CASE IN THE COURT OF APPEAL

BACKGROUND OF THE CASE

In 2019, the Ghana Revenue Authority (GRA) in exercise of its statutory duty conducted a tax audit of Seadrill Ghana Operations Limited from January 2012 to December 2018. Seadrill was a subcontractor to Tullow Ghana Limited, providing a drilling unit and associated drilling services under the Petroleum Agreement dated 10th March 2006. At the end of the tax audit, Ghana Revenue Authority in a letter dated 8th November 2019 assessed tax liability against Seadrill Ghana Operations Limited in the sum of US$ 305,606,164.19.

Seadrill Ghana Operations Limited submitted a formal objection to the decision through a letter dated the 11th of December 2019. As part of the objection process, Seadrill Ghana Operations Limited was required by statute to make a down payment amounting to 30% of the assessed tax to the Ghana Revenue Authority. Ghana Revenue Authority considered the objection and revised the tax liability to US$10,222,849.35. Seadrill Ghana Operations Limited remaining dissatisfied with the decision filed a subsequent objection in a letter dated 28th July 2020. The objection again received a favorable response as Ghana Revenue Authority further reduced the tax liability from US$10,222,849.35 to US$5,448,152.65. Seadrill Ghana Operations Limited again displeased with the decision, objected to same, which was later disallowed by the GRA.

Seadrill Ghana Operations Limited proceeded to file both a notice of appeal against the tax assessment at the Commercial Division of the High Court and an application for an interlocutory injunction on 20th November 2021. Upon being served with notice of appeal, Ghana Revenue Authority filed an application for an order to strike out and dismiss Seadrill’s notice of appeal. Seadrill Ghana Operations Limited also filed an affidavit in opposition to Ghana Revenue Authority’s motion on notice.

The trial judge following a careful consideration of the processes filed and the arguments of the parties upheld the objection of the Ghana Revenue Authority and struck out the appeal of Seadrill Ghana Operations Limited as incompetent. Seadrill Ghana Operations Limited aggrieved by the ruling of the High Court filed a notice of appeal to the Court of Appeal.

GROUNDS OF APPEAL

1. The Learned Judge erred in his interpretation and application of the Commissioner General’s powers and review under the law.

2. The Learned Judge erred that Ghana Revenue Authority ‘s letter dated 1st December 2020 is not a tax decision to be objected to.

3. The Learned Judge erred in holding that although the 1st December 2020 letter is an amended tax decision under Section 42(9) of the Revenue Administration Act 2016 (Act 915), the 1st December 2020 letter cannot be subject to an objection.

4. The Learned Judge erred in holding that Seadrill Ghana Operations Limited’s letter of 30th December 2020 is not an objection to a tax decision.

5. The Learned Judge erred in holding that the Ghana Revenue Authority’s letter of 8th October 2021 is not an objection decision.

6. The ruling is against the weight of the evidence.

THE APPELLANT’S CASE

1. The Learned Judge failed to apply Sections 41(1), 37(3) and 37(6) of the Revenue Administration Act 2016 (Act 915) to hold that an adjusted tax assessment is a tax decision that can be objected to. Applying these provisions will lead to the conclusion that the 1st December 2020 letter was a tax decision that it could have objected to.

2. By reason of Section 37(5)(b)(ii) and (iii) and Section 39(3), the Ghana Revenue Authority had the power to adjust its tax assessment. Consequently, the Ghana Revenue Authority could adjust the 1st December 2020 decision.

3. Having argued that the 1st December 2020 letter was a tax decision as defined in Section 42(1) of Act 915, Seadrill Ghana Operations Limited could object to that decision.

4. The Learned Judge misapplied Section 42 of Act 915 in holding that a single objection to a tax decision is allowed under Act 915. Nowhere in Act 915 is the number of objections a taxpayer can file limited to only one.

5. The Ghana Revenue Authority was construed by the principle of legitimate expectation since its first and second objection had revealed inaccuracies in the tax assessed leading to the Ghana Revenue Authority adjusting its original assessment.

6. Pursuant to Section 43 of Act 915 and a reading of Ghana Revenue Authority‘s letter to Seadrill Ghana Operations Limited dated 8th October 2021, the said letter was an objection decision. The fact that the objection was disallowed did not change its characteristics as an objection decision.

THE RESPONDENT’S CASE

1. The trial Judge did not err in his judgement as he gave due regard to all relevant provisions as well as all attached exhibits and submissions made by the parties.

2. The Commissioner General under Section 37(5)(b)(ii) and Section 39(3) of Act 915 has the power to adjust any tax assessment, the exercise of that power is in respect of self-assessment or where the person failed to file a tax return on time as required by law. The adjustment is carried out by The Commissioner General using his best judgement or based on the discovery of fraud, willful default, or serious omission by or on behalf of a tax paper. Ghana Revenue Authority contended that the above provision was inappropriate in the determination of the present appeal.

3. A decision made after an objection does not constitute a tax decision within the meaning of section 43 of Act 915.

4. Once the Ghana Revenue Authority makes an objection decision reviewing or adjusting a tax decision, the objective decision qualifies as a tax decision within the meaning of Section 37(5)(b)(iii) and 39(3) of Act 915.

DECISION OF THE COURT

Ground I, II and III

The Court believed Ground I, II and III were unmeritorious. It was stated that an amendment or adjustment to an objection decision did not convert the amended or adjusted objection decision into a tax decision. The submissions and interpretation given to Section 42(9) of Act 915 by Seadrill Ghana Operations Limited may be unreasonable. The court reasoned that, once the amended objection decision becomes a tax decision, Seadrill Ghana Operations Limited would have been mandated by Section 42(5) of Act 915 to pay 30% of a tax in dispute as the objection deposit. On the contrary, there was no evidence on record that it paid 30% of the tax in dispute upon submission of its letter dated 28th July 2020. Neither was there any evidence that Seadrill Ghana Operations Limited paid 30% of the disputed tax upon submission of the letter dated 30th December 2020.

Ground IV

The Court dismissed this ground of appeal. The court held that a tax decision can be objected to in the first instance. If the objection yields an amendment or adjustment, it becomes an objection decision. Should the taxpayer be dissatisfied with the objection decision made by the Commissioner-General, the taxpayer may appeal against the decision to the court within 30 days (Section 44 of the Revenue Administration Act, 2016 (Act 915) and Order 54 rules 1 and 2 of the High Court (Civil Procedure) Rules 2004 C. I. 47. The court added that, before a taxpayer can lodge an objection to a tax decision, he is mandated by Section 42(50 of Act 915 to pay objection deposit. On the other hand, the only objection deposit paid by the Appellant was made in respect of the first objection filed against the tax decision.

On the issue of the Respondent being constrained by the principle of legitimate expectation, the court opined that there are specific provisions in the Revenue Administration Act, 2016 (Act 915) which deals with resolution of tax disputes. The provisions cannot be sidestepped for an expectation which is not backed by law.

Ground V

The Court affirmed the Learned Judge’s decision, stating that the letter of 30th December 2020 did not constitute an objection. It followed that the Ghana Revenue Authority letter of 8th October 2021 could not be considered an objection decision. The objection decision was the Ghana Revenue Authority letter dated 1st December 2020. The Appellant instead of filing an appeal as provided in Section 44 of the Revenue Administration Act, 2016 (Act 915) and Order 54 Rules 1 and 2 of the High Court (Civil Procedure) Rules, 2004 within thirty (30) days of receipt of the

decision, rather requested a review of the objection decision. The learned Judge therefore was not in error when striking out the Appeal as having been filed out of time.

IMPLICATIONS AND KEY TAKEAWAYS OF THE HIGH COURT’S DECISION

· A tax decision is a decision made by the Commissioner-General under a tax law including an assessment or omission.

