Taxing illegality in Ghana, a reality or fantasy? : The case of bribes
Some argue it’s purely a legal matter best left for the courts. Others blame it on a system that enables individuals to engage in the act of bribery without considering the dire consequences. Yet again, others give it the morality twist. But in all this, what is the role of tax? Tax is a dimension often overlooked in the heat of the discourse and it is the hope that this article will bring it to life.
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There are uncertainties around what will become of the ongoing legal proceedings on several bribery allegations that have overwhelmed the country for some time now. Tax, however, is a matter of fact and its incidence may not depend on the outcome of these legal proceedings.
So far as income is subject to tax under the laws of Ghana, the sanctity of the source will in most cases not be respected. Incomes, whether legally or illegally obtained, must suffer their fair share of taxes if mandated by the tax laws, and so must bribes.
This article will focus on the tax
Incomes subject to taxes in Ghana
The principal law on taxes in Ghana, the Internal Revenue Act, 2000 (Act 592), subjects to taxes any employment, investment and business income that is connected to Ghana unless that income is exempted from taxes under the Act.
The category of income helps us to determine how to report the associated taxes and the tax rate(s) we should apply on the income.
Bribes as employment income
Income is from employment if it is arranged by an employer to compensate the employee for services offered. Thus, if a bribe is paid by or with the involvement of the employer, then there may be little room for debate on whether it will constitute employment income.
For bribes paid that are unknowing to the employer, could it still be considered as employment income for the reason that the individual would have received it in the course of fulfilling his or her employment obligations? If so, then we may clearly be missing the up to 25 per cent tax on the bribe incomes which go undisclosed on the monthly tax filings done by employers of bribe recipients.
Although Act 592 puts the responsibility on employers to withhold taxes on employment income, it is also acknowledged that employees may wish to hide bribe incomes not arranged by the employer.
As such, where bribe income becomes known, the responsibility for the payment of the taxes should fall on the employee and not the employer.
Bribes as business income
Some may alternatively view bribery as a business activity since it is an activity conducted outside the employee’s sanctioned duties and for which the employee may be compensated by parties other than the employer.
This position is even further strengthened if the bribery activity occurs frequently or over a reasonably long period of time.
If it is business income, then we should be concerned on whether these businesses have satisfied the tax registration procedures required of all businesses conducting business activities in Ghana.
Questions could also be raised on whether as businesses, the obligations around tax payments and annual filing of tax returns are being complied with.
Generally, income from investment includes all passive incomes that have not been previously reported as business or employment income. In the case where the bribe income is not of an employment or business nature, one may deem it as an investment income subject to up to 25 per cent tax.
Bribes as gifts
We have a tax law which dedicates a chapter to the taxation of gifts. Gifts made in the form of monies or goods are taxable at 15 per cent on the gift’s value.
Thus, it may be fair to assess the relevance of the gift tax regime to bribe receipts should these receipts on their technical merits fail the tests on employment, business or investment-sourced income.
We find that our gift tax regime is one of the tax regimes least complied with by taxpayers due to the inherent difficulties in its monitoring.
As we talk of the relative dormancy of our gift tax regime, a case could even be made of those several other gifts such as the Christmas hampers which almost always go undisclosed for taxes. The filing requirement within 30 days of receiving the gift is equally not complied with.
That said, the gift tax regime stands a chance of being brought alive if appropriate considerations are made by relevant authorities in the midst of bribery scandals.
Value Added Tax impact
If bribery is seen as compensation to induce a person to offer the bribe giver an advantage or to refrain from undertaking an activity, then we could be opening up the debate on whether the government is also losing out on the Value Added Taxes (VAT) that could have been collected on these payments.
After all, any offer made or services provided in connection with an economic activity will come under the umbrella of activities that attract VAT.
The above discussions point to the dilemma faced regarding which regime of taxes should be applied to income from bribery.
As a way of curbing this, as far as bribes are taxable, the Commissioner-General of the Ghana Revenue Authority may wish to exercise his right to assess taxes on these nature of activities using his best judgement.
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Alternatively, this situation perhaps gives us the opportunity as a nation to consider explicitly stating in our tax laws the regime for taxing illegally obtained income, as can be found in the tax codes of some developed countries such as the United States.
Such an action will as a consequence tighten our regime on the taxation of bribery and address the concerns of those that may hold the view that taxing bribery income may be unsuccessful in the absence of clear rules mandating their taxability.
Paying attention to the lost tax revenues from these income sources, however insignificant, could broaden the revenue base and help the nation better manage its debts at a time when our debt to GDP ratio is estimated to hover around an undesirable rate of 70 per cent.
At the same time, bribe recipients will be reminded of the tax consequences of the act of bribery once it becomes known, serving as an additional measure to deter people from engaging in the act of bribery.
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Want to know more? Let’s talk. — GB
You can contact me by sending an email to george.kwatia@gh.pwc.com and copy in Gifty Andzie (gifty.andzie@gh.pwc.com)