1. TAX ALERT!!!
REGULAR TAX HEALTH CHECKS: A NECESSITY FOR ALL TAX PAYERS
The CommissionerGeneral(CG) ofthe Ghana RevenueAuthority(GRA) whois
empowered byclause18 (1) (a-f) ofthe SeventhScheduleto the IncomeTax Act,
2015(Act 896) to havefulland free access atall times to any premises, place,
books, record, computer or other electronic storagedeviceoftaxpayers for the
purposes of enforcing the lawsubjects thefinancialstatements ofentities to a
thorough scrutiny to ensurethatnot onlydo they comply withInternational
FinancialReporting Standards (IFRS) but thatthey are alsowithin theconfines of
the tax laws.
The GRA thus visits taxpayers toconduct fieldaudits (tax audits) from timeto
time to satisfy himself withthelevelofcompliancewith thetax laws.
These field audits (tax audits), by the GRA,several months after taxpayers had
submittedtheir annualfinancialstatements,cause a lotofdiscomfort to
taxpayers and pose hugecash flow challenges when asked to pay additional taxes
on issues they feelhad been dealtwithseveralyears earlier.
Empiricalevidenceavailableindicates that most taxpayers, bethey large,
medium or small, get disappointed and disillusionedwhenever the GRA conducts
tax audit assignments on their financial statements and comes out withfindings
sometimes leading tothepaymentofhugeadditionaltax liabilities.
Taxpayers usually find itdifficult tounderstand why their externalauditors
having expressed an opinionon thetruthandfairness oftheir financial
statements, andhaving had their submitted accounts examinedby theDesk
Audit unit of theGRA, are later called upon to payadditionaltaxes sometimes
five years after the end of thefinancial year.
This briefseeks to educatetaxpayers on this expectation gap, helpthem get
prepared beforetheGRA visits to carry outtheir mandatedtax audit assignments
and help find somesolutions tothechallenges posed by this all important and
necessary functionof the GRA.
Responsibility of Financial Statements
The responsibility of directors ofcorporateentities in the preparation offinancial
statements includes ensuring that:
- the entity prepares its financialstatements using appropriateaccounting
policies,supportedby reasonable and prudent judgmentin conformity with
InternationalFinancialReporting Standards (IFRS).
However, there arealways differences between a country’s tax laws andthese
accounting policies,estimates, judgments and the IFRS requirements which often
results indifferences of opinion culminating in disagreements between the
Revenue Authorities andtheTaxpayer.
Whenever suchdifferences arise,decided tax cases andthetax laws override the
IFRS requirements.
For instance, whereas IFRS allowthat estimates and provisions bemadeinthe
preparationof financial statements, the taxlaws do not.
Tax Audit against Financial Audit
The tax auditor, likethefinancialauditor, conducts his audit inaccordancewith
InternationalStandards on Auditing (ISA). Thesestandards requirethat they
comply withethical requirements, plan and perform their audit toobtain
reasonableassurance about whether the financial statements are free from
materialmisstatement.
Both tax and financialaudits ensurethatthereareadequate internal control
systems inplace.However,a basicand fundamentaldifferencebetween taxaudit
and financialaudit lies inthefactthatwhiles thefinancialauditorexpresses an
opinion as tothethat truth and fairness ofthe stateofaffairs oftheentity, the
tax auditoris concerned withthe trueand correct position.
The tax auditor conducts his audit soto speak with a ‘tax eye’(which the financial
auditor does not) to ensurefor examplethat expenses reported in thefinancial
statements are‘wholly, necessary and exclusively incurred for the purpose of
earning the income’-a vitalrequirement ofthe tax laws.
Whiles thefinancialauditorwill look at thereasonableness ofestimates and
judgments, the taxauditoris not permitted by thetaxlaws to allowsuch
estimates and judgments but tofocus onactualcash outlays.
Tax audit is a veryspecialized fieldwhich requires combined in-depth knowledge
ofthe tax laws, accounting and auditing techniques.
Need for frequent Tax Health Checks
The powers conferred ontheGRA to implement its selfAssessment Policywith
the right to conductauditand compliancetests with or withoutnotice toensure
there areno infractions ofthelaw and that theright amounts oftaxes havebeen
declared andpaid,calls for a lot ofpreparation and vigilanceon the part ofthe
tax payerto ensurethatthey are ready whenevertheGRA visits to do what the
law requires them to do.
Frequent taxhealthchecks (tax audit) by an independent taxauditor havevery
huge advantages for boththeGRA and thetax payer sincethey both have
complementary roles to playin enhancing tax administration inGhana. When
compliance levelincreases, theGRA (Government) gets more revenue. TheTax
payer on theotherhand avoids thepayment ofunnecessarypenalties. Tax audit
can be either Comprehensive, Issues based (likePayrollaudit, Vat Verificationor
Withholding taxaudit among others) or Transactions audit.
These regular tax checks willbring to the forethetaxability or otherwise of
business transactions sincethereis always a taximplication for allbusiness
transactions. Eitherthey are taxable,non-taxable ortaxexempt.Thus, the
taxpayer wouldbe assisted toplanhis tax affairs effectively andmanage his cash
flows more prudently.
They could also lead toa refundofoverpaymentoftaxes ifany. Thetax payer will
have access to professionaladviceas a result ofthetax audit andbe well
equipped beforetheGRA tax audit team visits for their mandated audit
assignments.
The tax audit willalso enhancevoluntary compliance, a veryeffective cost saving
measure.The impositionofpenalties as a resultofnon-compliance could
thereforebe avoided.
Solutions
Tax payers may seek theservices oftax auditors to perform regulartax health
checks for themin orderto receive taxadvice through tax auditassignments
because most professionalaccounting firms do not normally conducttax audit
assignments for their clients.
It is very important ifnot absolutely necessary for businesses to havetheir
financial statements tax auditedto obtainprofessional advicefrom an
independent taxauditorbefore theyarevisited by the Commissioner Generalof
the GRA. The importanceoftaxhealthchecks cannotbe overemphasized.There
is the need for such audits to ensure thatthelevel oftax complianceinones
business meets with theGRA’s requirements.
Issued by: Business Tax & Accounting Consulting
Chartered Tax Consultants
P. O. Box DS 325, Dansoman Estates
For further enquiries, contact the Managing Partner (Joseph
Adjei, a retired Chief Revenue Officer, Policy & Programmes
Department, GRA) on telephone numbers : 0262201068;
0203034994; 0231167971 or bye-mail:btaxconsult@yahoo.com