· Before a taxpayer can lodge an objection to a tax decision, the taxpayer is mandated by Section 42(5) of Act 915 to pay an objection deposit.

· In the case of import duties and taxes, all outstanding taxes including the full amount of the tax in dispute must be paid and in the case of other taxes, all outstanding taxes including thirty percent of the tax in dispute must be paid.

· An objection to the tax decision at the GRA must be made within thirty days of being notified of the tax decision.

· A tax decision can be objected to in the first instance. If this objection yields an amendment or adjustment, it becomes an objection decision.

· If a taxpayer is dissatisfied with an objection decision, he must file an appeal against the decision to the court within thirty (30) days upon receipt of the decision rather than request to GRA to review of the objection decision.

· There are specific provisions in the Revenue Administration Act,2016 (Act 915) which deal with resolution of tax disputes. These provisions cannot be ignored for an expectation which is not backed by law.

CONCLUSION

In summary, the Court of Appeal dismissed all the grounds presented by Seadrill Ghana Operations Limited and upheld the entire judgement of the High Court. The Court therefore concluded the following.

First, after the objection decision under section 43 of Act 915 was made, the adjustment did not convert the amended objection decision into a tax decision. What constitutes a tax decision is clearly spelled out in section 41(1) of Act 915. In addition, the objection decision was Ghana Revenue Authority’s letter dated 1st December 2020. Seadrill Ghana Operations Limited ought to have filed and appeal against the objection decision to the Court within thirty (30) days upon receipt of the objection decision instead of requesting a review of the objection decision by GRA.

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Key Features:

Scope and Applicability:
Act 930 applies to all banks and specialised deposit-taking institutions operating in Ghana. Its provisions cover a wide range of financial activities to ensure the stability and integrity of the financial system.

Licensing and Regulation:
The Act outlines the criteria for licensing and regulates the establishment, operations, and conduct of banks and SDIs. The Bank of Ghana, the country’s central bank, is responsible for overseeing and enforcing compliance with the provisions of Act 930.

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The tremendous effort of the government to increase the tax net and promote voluntarily tax compliance, there has been a new tax amendment passed by parliament and assented to by the president which are as follows;

• Revenue Administration (Amendment) Act, 2022 (Act 1086),
• The Electronic Transfer Levy (Amendment) Act 2022 (Act 1089), and
• The Value Added Tax, (Amendment) No. 2 Act, 2022 (Act 1087). In this alert, we highlight tax provisions that have been amended and draw the attention of the general public on its compliance for the year 2023. January 2023 #01.2023 Regulatory Alert

1. REVENUE ADMINISTRATION

The Revenue Administration (Amendment) Act, 2022 (Act1086), has been passed by Parliament and assented to by the president of the Republic of Ghana. The reason of this new amendment is to provide for the Commissioner-General to establish a monitoring mechanism to determine or verify the actual revenue collected by a taxpayer, to introduce the requirement for a tax clearance certificate, to provide for returns in respect of the realization of an asset or liability and for related matters

Highlight of the key areas of this amendment are below:

Access to physical network node

The new Revenue Administration (Amendment) Act, 2022 gives the Commissioner-General the authority to establish a monitoring mechanism for the purpose of verifying the actual revenue of a taxpayer. This Act requires a person to give the Commissioner-General physical access to the physical network node or infrastructure or system of that person at an equivalent point in the network or infrastructure or system where the system of the taxpayer is connected. Additional penalty has been introduced for refusal by a taxpayer to provide the CommissionerGeneral or the authorised tax officer access to the physical network node. Thus a penalty of 5% of the annual gross revenue of the person in addition to the penalty prescribed in section 78 of the Act.

1. ELECTRONIC TRANSFER LEVY (E-Levy)

The Electronic Transfer Levy Act, 2022 (Act 1075) has been amended by the government of Ghana. The object of this amendment is to reduce the levy on electronic transfer to one percent, to provide for the filing of returns and provide for the time for payment, and emphasis on other related matters.

1. Reduce the levy on electronic transfer to one percent. The Electronic Transfer Levy Act,2022 (Act 1075) imposes an electronic transfer levy of 1% on electronic transfers, as against the 1.5% formally imposed. Electronic money transfer and digital bank transfer daily threshold of GHS 100 and GHS 20,000 respectively haven’t seen any changes. The daily threshold of the principal enactment remains in force.
2. To provide for the filing of returns and provide for the time for payment. A charging entity shall file a return in respect of the levy with the Commissioner-General in matter and at the time and place determined by the Commissioner-General. A charging entity shall pay to the Commissioner-General the Levy that has been charged on electronic transfer within twenty-four hours after charging the amount.
3. VALUE ADDED TAX (VAT)

The Value Added Tax Act,2013 (Act 870) has been amended by the government of Ghana. The purpose of this amendment is to adjust the Value Added Tax (VAT) rate, adjust the VAT threshold, review the transitional provisions for the implementation of the electronic Value Added Tax(e-VAT) system, revise the administrative penalties for non-compliance in relation to the electronic Value added Tax and remove the VAT on betting, gambling and other game of chance.

Key highlights in this amendment are;

12. Change in VAT standard rate from 12.5% to 15%. The VAT rate which was previously 12.5% is now going to be 15%. This 15% is charged on the value of the taxable supply of goods and services and the value of import. The taxable amount is an inclusion of the 2.5% National Health Insurance Levy, 2.5% of the Ghana Education Trust Fund Levy and the 1% Covid-19 Health Recovery Levy. The increase in the VAT rate from 12.5% to 15% will increase the effective tax and levy rate from 19.25% to 21.9%. Retailers of goods who make taxable supplies above GHS 200,000 but below GHS 500,000 shall pay the Value Added Tax at the flat rate of 3% on the value of the taxable supply.
13. Revision of VAT Taxable supplies. The acceptance of a wager or stake in any form of betting or gaming, including lotteries and gaming machines has been removed from the list of activities that constituent taxable supplies for VAT application. The new amendment has also removed betting as supply of services by a business operating a game of chance. There is no more VAT on betting services provided by persons to its customers. There has also been an inclusion of imported textbooks, imported newspapers, architectural plans and similar plans, drawings, scientific and technical works, periodicals, magazines, trade catalogues, price lists, greeting cards, almanacs, calendars, diaries and stationery and other printed matter to the list of taxable activity for VAT application. These supplies do not fall in the VAT exemption bracket as it previously did.

• Failure to comply with the new Certified Invoicing System (E-VAT). Value Added Tax (amendment) Act 2022 (Act 1082) requires a taxable person to issue a tax invoice through a certified invoicing system and ensure that the Certified Invoicing System is integrated into the invoicing system of the C-G. The purpose of the new amendment (Act 1087) is to strengthen the compliance with Act 1082 by providing penalties for non-compliance with the Certified Invoicing System. The Act 1087 has prescribed penalty for VAT registered persons that don’t adhere to the new provisions of Act 1082. Persons who issue a falsified tax invoice or sales receipt or manipulate the proper functioning of the Certified Invoicing System or fail to integrate the Certified Invoicing System into the invoicing system of the Commissioner-General will, in addition to penalty prescribed for failure to issue a tax invoice under the VAT Act, be liable to a penalty of the higher of GHS50,000 or three times the amount of tax involved. The new amendment, Act 1087, has also repealed the provision for sections 13 and 14 of Act 1082 which allowed persons who fail to comply with the Certified Invoicing System to apply for extension. Also, Betting, Gaming (including other games of chance) have been removed from the scope of VAT application. Thus, exempted from VAT. Finally, VAT on imported Text books, newspapers, architectural plans and similar plans, drawings, scientific and technical works, periodicals, magazines, trade catalogue, price lists, greeting cards, almanacs, calendars, diaries and stationer and other printed materials have been reintroduced. VAT is now applicable on importation of books and printed materials.

