his assessment with the commissioner.

Under s 72(7) the commissioner may demand tax earlier than the basis period where the tax payer dies during the basis period or becomes bankrupt or is wound-up or goes into liquidation, or is about to leave Ghana indefinitely or is about to cease activity in Ghana, under those circumstances, the due date is the date the commissioner shall specify in the notice demanding the tax.

For those who pay tax by installment, their due date is the date each installment is due as provided under Division III of Part X of Chapter 1.

For everybody else, the due date is within 30 days of the date of service of the notice of assessment.

Where the tax is due as explained above, the amount due is treated in law as a debt due to the commissioner. The CIT may sue to recover it.

Apart from the court, several other methods of recovery are available, normally referred to as non-judicial methods. The law specifically provides for the following:

1. Collection of Tax by distress: Under section 136 of Act 592, the CIT can distrain the movable property of a tax debtor by issuing an order in writing specifying the person against whose property the proceedings are authorized, the location of the property and the tax liability to which the property relates;

2. Using landed property as security for unpaid tax: Pursuant to section 137 of Act 592, the CIT can use the landed property of a tax debtor as security for the unpaid tax. This process relates to land or buildings situated in Ghana. Where the CIT seeks to use this procedure the law requires the fulfillment of the following conditions. i. Must issue a notice in writing to notify the tax debtor of the CIT’s intention to apply to the Chief Registrar of Lands to use the tax debtor’s building or land as security for the unpaid tax. ii. If the tax payer fails to pay the tax due within 30 days from the date of service of the notice, the CIT may by notice in writing direct the Registrar of Lands that the land will be used as security to the extent of the interest of the tax debtor and to the amount specified in the notice. iii. Where the notice is served on the Registrar, the law directs the Registrar to register the notice of direction as if it were a mortgage or instrument over or charge on the land. iv. Where the tax debtor pays the tax, the CIT shall write to the Registrar of Lands to cancel the direction.
The person making the payment is indemnified against all proceedings civil or criminal notwithstanding any law, contract or agreement to the contrary.

3. Recovery of money from the debtor of a tax debtor: Under Section 138 of Act 592, the CIT may by notice in writing require any other person who owes, holds or is about to hold money belonging to the tax debtor to pay that money to the CIT.

4. Recovery of tax from the agent of a non-resident: Section 140 of Act 592 allows the CIT to take money from the agent of a non-resident taxpayer by notice in writing to the agent. The law indemnifies the agent in such a situation.

6. Tax appeal (based on Question 6 and Question 2(a))

Introduction:
A good appreciation of the procedure for tax appeal in Ghana requires a proper understanding of sections 128-133 of Act 592 together with Orders 58, 54 and 3 of the High Court (Civil Procedure) Rules, 2004 (C.I.47).

A
Preliminary matters
Cause of action s 128 (Act 592)
Under section 128 of Act 592, the right to appeal arises where the CIT disallows the tax payer’s objection to tax assessment or where the tax payer elects to treat the CIT’s non-response as rejection 90 days after the tax payer has filed his objection to tax assessment.

Where the CIT assesses a person to tax, the tax payer can raise an objection with the CIT if he is dissatisfied with the assessment. For a person subject to provisional assessment under s 76, this objection must be raised within 9 months of the basis period to which the assessment relate. Other tax payers are to raise their objection within 30 days after the CIT serves the notice of assessment on them.

When the objection is raised to the CIT, he can change the earlier assessment or stick to the earlier assessment and reject the tax payer’s objection. The CIT’s consideration of the tax payer’s objection is a quasi-judicial function and is appealable to the High Court.

Jurisdictional matters
Order 58 of the High Court (Civil Procedure) Rules give jurisdiction in tax matters to the Commercial courts.

The CIT is empowered to accept the objection and thereby amend his earlier assessment or reject the objection and affirm his earlier assessment. If the CIT does not respond to the objection, the law permits the tax payer to elect after 90 days of his objection, to treat the CIT’s silence as amounting to a rejection of the objection. The CIT’s decision on the tax payer’s objection is referred to as an objection decision. It is from this objection decision that the tax payer is given the right under section 128 to appeal to the High Court.

Jurisdictional matters: (forum, court, place etc)
Order 58 gives jurisdiction in tax matters to commercial courts. Order 54 provides special rules for tax matters. Order 3 determines the venue in the sense of location.

Parties and capacity s 129(6); Order 54 r2(2)
In a tax appeal, the tax payer is the appellant. While s 129(6) of Act 592 designates the A-G as the Respondent, Order 54 r2(4) of CI 47 designates the CIT as the Respondent. This apparent contradiction is resolved by the fact that IRS used to be a department under the Ministry of Finance. Now as a service, IRS has assumed legal personality of its own and is therefore capable of suing and being sued.

