Corporate tax compliance policy, a must-have

There is a general maxim that two things are certain in life; taxes and death.  

This is not limited to personal finances, but corporate as well.

Governance of corporate entities is through policies and procedures, both for their internal and external publics.

The policies conceived of are written and approved by the Board of Directors for implementation by management for smooth operations daily. 

Most corporate standards of operations procedures (SOPs) do not have tax compliance policies, though some have generic statements about tax expenses in their financial reporting.

What could be the possible reasons?

The reasons for this could be various, such as treating tax as an after-thought item of expenditure.

Because organisations know that the percentage to charge is predetermined, there is no direct benefit to it, but to the government as revenue to the state, which is often not judiciously used, thus making them not worry too much about it.

Irrespective of the reasons, organisations have not seen the need to have a clear-cut policy on taxation and its compliance.

The recent Ghana Revenue Authority (GRA) compliance exercises are evidence of that.

With the other corporate policies, sanctions apply for infringement, such as, when one takes a leave without without prior approval, reporting late for work, stealing, fighting, sexual harassment, etc.

In the same way, non-compliance with taxes comes with sanctions, such as, fines, penalties and interests, apart from possible imprisonment if criminality is established on the part of those charged with governance of the institution, and these are all defined in law.

To avoid situations where staff of institutions could plead ignorance of the work policies (though ignorance is not an excuse), they are made available to staff, who sign them to indicate having read and understood for compliance. 

New members orientated fully during on-bonding and subsequent changes.

It is in the same light that tax compliance can be handled. 

Tax reviews, amendments to existing ones, new taxes, and changes in rates and thresholds in the economic policy of the government go through to make corporate policies current and relevant. 

These are important features of any institution operating in a dynamic environment.

The aims of corporate policies are to live by corporate values, and cultures, and comply with state laws that emanate from the mission, vision or objectives of the entity concerned.

Taxes are legally bounded obligations, but sadly, most institutions do not have specific tax compliance policies as part of their SOPs to ensure seamless compliance. 

There are policies on minor outflows, such as, petty cash for minor stationery items, but taxes under withholding taxes (three per cent, five per cent up to 20 per cent of taxable supplies); value-added tax and levies (21 per cent); corporate tax (25 per cent of taxable profit); employment tax (up to 35 per cent tax band); capital gains tax, gift tax, international taxation with its jurisdictional issues, double taxation agreements and others.

These taxes can run into millions of cedis, depending on the turnover and profits of the organisation, however, they are not given much attention until a tax audit brings a liability for non-compliance mostly after some years have gone by. 

The GRA tax audit normally brings these seemingly unexpected liabilities.

Could this be the result of tax compliance benefits not coming directly to us, or simply because it is a cost to our businesses, forgetting that it takes as much as 25 per cent of the taxable profit, and significant of our turnover as collection agents for the state? 

Some expenses that are settled through petty cash for minor stationery items have policies and procedures guaranteeing their smooth administration, how much more tax in thousands and millions of cedis? 

Limits, documentary formats with approval, and accounting for the same are all unambiguously codified for compliance.

Tax Compliance has benefits, including allowing the taxpayer to pay their fair share of taxes (not more, not less than required of the taxpayer).

It saves costs by preventing penalties, fines and interests. 

It also improves corporate image – CSR, business continuity and sustainability is assured to an extent.

It allows the taxpayer to enjoy exemptions, such as withholding taxes – having proven yourself to the satisfaction of the commissioner in terms of cash flow management; it helps the taxpayer to pay in good time to avoid piling up, leading to cash flow distortions. 

When the compliant taxpayer has cash flow challenges, the commissioner general may find it easier to grant an extension for payment with the prior written approval of the commissioner.

Furthermore, it helps to avoid legal tussles with tax authorities – where 30 per cent of tax liability due and in dispute should be paid before an appeal to the courts could be heard (after settling all previous outstanding tax debts that are not in dispute).

Compliance helps to attract investors into the business – stock market, bankers feel comfortable in dealing with the entity or the individual. 

In view of the above, share price and value preservation is assured with listed companies and there are no price shocks that come with huge impositions for non-compliance with tax laws.

Given the economic challenges and government target of “aggressive domestic revenue mobilisation” as stated in the 2023 Budget, it is expected that the GRA will intensify its tax enforcement and compliance function. 

Voluntary compliance is better for the corporate image and sustainable business.

Therefore, taxpayers must craft tax compliance policies to guide their operations and to show commitment to being good corporate citizens.

The writer is a Chartered Tax Professional (CITG) and a fellow of ICAG.

E-mail: barth.darko @gmail.com