We summarize the key takeaway on these new provisions below;

Revenue Administration

1. This new amendment would protect the Commissioner-General or tax authority against grudges by persons who may prevent tax official from access to information.
2. This unrestricted access will yield information needed for the Commissioner-General’s tax assessment.

• Government expects to increase Tax-to-GDP from around 13% to 20% in the year 2023. These amendments have set the tone for a strict and aggressive tax compliance strategies to be adopted by Government to meet this target and generate maximum tax revenue.

      E-Levy

1. The reduction in the rate from 1.5% to 1% will benefit persons as new income save and invest in other areas.
2. Filing of returns by charging entities will help them to pay the correct amount of tax to the Ghana Revenue Authority and authenticate evidence of tax collected and paid back.

VAT

1. The increase in the VAT rate may result in a general escalation in of goods and services.

1. The increase in price on an invoice is 2%. Where Government is unable to educate taxpayers of this expected effect, traders may rationalize the concept of increase in VAT rate and escalate the prices disproportionally as experienced in the past.

• Integrating the Certified Invoicing System into the Invoicing System of CommissionerGeneral may promote information sharing between taxpayer and the Commissioner

1. The Commissioner-General as indicated in the amendment should as a matter of urgency issue directives and guidelines to assist taxpayer comply with the requirement under the E-VAT system.
2. The provisions of penalties regarding the E-VAT system is a strong insulation of the system to ensure maximum compliance by taxpayers.

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 Q1. What is the Growth and Sustainability Levy?

 The Growth and Sustainability Levy (the “Levy”) is an imposition of a the profit and gross production of Companies. The levy is imposed based on the category of industry that a company operates in. For some industries, the levy is imposed on profit before tax whilst for others, it is imposed on the gross production during the year of assessment.

 Q2. Are all persons liable to pay the Levy?

 Yes, the Levy applies to the specified companies and institutions are required to pay the Levy. However, specific stabilisation clauses in an agreement with Government and exemptions granted to a company may exclude the company from paying the levy.

 Q3. Are there any specific regulations to guide a tax payer?

There is regulations currently. However, the Minister (of Finance) is empowered to, by a Legislative Instrument, make Regulations to amend the schedule to revise:

1. The categories of companies and institutions liable to pay the Levy;
2. The companies and institutions liable to pay the Levy; and
3. The rate of the Levy.

Q4. How does the Levy affect my profits or production?

The Levy is payable as a percentage of profits before tax or production for 2023, 2024, and 2025 years of assessment. Companies in Category A will be required to pay a Levy of 5% of their profits before tax. Category B companies will pay a Levy of 1% of their gross production. All other entities that do not fall within Category A and B will be required to pay a Levy of 2.5% of their profit before tax.

Q5. What Category of companies are affected by this Levy and at what rate?

Companies subject to this Levy are categorized as follows;

Basically, every company is affected by the Levy. The only difference is that the applicable rates vary amongst the various categories of industries.

Q6. Is it possible for a person to deduct the Levy from his taxable income?

No, the Levy paid or payable is not an allowable deduction when a person is ascertaining chargeable income for a year assessment under the Income Tax Act, 2015(Act 896) as amended.

Q7. When is the due date to file an assessment and pay the Levy?

• A person who is subject to the Levy for a year of assessment shall file with the Commissioner-General, an estimate of the Levy payable for the year of assessment by the date of payment of the first tax installment.
• Subject to any directives of the Commissioner-General to the contrary;
• An estimate of the Levy shall be in the prescribed form and provide any other information that the Commissioner-General may require.
• The Levy assessed for a year of assessment is payable quarterly and due on the 31st of March, 30th of June, 30th of September, and 31st of December of the year.

Q8. What is the difference between the Growth and Sustainability Levy (GSL) and the repealed National Fiscal Stability Levy (NFSL)?

The GSL is different from the NFSL by the widening of persons liable to pay the GSL. The repealed NFSL applied to only companies and institutions now specified in Category A of the GSL.

Q9. Is Levy returns required to be filed?

 Yes, the specified companies and institutions shall file a return in respect of the Levy with the Commissioner-General in the manner and at the time and place as determined by the Commissioner-General.

Q10. Can one deduct the levy paid as an expense for the purposes of calculating Corporate Income Tax?

 No. The levy is not an allowable deduction. The amount paid should be added back to the profit before tax prior to applying the Corporate Income Tax rate.

Q11. Are there any sanctions for non-compliance?

 Yes, the provisions of the Revenue Administration Act, 2016 (Act 915) relating to collection, enforcement, refund, penalties, and offenses shall apply to the collection of the Levy as if the Levy is collected under Act 915.

Q12. Which authority administers the Growth and Sustainability Levy?

 The Levy shall be collected by the Ghana Revenue Authority, who shall then repay all amounts collected into the Consolidated Fund.

Q13. Is the Levy applicable to Companies who have Stability Clauses in their contracts with the Government of Ghana?

The general purpose of stability clauses in a contract is to exempt a company from the effect of changes in tax laws that could affect the parties involved. Stability clauses with respect to tax, exclude companies who are parties in an agreement with the Government of Ghana from the Levy. The Levy will therefore not be applicable to such companies or entities. It is however advisable to consider the wording of a stability clause in the contract with the Government of Ghana to be able to determine whether the Levy is applicable or not.

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PROCEDURE HISTORY

This is an appeal against a final tax decision by the Commissioner-General on a tax assessment of Coco-Cola Equatorial Africa Limited.

BACKGROUND OF THE CASE

Coca-Cola Equatorial Africa Limited (the “Appellant”) is a company engaged in the business of extraction and sale of water under its Voltic brand and provides marketing and other support services to its affiliates as well as other related administrative activities to the Coca-Cola Export Corporation. The Commissioner General of the Ghana Revenue Authority (the ‘’Respondent’’) is the head of the Ghana Revenue Authority (“GRA”), a statutory body responsible for tax administration and revenue collection in Ghana. In December 2019, the Respondent conducted a tax audit into the activities of the Appellant from 2016-2018. After the assessment, the Respondent issued a final audit report and after appeal against same by the Appellant, a final tax liability of GHs33,143,375.15 comprising a direct tax liability of GHs25,428,311.59 and an indirect tax liability of GHs7,715,063.56 was imposed on the Appellant. The Appellant still aggrieved by the Respondent’s decision filed an appeal at the High Court.

ISSUES RAISED

1. Whether or not the payment of GHS88,862,404.00 by the Appellant to Voltic International constitutes an outright purchase of a Trademark and therefore not subject to withholding tax?
2. Whether or not the Appellant is not liable for withholding tax on transactions between 2017-2018 which were later reversed and not invoiced for payment?
3. Whether or not the withholding tax on the reimbursed staff salaries amounted to double taxation when the required PAYE taxes had already been paid to the Respondent by the employment agency of the Appellant?
4. Whether or not the Respondent erred by construing the Appellant’s trade discount as a commission and therefore subjected same to a withholding tax of 7.5% in the 2017 assessment?
5. Whether or not the Respondent erred in law by imposing a withholding tax of 15% on the Appellant’s trade discount in the 2018 assessment?
6. Whether or not the supply of service by the Appellant consumed outside the jurisdiction is subjected to VAT, NHIL and GETFund Levy by the Respondent contrary to item 3(3) of the second schedule of the Value Added Tax, 2013 (Act 870)?

THE APPELLANT’S CASE

To the appellant, payment made to Voltic International Inc. was in respect of outright purchase of intangible asset (trademark) than royalties for the use of trademark. Withholding should therefore not apply to the payment. Trade discount is a performance based and can be accumulated and given at the end of the year. The discount should therefore not be construed as commission for the purposes of Withholding tax.