B
Procedural Steps in a tax appeal (Answer to Question 6 and Question 2(a)) 1. Both Act 592 and Order 54 of C.I. 47 require that the tax payer files 5 copies of the notice of appeal to the Registrar of the High Court within 30 days of receipt of objection decision or within 30 days after his election to treat the CIT’s non-response as a rejection. (Tax payer may obtain extension within 3 months of expiration of 30 days. No extension shall be entertained after 3 months). 2. Tax payer serves copy of notice of appeal on Commissioner within 5 working days of service on Registrar (Order 54). 3. Registrar replies within 15 days of service on him. 4. (Order 58) commercial court rules require the Administrator to refer matter to a pretrial judge within 3 days of CIT’s reply. 5. Pretrial judge invites parties within 30 days of assignment to him. 6. Pretrial judge settles matter through negotiation, mediation or arbitration. Parties may also at this stage elect to send matter to external person or body. Pretrial judge shall give directions and time. 7. Settlement read over to parties and entered as judgment of the court. 8. Pretrial evidence is without prejudice. Parties may be represented. 9. Otherwise, matter goes to full trial. 10. Use of assessors at full trial

Grounds and pleadings
To be numbered consecutively.

Payment of tax
Under Order 54 r 4 and s 131, a person subject to provisional assessment must pay an amount not less than a quarter of his assessment for the basis period pending the determination of his appeal.

Burden of Proof
The burden of proof in tax appeals lie on the tax payer to prove that the CIT’s assessment was wrong. And he discharges the burden on a balance of probabilities.

Question 8
Examine four (4) statutory provisions in the Internal Revenue Act, 2000 (Acts 592) designed to counteract, prevent, or minimize tax avoidance.
Tax avoidance, to use the words of Professor Quitcroft, is “the act of dodging tax without breaking the law”. Section 112(2) of Act 592 defines tax avoidance schemes to include “an arrangement, one of the main purposes of which is the avoidance or reduction of liability to tax”. Tax avoidance is concerned with exploiting the detailed provisions of the tax laws to avoid paying tax or to reduce the total amount of tax payable. Thus in Ayshire Pullman Motors Services v. IRC, Lord Clyde L.P declared that “No man in this country is under the smallest obligation, moral or other so as to arrange his legal relations to his business or property so as to enable the Inland Revenue to put the largest possible shovel into his stalls”. In this wise, there is no infringement of any of the provisions of the tax law.
According to Ali-Nakyea Abdallah in his book on Taxation in Ghana, “If individuals find it prudent to tax the necessary lawful steps to minimize the incidence of tax, it is logical to expect that the Revenue authorities would also measures to ensure that provisions in the law are so closely knit as to prevent being unduly exploited by persons for whom the relief was not originally intended…”.
The anti-avoidance legislations in Act 592 include sections 24(3), 69, 70, 71 and 112.
Section 112 of Act 592 makes a general provision rule as a guide to anti avoidance as follows: 1. For the purpose of determining liability to tax under the Act, the Commissioner may re-characterize or disregard an arrangement or part thereof that is entered into or carried out as part of the tax avoidance scheme,

a. Which is fictitious and does not have a substantial economic effect, or

b. The form of which does not reflect its substance.

Change in accounting dates: Under section 24 of Act 592 the basis period of a person is, in the case of an individual or partnership runs from 1st of January to the 31st of December, and that of a company or body of persons consists of the accounting year of the company or body of persons. The anti-avoidance scheme here is that a company or body of persons can only change its accounting date only once in the lifetime of the company or body with the prior written approval of the Commissioner. otherwise a company which has its accounting date running from 1st of January to 31st December and is expecting to made a huge profit in December of the following year, may apply to have its accounting date changed to say, 1st November to 31st October of the next year so as to enable them to hold onto that expected profit for almost a whole year which profit they might as well invest before having to pay it. Meanwhile the rate of tax may change to the benefit of the company. In tax issues time is of the essence.
Income splitting: this is provided for in section 69 of Act 592. It occurs when someone in a higher tax bracket splits or shares his income with another person in a lower tax bracket so as to reduce his general tax liability or that of his associate. The tax avoidance scheme here is that the Commissioner is empowered to adjust the chargeable income of both persons to prevent a reduction in the tax payable. Under this section, a person is treated as having attempted to split income where: a) that person transfers income, directly or indirectly, to an associate, or

b) that person transfers property, including money, directly or indirectly to an associate with the result that the associate receives or enjoys the income from that property.

Transfer pricing: This occurs between companies, their associates and subsidiaries where either of them provides goods or services to the other at a price different from their market value such that the company providing the goods or services reduces its profits or makes no profits at all thus avoiding tax. For example a subsidiary company which has a tax holiday may sell its produce to its mother company at a price higher than the market value of the products. So that the profits of the mother company is transferred to the subsidiary which is exempt from paying tax and since the mother company got the products at above the market value, it in-turn makes loses and thus does not pay tax.
Thin capitalization: this is provided for under section 71 of Act 592. Companies finance their operations through debt and equity. Under section 14 of Act 592 interest on loans or debt is an allowable deduction. Thus where a company wants to decrease its tax liability, it could increase substantially the debt component of its capital or even finance its whole operations from debt. The anti-avoidance scheme under section 71 is thus for the debt of a company to be allowed as a deduction it must not exceed twice of its equity. Therefore where the debt of the company exceeds twice the equity, the company will not be allowed to deduct more than twice of the equity as interest or loss.