The Commissioner-General cannot in law impose withholding tax on accrued transactions/expenses which were subsequently reversed for non-performance and therefore not invoiced for payment. Reimbursement of staff salary to employment agency should not suffer withholding tax particularly since PAYE have already been deducted by their employers before the amount were finally paid to them. The respondent was wrong to impose Value Added Tax (VAT); National Health Insurance Levy (NHIL) and Ghana Education Trust levy (GETFundL) on a supply of services by the Appellant, which was consumed outside the country, contrary to item 3(3) of the second schedule to the Value Added Tax, 2013 (Act 870).

THE RESPONDENT’S CASE

It is the Respondent’s case that the appeal is unfounded for the following reasons, in response to the issues raised:

1. The Appellant failed to provide the Respondent with all the necessary documents to establish that the payment for the trademark to Voltic International was an outright purchase and not payment of royalties. The Appellant failed to provide a sale and purchaseAgreement to that effect and hence, withholding tax was applicable.
2. Transactions/expenses for which withholding tax was imposed were captured from the financial statements of the Appellant. The Appellant did not provide any evidence to prove that the expenses incurred were subsequently reversed and indeed if the transactions had been reversed, it would not have formed part of the Appellant’s annual returns and financial statements.
3. The service agreement between the Appellant and Voltic Ghana Limited for the provision of water extraction services did not evidence a contract for the supply of labour. Further, the Appellant made payment to Voltic Ghana Limited without withholding tax as required under the Income Tax Act. The Respondent however concedes that the correct rate to have been used is 7.5% instead of 15% which was used in the tax audit report.
4. Trade discount is given as reduction on the original invoice price and not given at the end of the year.
5. The trade discount was in substance a commission pursuant to Section 116(1)(a) (v) because the Appellant’s customersstill paid the full price of every supply made to them during the period under review. The commission is therefore subject to tax and the Respondent concedes that the appropriate rate to have been used is 7.5% and not 10% as used in the tax audit report.
6. The Respondent repeats that the trade discount was in substance a commission pursuant to Section 116(1)(a)(v) because the Appellant’s customers still paid the full price of every supply made to them during the period under review. The Respondent did not double tax the Appellant, it merely erroneously taxed the amount at 10%. The commission is different from the understated revenue and as such, could not refer to the same thing.
7. The fact that export is based in the USA does not negate the fact that the services for it were performed in Ghana therefore by the combined effect of Sections 1 and 5 of the VAT Act, 2013 (Act 870), the supply of service is subject to VAT.

GROUNDS OF APPEAL

The Appellant filed an appeal on the following grounds:

1. The Respondent erred in law by imposing withholding tax, pursuant to Section 115(1) of the income Tax Act,2015(ACT 896) on the outright purchase of trademark by the Appellant from Voltic International Inc under the wrong assumption that the transaction was a payment for royalties;
2. The Respondent erred in law by imposing withholding tax on accrued transactions/expenses which were subsequently reversed for non-performance and therefore not invoiced for payment;
3. The Respondent erred in law by imposing withholding tax on expenses of staff salaries reimbursed to anemployment agency when the requisite PAYE taxes had already been withheld by the employment agency and paid over to the Respondent pursuant to section 114 of the income Tax Act, 2015 (Act 896);
4. The Respondent erred in law by wrongly construing trade discount which had accrued in 2017 year of assessment as a commission and subjecting it to a withholding tax of 10%, purportedly pursuant to section 116 (1)(a)(v) of the income Tax Act 2015 (Act 896);
5. The Respondent erred in law by imposing a withholding tax of 15% on the same accrued trade discount subsequently made available to the Appellant’s customer in the 2018 year of assessment; and
6. The Respondent erred by imposing Value Added Tax (VAT); National Health Insurance Levy (NHIL) and Ghana Education Trust levy (GETFundL) on a supply of services by the Appellant, which was consumed outside the country, contrary to item 3(3) of the second schedule to the Value Added Tax, 2013 (Act 870).

DECISION OF THE COURT

ISSUE 1: The Appellant failed to prove that the trademark obtained was an outright purchase and not a right of use. Though the Appellant provided a Bill of Sale which conveys an intention to sell and purchase an asset, it does not state that the subject matter is the trademark in question or define what was sold and at what cost. The Bill of Sale subjects itself to the Asset Purchase Agreement which the Appellant failed to share with the court. In the absence of same, the Court infers that payments made were for user rights. Payments for user rights constitutes payment of royalties which are subject to withholding tax under Section 115(1) of the Income Tax Act.

ISSUE 2: The Appellant failed to provide the requisite documents to prove the reversal of the transactions/expenses incurred between 2017-2018 which was subjected to a withholding tax by the Respondent. The Appellant failed to execute the burden of proof laid on him to show that there had been compliance with the provisions of the tax laws as such, the Respondent did not err in subjecting the transactions to withholding tax.

ISSUE 3: The agreement in question is the Supply of Project Support Services agreement between the Appellant and FKV & Associates (the “Agreement”) and not the agreement between the Appellant and Voltic for water extraction services as mistaken by the Respondent. The Agreement was still in force for the period under review and therefore the imposition of a withholding tax on the reimbursed staff salaries when the requisite PAYE taxes had already been withheld by the employment agency was wrong in fact and in law and same be reversed by the Respondent.

ISSUE 4: The Respondent did not err in construing the discount as a commission and subjecting same to a withholding tax of 7.5% in the 2017 assessment as provided under section 116(1)(a)(v) of Act 870 and Regulation 21 of the Value Added Tax Regulation,2016(LI 2243). The alleged tax discounts were not stated on the tax invoices issued by the Appellant hence, there was no proof of discounts given. The Respondent has the right to re-characterise or disregard a transaction under Section 34 of Act 896 where the form of the transaction does not reflect its substance. The discount was in fact a commission.

ISSUE 5: the Respondent, in its Reply, admitted that the fourth and fifth ground of appeal refer to the same transaction. The law on admission is that where a person makes an admission on certain facts which are not traversed by the opponent, then the said facts are deemed to be admitted. On issue 4, the court already concluded that the amount was a commission under the guise of a discount. The Respondent cannot come up with another figure already considered as trade discount and fail to characterise its nature as a commission while imposing tax on same without justification. The Respondent thereby erred in imposing 15% withholding tax on the trade discount made to the Appellant’s customers in the 2018 assessment.

ISSUE 6: If the consumer business is located outside the country, the consumption of the service is deemed to be outside the country. Such services are therefore exported and zero rated for VAT purposes under item 3 of the Second Schedule of the VAT Act (“Act 870”). In the instant case, the services rendered by the Appellant under the agreement were mainly in the form of advice and recommendations to the Coca-Cola Export Corporation which is located outside the country, hence, the consumption of the service is also outside the country and should be zero rated for VAT purposes. The destination principle as espoused by OECD was applied.

IMPLICATIONS AND KEY TAKEAWAYS OF THE HIGH COURT’S DECISION

» In tax matters, the taxpayer bears the burden to show that there has been compliance with the provisions of the tax law per Section 92 of the Revenue Administration Act, 2016 (Act 915).

» With respect to the imposition of a penalty, including proceedings on appeal under or for the recovery of a penalty, the burden rests on the Commissioner General to show non-compliance with the provisions of the law per Section 92 of the Revenue Administration Act, 2016 (Act 915).

» Trade discounts offered to customers should always be written on the VAT invoice while cash discounts should be recorded on the debit side of the cash book evidencing that the customer has received the benefit.

» The Commissioner-General of the GRA has the right to re-characterise or disregard a transaction under Section 34 of Act 896 where the form of the transaction does not reflect its substance.

» Where the consumer business is located outside the country, the consumption of the service is deemed to be outside the country for VAT purposes. As such, VAT must be zero rated.

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The Parliament of Ghana has passed the Income Tax (Amendment) Act 2023, Act 1094. The object of this amendment is to revise the rates of income tax for individuals and introduce an additional income tax bracket; introduce a withholding tax rate on the realization of assets and liabilities; unify the loss carried forward provisions regarding winnings from lottery; revise the treatment of foreign exchange losses; revise the taxable value for motor vehicle benefit; and increase the concessional income tax rates.

The Income Tax (Amendment) 2023, Act 1094 was assented to by the President and gazetted on 3rd April, 2023. The Commissioner-General issued a notice dated 27 April 2023 to the effect that the effective date of implementation of the amendment is 1 May 2023

In this alert, we highlight the key areas of the law below:

Minimum chargeable income

• The inclusion of the minimum tax rate of 5% of turnover for persons declaring losses for the previous 5 years.
• A person may be required to compute and pay tax on a minimum chargeable income of 5% of turnover where the person has been declaring losses for the previous 5 years of assessment total income.
• The minimum chargeable income, however, does not apply to a person within the first five years of the commencement of operations or a person engaged in farming.

Addition of winnings from lottery to income from investment

• The law now requires a person who is ascertaining the profits and gains of that person or of another person from an investment for a year of assessment to include in the calculations, winnings from lottery.
• A 10% withholding tax on gross game winnings must be withheld by lottery operators and paid to the Commissioner-General. The withholding tax is per each game winning and at the end of each game.

Unification of deduction of unrelieved loss

• The current amendment allows a person who is ascertaining the income of that person or of another person from a business for a year of assessment, to deduct an unrelieved loss of the person for any of the previous five years of assessment from the business. All unrelieved loss may be deducted for a period of 5 years.
• The five years deduction of unrelieved losses is applicable to all companies irrespective of the industry or section of operation.

Tax treatment of foreign exchange gains or loss

• When a person is ascertaining the income of a person for a basis period from any business, there shall be a deduction of any foreign currency loss other than a loss that is capital in nature incurred in the production of income during the period in respect of debt claim, debt obligation or foreign currency holding of that person.
• Any foreign exchange loss arising out of transactions that are capital in nature is now not allowed as a deduction, but rather capitalized and capital allowance may be granted accordingly.
• There is also a restriction on the deduction of foreign exchange loss associated with revenue transactions to only realized foreign exchange loss.
• A foreign exchange loss arising from a transaction between two resident persons shall not be allowed as a deduction.

Submission of return for gains on the realization of assets and liabilities

• Submission of tax returns in relation to realization of assets or liabilities is now required.
• A person who realizes an asset or a liability shall, within 30 days after the realization of the asset or liability, submit to the Commissioner-General a return in the form determined by the Commissioner-General.

Taxation of retirement fund

• A withdrawal from a provident fund or personal pension scheme before the statutory retirement age by

1. An employee due to loss of permanent employment or
2. A self-employed person from the personal savings account under the National Pensions Act, 2008 (Act 766)

due to the Novel Coronavirus pandemic or the current economic hardship is exempt from income tax for 2023.

Taxation of Lottery Operations.

• The income of a person from lottery operations is subjected to 20% corporate income tax
• The chargeable income of a person from a lottery operation has been defined to mean the gross gaming revenue.
• The gross gaming revenue of a person engaged in a lottery operation has been defined as the total amount staked or wagered less prizes or winnings paid or payable.
• Gross gaming revenue is the total amount staked or wagered less prizes or winnings paid or payable.
• When a person has chargeable income other than income from a lottery operation, the person shall be charged separately.

Withholding in relation to the realization of asset or liability

• Section 115 of the Income Tax Act 896, Act 2015 has been amended by the substitution for subsection 1.
• A resident person shall withhold tax at the specified rate where that person pays;

1. Any dividend
2. Winnings from lottery
3. Interest
4. Natural resource payment
5. Rent or royalty to another person.
6. Consideration to another person in respect of the realization of an asset or a liability and the payment has a source in the country.

• The new amendment has added withholding of tax for any consideration made to another person in relation to the realization of an asset or a liability.
• Also, to address assets or liabilities not covered by the aforementioned section, the amendment has inserted section 116A, which mandates the withholding of taxes from the consideration upon the realization of any other assets or liabilities.
• Now, withholding tax is applicable on realization (sale) of assets or liabilities. The rate applied on the consideration received is;

1. 3% in case of a resident person; and
2. 10% in case of a non-resident person

Free Zone Companies

• The chargeable income of free zone companies in the supply of goods and services to the local market after the end of the concessionary period will be taxed at the rate of 25%. Companies engaged in hotel business are excluded from this.

Rates of income tax for individuals.

• The highest tax rate for individuals has been increased from 30% to 35%.
• Again, the first tax band of an individual has been increased from GHS4,380.00 to GHS4,824.00.
• The chargeable annual income of a resident individual for a year of assessment is now taxed at the following rates;

From the annual tax rates, the monthly instalment rates are set out below:

• The chargeable income of a non-resident individual for a year of assessment is taxed at the rate of 25%
• Where an individual receives gains from realization of asset (investment), the individual may elect that the gain from the investment is taxed at the rate of 25%.
• Where an individual receives a gift from employment or business, the individual may elect that the gift is taxed at the rate of 25%

Rate of tax on persons entitled to concessions in the sixth schedule.

• The income of a person entitled to a concession in the sixth schedule is subject to tax at the rate of 5% of chargeable income.
• Persons engaged in agriculture, rural banking, providing residential premises, waste processing, unit trust scheme and mutual fund, and venture capital financing are on the list of the sixth schedule.

Motor vehicle benefits.

• The tax threshold for use of a motor vehicle provided by an employer to an employee has now been capped at the following rate.

1. Driver and vehicle with fuel benefit is 12.5% of the person’s total cash emoluments, with a maximum limit of GHS 1,500.00 per month. This represents an increase from the previous tax threshold of GHS 600.00.
2. Vehicle with fuel benefit is 10% of the person’s total cash emoluments, with a maximum limit of GHS 1,250.00. This represents an increase from the previous tax threshold of GHS 500.00.
3. For vehicle only, the benefit is 5% of the person’s total cash emoluments, with a maximum tax limit of GHS 625.00 This represents an increase from the previous tax threshold of GHS 250.00.
4. Fuel only, benefit is 5% of the individual’s total cash emoluments, with a maximum limit of GHS 625.00. This represents an increase from the previous tax threshold of GHS 250.00.

Takeaway

• The amendment was signed by the President and gazetted on 3 April 2023. This implies that the effective date of application of the amendment ought to be 3 April, 2023. However, the Commissioner-General issued a directive for the implementation of the Amendment to be effective on 1 May 2023. In our opinion, taxpayers who applied the new payroll rates in April 2023 will not suffer any penalty despite the directive given by the Commissioner-General for the law to start on 1 May 2023
• The introduction of the minimum chargeable income will ensure that companies who have been making losses for the past five years pay tax at the rate of 5% on their revenue. The minimum chargeable income is not applicable to companies in the farming business, as well as, all companies in their first five (5) years of operation.
• With regard to the minimum chargeable income, there is uncertainty about when to start counting the five years of losses. A valid question will be whether it starts from now (when the amendment came into force) or it should include years before the enactment of this amendment. It would be helpful if the Commissioner-General would issue a guideline through a practice note to bring clarity to this.
• The minimum chargeable income principle is an anti-avoidance measure and will serve as a disincentive to reporting losses. It will also create a situation where companies would create artificial profit to avoid higher tax liabilities as revenue normally tends to be a higher tax base. This may create economic distortions for struggling companies.
• Income from lottery operations and game of betting is now subject to withholding tax of 10%. It is also subject to Corporate Income Tax at a rate of 20%.
• The corporate income tax on lottery operations will therefore be applied as 20% of total amount staked or wagered minus winnings paid or payable.
• Unrealized exchange losses are now not allowable as a deductible tax expense. It is advisable to keep separate books/ledgers for a clear distinction between realized and unrealized exchange differences. This is because, where they are lumped up in one account, GRA may end up disallowing all with the least uncertainty as to what relates to realized and unrealized exchange loss.
• Now the expansion of persons in controlled relation will expand transfer pricing consideration for companies. Transactions that would not have triggered transfer pricing considerations may now be considered with this expanded definition.
• The introduction of 35% on employment income above GHS50,000.00 may in the long run lead to an increase in cost to the employers. This is because the affected employees who would be in management positions may of business of business as employee associations may require the employer to absorb the increase in taxes.
• With these amendments, the tax net is expected to increase. Tax revenue is also expected to increase. That said, measures to improve the efficient collection of tax revenue should be critically considered by GRA to achieve this expected increase in tax revenue, as the changes in tax rates may necessarily not lead to increase in tax revenue.

Richard Amo-Hene Vrs Ghana Revenue Authority, Attorney General & Judicial Service

The Supreme Court of Ghana upheld the provisions of the Revenue Administration Act, 2016, Act 915 (as amended) and High Court (Civil Procedure) Rules, 2004 (C.I 47) of pay now and argue later in the case brought before the Supreme Court by Richard Amo-Hene.

The Plaintiff (Richard Amo-Hene) invoked the powers of the Supreme Court of Ghana under Article 2 clause 1 of the Constitution of Ghana, 1992 to declare Section 42(5) (b) of the Revenue Administration Act (as amended) and Order 54 rule 4(1) of the High Court (Civil Procedure) Rules as unconstitutional and consequently null, void and unenforceable.

FACTUAL BACKGROUND

Section 42(5)(b) of the Revenue Administration Act, 2016 (Act 915) sets out the procedures for objecting to a decision of the Commissioner-General. An objection against a tax decision shall not be entertained by the Commissioner-General unless the person has: a. In the case of import duties and taxes, paid all outstanding taxes including the full amount of the tax in dispute; and b. In the case of other taxes, paid outstanding taxes including 30% of the tax in dispute Similarly, Order 54 rule 4(1) of the High Court (Civil Procedure) Rules, 2004 (C.I 47) also provides that the High Court will not entertain an appeal against a tax assessment unless the aggrieved person has paid 25% of the disputed tax in the first quarter of that year of assessment as contained in the notice of assessment. Richard Amo-Hene sought a declaration by the Supreme Court to the effect that section 42(5)(b) of Act 915 and Order 54 rule 4(1) of C.I 47 were unconstitutional as the rule of “Pay Now and Argue Later” imposed by said provisions is inconsistent with articles 2(1), 17(1), 19(2)(c), 33(1) & (5), 125(2), 130(1), 132, 133(1) and 140 of the Constitution of Ghana, 1992 (the 1992 Constitution) which guarantee the presumption of innocence and a person’s right of access to the court.

THE CASE OF RICHARD AMO-HENE

Amo-Hene advanced the argument that where a taxpayer is required to pay thirty per cent (30%) of the disputed tax per Act 915 (as amended), or twenty-five per cent (25%) payment per the procedural rules in CI 47, these statutory provisions impute culpability on that taxpayer prior to the determination of the liability or otherwise of said taxpayer concerning the tax in dispute. The premise of Amo-Hene’s argument is that the presumption of innocence expressly provided for by the 1992 Constitution stipulates that a person is presumed innocent until his guilt is proved beyond reasonable doubt. Thus, Amo-Hene argues that by asking the taxpayer to pay 30% or 25%, the law rather presumes the guilt of the taxpayer as 30% or 25% culpable and the taxpayer then assumes the burden of proving his innocence which is in clear contravention to his constitutional right.

Amo-Hene further argued that the scope of the right of access to the Court was established for a fair and proper administration of justice. In defending his argument, Amo-Hene submitted that access to justice has two sides; the ability to walk into court and initiate a cause of action and the ability to effectively participate in court proceedings. He also submitted that per Article 35(3) of the 1992 Constitution, under the Directive Principles of State Policy, citizens are entitled to access public facilities and services, which can be read to include the courts, without any undue fetter or impediment. Thus, it was Amo-Hene’s case that where section 42(5)(b) of the Act 915 (as amended) and Order 54 rule 4(1) of CI 47 imposes the condition of pay now and argue later before a tax objection or tax appeal can be made to the High Court, this condition unduly restricts a person’s right to access the courts and participation in the administration of justice despite the constitutional provision for the presumption of innocence. Amo-Hene further submitted that this pay now and argue later requirement also clearly undermines the duty and right of a citizen to defend the 1992 Constitution per articles 2(1) and 130(1), and the condition of pay now and argue later was never envisaged by the framers of the 1992 Constitution to be a sine qua non requirement for constitutional litigation in Ghana.

THE CASE OF THE DEFENDANTS (GRA, ATTORNEY-GENERAL & JUDICIAL SERVICE)

The Defendants, in their defence, raised a preliminary issue on the jurisdiction of the Supreme Court to hear and determine the matter, and argued that the pay now and argue later concept per Section 42(5)(b) of Act 915 (as amended), and Order 54 rule 4(1) of C.I 47 does not contravene constitutional provisions that guarantee a fair hearing and a person’s right of access to the courts neither does it amount to an abuse of discretionary power as claimed by Amo-Hene. Firstly, the Defendants argued that AmoHene had not properly invoked the Supreme Court’s original jurisdiction as he was seeking enforcement of human rights provisions in the Constitution which is available in the High Court. According to the Defendants, he had cleverly disguised seeking the enforcement of human rights provisions as a constitutional interpretation or enforcement matter. Thus, where no genuine issue of constitutional interpretation and enforcement exists, the High Court is the court properly clothed with original jurisdiction to entertain the matter not the Supreme Court.

Secondly, the defendants argued that the Pay Now and Argue later rule is a balance between the taxpayer’s rights as against the need for the effective settlement of tax debts. The Defendants advanced this argument on policy grounds to the effect that the pay now and argue later requirement addressed the need to limit recalcitrant taxpayers strategically seeking to use the objection and appeal procedure to defer payment of their taxes. The Defendants further argued that the overriding purpose of the provisions in Section 42(5)(b) of Act 915 (as amended), and Order 54 rule 4(1) of C.I 47 is to secure revenue to run the machinery of the state while the dispute relating to the tax issue is resolved. The Defendants concluded that Amo-Hene had thus failed to demonstrate that Section 42(5)(b) of Act 915 (as amended), and Order 54 rule 4(1) of C.I 47 are in contravention of any constitutional provisions and as such his action ought to be dismissed.

ISSUES

The Court decided to look at the case based on three main issues. 1. Whether or not the plaintiff has properly invoked the original jurisdiction of the Supreme Court. 2. Whether or not Section 42(5)(b) of the Revenue Administration Act, 2016 which requires a taxpayer to pay all outstanding taxes including 30% of the tax in dispute before an objection to a tax decision can be entertained by the Commissioner General of the GRA is inconsistent with the spirit and letter of articles 2(1), 17(1), 125(2), 19(2)(c), 33(1), 132, 133(1), 140 of the 1992 Constitution and to the extent of the inconsistency void. 3. Whether or not Order 54 rule 4(1) of the High Court (Civil Procedure) Rules 2004 C.I 47 which requires a taxpayer to pay an amount not less than 25% of the amount payable in the first quarter of that year of assessment as contained in the notice of assessment before an appeal can be entertained by the High Court is inconsistent with the spirit and letter of articles 2(1), 17(1), 125(2), 19(2) (c), 33(1), 132, 133(1), 140 of the 1992 Constitution and impedes a person’s right of access to court, participation in the administration of justice and the presumption of innocence until proven or pleaded guilty and to the extent of the inconsistency void.

DECISION

The Supreme Court adopted the reasoning in Kwasi Afrifa v Ghana Revenue Authority & Anor., Writ No. J1/23/2021 dated 30th November, 2022, SC (unreported case) where it held that the original jurisdiction of the Supreme Court had been properly invoked under Article 2(1) to determine the inconsistency or otherwise of provisions of Act 915 with article 125, guaranteed rights of citizens under Chapter 5 and the spirit of the Constitution expressed in Chapter 6. The Supreme Court accordingly dismissed the preliminary issue raised by the Attorney General to the Supreme Court hearing and determining the matter. Concerning the issue of the constitutionality of section 42(5) of Act 915, in a 6-1 decision, the Supreme Court once again adopted its reasoning in the Afrifa case (supra) and dismissed Amo-hene’s reliefs for a declaration that said section 42(5) of Act 915 is unconstitutional and consequently void, null and unenforceable, an order setting said section aside for its inconsistency and an order of perpetual injunction restraining the Defendants from acting under said section.

According to the reasoning in the Afrifra case, section 42(5) of Act 915 does not create an undue fetter to the hearing of an objection by a citizen to any tax decision owing to the rest of the dispute resolution provisions under Act 915, and “upon a true and proper interpretation of Article 23 of the 1992 Constitution, section 42(5) of Act 915 is not inconsistent with and violative of the constitutional right to administrative justice guaranteed under the provisions of Article 23 of the 1992 Constitution”. Further, it was also the reasoning of the Supreme Court in the Afrifra case that “to the extent that any tax decision taken by the Commissioner General is an administrative decision, and tax decisions are by Act 915 made subject to objection, judicial review, and appeal, the regime provided under Act 915 for regulation of tax decision by the Commissioner-General passes the test of constitutionality.”

Finally, the Supreme Court also dismissed the remaining reliefs sought by Amo-Hene in relation to the third issue raised on the unconstitutionality of Order 54 rule 4(1) of CI 47 requiring payment of 25% of the amount payable in the first quarter of that year of assessment before an appeal can be entertained by the High Court. The Supreme Court referred to Export Finance Company Limited v Ghana Revenue Authority and Anor, Writ No. J1/7/2021 dated 30th November, 2022 SC, a similar writ questioning the constitutionality of Order 54 rule 4 of CI 47 and chose not depart from its position in the Export Finance Company case as the arguments urged on the Supreme Court and the references to case law and constitutional provisions by Amo-Hene were no different from that those argued before the Supreme Court in that case. In the Export Finance Company Ltd. case (supra), the Supreme Court held that based on the clear public policy rationale against allowing taxpayers and citizens to delay and evade their tax obligations to the state by taking advantage of loopholes in the law, “the Rules of Court committee did not act unconstitutionally in inserting rule 4 in Order 54 when formulating the rules and procedure regulating tax appeals in the country.” The Supreme Court then stated its position that Order 54 r 4 of CI 47 complements section 42 of Act 915 and being subsidiary legislation, it must yield to the parent legislation. Thus, where the appellant to a tax appeal has complied with the provisions of Act 915, the appellant need not comply with Order 54 r 4 of CI 47 in invoking the jurisdiction of the High Court. This interpretation accords with common sense and fairness as the lawmakers could not have intended that an appellant be compelled to pay the percentage twice before invoking the jurisdiction of the High Court.

IMPLICATION AND KEY TAKEAWAYS

1. The settlement of outstanding tax liabilities and the payment of 30% of the disputed tax continue to serve as a pre-requisite for an objection to the tax decision of the Commissioner-General of the GRA.
2. The Commissioner-General may grant a person’s request for a waiver of the 30% payment of the disputed tax.
3. Upon denial of an application for a waiver of condition precedent to an objection being entertained, a person may proceed to the High Court seeking relief against the denial where in his opinion, the denial was made arbitrarily.
4. The High Court will not entertain a tax appeal unless 25% of the disputed tax is paid in the first quarter of that year of assessment.
5. The concept of pay now and argue later being pronounced as unconstitutional will open the floodgates for the citizenry to take advantage of and avoid or delay meeting their tax obligations to the State.
6. The opportunity to apply for judicial review and appeal at the High Court against the Commissioner-General’s exercise of discretionary powers to waive or deny an application for waiver of condition(s) precedent to an objection may as well open the floodgates for numerous applications by taxpayers and citizens seeking relief against said denial of a waiver which may equally delay taxpayers honoring tax obligations to the State.

CONCLUSION

The Supreme Court determined that Section 42(5) of the Revenue Administration Act, 2016 (Act 915) and Order 54 rule 4(1) of the High Court (Civil Procedure) Rules 2004 (C.I 47) are not inconsistent with or in contravention to constitutional provisions thus dismissed Amo-Hene’s action in its entirety.

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On 7 April 2022, the Court of Appeal dismissed an appeal brought against a judgment of the High Court, Commercial Division by Fan Milk Ghana Limited vs. Ghana Revenue Authority in respect of a tax dispute. This case is an appeal against the decision of the High Court, Commercial Division which affirmed the tax decision of the Ghana Revenue Authority (GRA) imposing a withholding tax liability of GHS 7,655,676.22 on Fan Milk Ghana Limited (Fan Milk).

Factual Background

The accounting books of Fan Milk were audited for the period of 2014, 2015 and 2016 for tax purposes by the GRA, the statutory body for tax administration in Ghana. The GRA, based on the tax audit report imposed a tax liability of GHC 7,655,676.22 on Fan Milk for failure to withhold taxes on payments it made to independent purchasers/contractors from 2014 to 2016. According to the GRA these payments where indeed commissions and not discounts (as claim, thus Fan Milk was enjoined, as provided by the Income Tax Act, 2015 (Act 896), to withhold tax on the various sums paid to the independent purchasers/contractors and pay same to the GRA. Fan Milk Ghana Limited, dissatisfied with the decision of GRA objected to it and in accordance with law paid 30% of the imposed tax liability. However, the objection was dismissed by the GRA. Fan Milk dissatisfied with the decision of the GRA, appealed to the High Court, Accra for a reversal of the decision but was not successful. The High Court, Accra affirmed the decision of the Ghana Revenue Authority. Still dissatisfied, Fan Milk further appealed against the decision of the High Court, Accra.

Issues

Despite the many grounds stated by Fan Milk in its appeal, the Court of Appeal resolved that the fundamental issue was whether the GRA was justified in its tax decision against Fan Milk, resulting from Fan Milk’s failure to withhold tax on payments it made to its independent purchasers/distributors from 2014 to 2016. The determination of this issue was dependent on how the Court would classify the payments Fan Milk made its independent purchasers/contractor, either as commissions or discounts.

The Case of Fan Milk

Fan Milk argues that the business model between Fan Milk and the Independent purchasers or distributors was not one of principal and agent relationship but one where discounts were apportioned to the independent purchasers or distributors at the end of the month based on purchases made by them. Fan Milk further argued that discounts and not service fees were paid to the purchasers or distributors and therefore were not subject to withholding tax. Thus, the decision by the GRA to impose a withholding tax liability on Fan Milk for its failure to withhold tax at the point of making the said payments to it independent purchasers/contractors was wrong in law.

The Case of GRA

GRA characterized the relationship between Fan Milk and its distributors as that of a principal and agent relationship. The GRA was of the view that the business model operated between Fan Milk and its agents did not provide for discounts but rather commissions. Fan Milk was therefore under a duty to impose withholding tax on those commissions. GRA audited the accounting books of Fan Milk and imposed a tax liability for their failure to withhold tax on commissions granted to its agents

DECISION OF THE COURT

The Court of Appeal affirmed the decision of the High Court and held that:

1. The model operated by Fan Milk cannot be regarded as cash discounts. This is because a revision of the agreement shows that what an agent receives as discount is not based on an incentive to pay for the products promptly to Fan Milk as per the meaning of cash discount but rather it is an incentive for the distributor for being able to sell off volumes of products of Fan Milk. It is for this reasonthat the cash paid to the distributor is only made at the end of the month to determine the volume of sales made by a distributor.
2. There was no evidence that clearly indicated that Fan Milk had made the necessary entries in its books regarding the cash discounts per standard accounting practice. The Court of Appeal held that the payments by Fan Milk to its distributors were commissions but not discounts.
3. Per the agreement, Fan Milk dealt with the other party as agents and not as ordinary independent purchasers of the products of Fan Milk. An examination of the agreement suggested that, Fan Milk intended for these payments to motivate its agents to achieve their set targets.
4. Fan Milk did not lead sufficient evidence to establish that the meaning of the word ‘agent” as used in the agreement was not the legal meaning. Although, these agents deal with the outside world in their own names, they have particular obligations to Fan Milk.
5. The tax laws in Ghana permit a person paying commissions to sales agents to withhold tax on those payments pursuantto Section 116(1)(a)(v) of the Income Tax Act, 2015 (Act 896), as amended.
6. Fan Milk was by law required to withhold tax on the payments to its distributors since those payments were commissions. Therefore, Fan Milk did not discharge its responsibility under the Revenue Administration Act, 2016 (ACT 915).
7. The Respondent was justified in its tax decision to impose a withholding tax liability on Fan Milk for failing to pay withholding tax on payments which were commissions but not discounts to its distributor for the years 2014, 2015 and 2016.

IMPLICATION AND KEY TAKEAWAYS OF THE COURT OF APPEAL’S DECISION

1. The tax laws of Ghana expressly provide that a resident person shall withhold tax where that person pays service fee with a source in the country to a resident individual as a commission to a sale agent.
2. Owing to the fact that the payments made to the distributors of Fan Milk had been characterized as commissions, the assessed tax of GHS7,655,676.22 represented the withholding taxes which Fan Milk ought to have withheld from the commissions it paid to its distributors but failed to do so because it classified them as discounts.
3. The import of the decision of the Court of Appeal is to the effect that where an entity wants to give its customerscash discount on their services, they must make the relevant entries in their accounting books. This will make it obvious to anyone and for auditing purposes that the entity is providing cash discounts and not merely an incentive for their customers to reach certain set targets. It is important to note that cash discounts are recorded at the debit side of the cash book.
4. Also, the term “agents” when used in any agreement take its legal meaning unless there is evidence to prove otherwise.

CONCLUSION

The Court of Appeal affirmed the decision of the High Court that the respondents were not wrong to impose a withholding tax liability on the Appellant for its failure to withhold tax on commissions it paid to its distributors.

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The GRA opposed the application on grounds that:
1. the payment to AAVL was validly withheld because it was subject to Capital Gains Tax.
2. AAVL was unable to show that the GRA was under an existing and unquestioned obligatory duty under statute or otherwise to refund the amount in dispute.
3. the existence of a refund account under Section 69 of the Act 915 did not mean that AAVL had sufficiently demonstrated to either GRA or the High Court that it was deserving of a refund of the tax paid.

The GRA also maintained in its arguments to the court that per section 41 of the Act 915, the decision to withhold the sum in dispute as capital gains tax is a tax decision and therefore if AAVL had reason to challenge the decision, it ought to have done so through the dispute resolution mechanism provided under the Act 915 (as amended) and not by an application for an order of mandamus hence the High Court lacked jurisdiction to entertain the matter.

TAX DECISION
A “tax decision” is defined Revenue Administration Act, 2016 (Act 915) section 41(1) as a decision by the Commissioner – General under a tax law, including an assessment or omission, but does not include
a. a practice note, class ruling, or private ruling,
b. a decision or omission to issue, refuse or revoke a practice note, class ruling or private ruling;
c. a decision or omission that affects a person only as a tax officer or employee or agent of the

Authority;
d. a decision or omission of the Commissioner-General including an objection decision under section 43 of Act 915; or
e. a decision to compound an office under a tax law.

DECISION OF THE HIGH COURT
The High court dismissed the application for mandamus based on the following reasons:

a. That AAVL was unable to show that GRA had an existing and unquestioned obligatory duty under statute or otherwise to refund the amount in dispute which it has failed to do.
b. That the procedure adopted by AAVL in invoking the jurisdiction of the High Court was improper
It is based on this ruling of the court that AAVL brought an application to the Supreme Court for an
order for certiorari, essentially to quash the decision of the High Court.

APPLICATION TO THE SUPREME COURT
AAVL in an application to the Supreme Court sought to invoke the supervisory powers of the Supreme Court to quash the decision of the High Court. The issue complained of by AAVL was that the High Court Judge on the face of the record erred in law when she held that GRA did not have an existing and obligatory duty under statute or otherwise to refund amounts wrongfully paid to it as tax

DECISION OF THE SUPREME COURT
The Supreme Court unanimously affirmed the decision of the High Court and dismissed the application for certiorari. It held that the AAVL’s case hinged on Section 69 (1) of Act 915 (as amended), which section created an account into which a maximum of six percent of total revenue was paid and administered by the Commissioner- General for refunds under the Act and under any other tax law. AAVL simply pointed to this provision to support its claim that GRA was under an obligation to refund the monies withheld.

The Court disagreed and stated that simply referring to this section was not sufficient ground for the applicant to succeed, on an order of mandamus. Moreover, AAVL having earned an income or gained from the compensation paid to it was required to pay capital gains tax under Section 5 of the Income Tax Act, 2015 (Act 896). Hence, GRA was legally justified in withholding the tax on the balance of the compensation paid. The Court also agreed with the interested party that under Section 42 and 44 of Act 915 (as amended), the decision to withhold the amount deducted was a tax decision and AAVL being dissatisfied with the decision should have lodged an objection with the Commissioner-General in line with the dispute resolution provisions of the Act. However, AAVL did not follow those provisions and instead mounted an action for an order of mandamus for GRA to refund the deducted amount Therefore, since the High Court’s jurisdiction under Act 915 had not been properly invoked, it was right in dismissing the application. As a result, the application to invoke the Supreme Court’s supervisory jurisdiction to quash the decision of the High Court had no merit and was dismissed.

CONCLUSION
The Supreme Court maintained, as it has done in so many other cases, that where a statute has provided a right with remedies and also prescribed the procedure for redress, it is that prescribed procedure which must be followed. Thus, in this case, AAVL used the wrong approach in seeking for redress. Since the action complained of by AAVL against GRA was primarily a tax decision, the procedure prescribed in Act 915 (as amended) ought to have been followed before AAVL invoked the jurisdiction of the High Court.

Take aways

1. Any decision taking by the Ghana Revenue Authority to exact tax on monies gained by an entity or individual is a tax decision.
2. An objection to a tax decision should be made to the Commissioner-General of the Ghana Revenue Authority in accordance with the provisions provided for in the Revenue Administration Act 2016 (Act 915) (as amended)
3. The Courts do not have jurisdiction to entertain, at first instance, disputes arising out of a tax decision taken by the Ghana Revenue Authority.
4. In accordance with the provisions of the Income Tax Act, 2015 (Act 896) a person is required to pay tax on monies received as compensation.

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