The role of taxation in any economy cannot be over-emphasized. Taxation is a major source of revenue used to fund national development and provide public goods in most jurisdictions.
Suffice to say, that in Ghana, our revenue mobilization efforts have not been very successful hence our development has been significantly being funded with borrowed funds from our development partners.
Our inability to mobilize sufficient tax revenue have dire consequences for the economic future of the country. Inadequate tax revenue means less investment in education, health and general infrastructure. The lack of infrastructure means less foreign direct investments in the country, less employment opportunities and less productivity, which further decreases tax revenue.
Lawyers and Accountants in particular with their technical, professional and ethical training play fundamental roles in the proper functioning of tax systems the world over. What role then must lawyers; accountants and other professional intermediaries play in Ghana’s revenue mobilization drive? This paper discusses four of the roles these professionals ought to play to ensure we have an effective tax system.
Education of Clients and Employers
Taxation is a creature of law but is also accounting in practice. This combination makes taxation complex for many finance professionals and lawyers alike. To the uninitiated, it is almost a nightmare! Tax advisors have the onerous responsibility to explain the applicable tax laws, assist their clients appreciate their tax obligations and guide them on compliance. Professionals in tax practice must be abreast with the regulatory requirements for the various taxes (including some accounting standards) which their clients are liable, key dates for filing taxes and returns, changes in tax rates among others.
To the uninitiated, it is almost a nightmare! Tax advisors have the onerous responsibility to explain the applicable tax laws, assist their clients appreciate their tax obligations and guide them on compliance. Professionals in tax practice must be abreast with the regulatory requirements for the various taxes (including some accounting standards) which their clients are liable, key dates for filing taxes and returns, changes in tax rates among others.
Tax laws unlike other laws do change at least annually as the government announces new revenue policies in their annual budget statement. Clients are unable to keep pace with the fast changing revenue laws and usually defer to their lawyers, accountants and other professionals for guidance. Tax professionals must ensure that their clients are aware and fully understand their obligations for effective compliance to avoid incurring penalties and interest charges. Lawyers, accountants and other tax advisors require in depth and up-to-date appreciation of the law and practice of taxation, if they are to discharge their intermediary role effectively.
Advisory
Clients and employers frequently call upon lawyers and accountants to advice on the tax implications of business transactions, both historical and contemplated. Tax is one of the many costs of business. As professionals, we must assist our clients to be as tax-competitive as practicable albeit, within the confines of the law. The client must know all the possible options open to them and of course, the potential consequences associated with each of the options.
So let us take for instance that the tax law in Ghana is such that parking on the left side of the road is free but parking on the right attract a fee of say GHS 5/hour. The most obvious advice to clients will be to park on the left holding everything else constant. The advice may not be the same if one averts his mind to how the road was financed and maintained. Of course taxpayers do not want to pay more than necessary tax but it’s pertinent that as professionals we assist them to see the public interest and value in paying their due to the state. For how do we expect to enjoy conducive business environment and yet not care how that is made possible? We must pay our taxes as professionals and advise our clients and employers to do likewise.
Support the Fight against Illicit Financial Flows (IFF) and Tax Evasion
Illicit financial flows refers to money illegally acquired, transferred or used that crosses international borders. Typically, these illicit outflows originate from tax evasion, money laundering and bribery according to the OECD. Ghana loses some estimated US$400 million annually to illicit financial outflows according to the Global Financial Integrity (GFI).Â
Only 3% of all illicit outflows is attributable to government corruption and 30% to 35% to criminal activities such as smuggling and drug trafficking. An alarming 65% of all illicit flows results from cross-border commercial transactions and tax evasion. It is important to distinguish tax evasion, which refers to failure to pay legally due taxes and tax avoidance, which means taking advantage of the provisions of the tax laws so as not to pay more than is required by law. Tax avoidance is legal, though it may have reputational consequences.
Tax avoidance is legal, though it may have reputational consequences.
Under invoicing of imports, over invoicing of exports, transfer-pricing, income splitting and profit shifting are some of the schemes deployed by multi-nationals to evade tax and deny the country its fair share of its abundant resources. As professionals, we have the expertise and technical knowledge to appreciate the complex nature of these unethical arrangements used to siphon money out of this country. Illicit Financial Outflows denies us the domestic resources and tax revenue needed fund infrastructural development, create employment and alleviate poverty. If we could stem the revenue leakages, Ghana will not need any aid and grants from anyone to develop. Lawyers, Accountants and all other professionals for that matter must take keen interest in the fight against illicit financial flows and tax evasion and apply our collective expertise to stop the bleeding.
Demonstrate High Ethical Behavior
The legal etiquette rules (lawyers) and the professional code of ethics for accountants require members to demonstrate the highest level of ethical behavior and integrity at all times. In practice, this may mean walking away from clients who insists on engaging in illegal activities despite good counsel. Lawyers and Accountants especially are by their training supposed to be the ethical watchdogs in the corporate world. They must advise their clients against unethical arrangements designed purposely to avoid taxes and to move money out of the jurisdiction illicitly. They must not compromise on their professional standards and certainly should not be seen to be part taking in illegalities and morally reprehensible corporate practices of their clients and employers, not even as advisors. It is however crucial to note that, whiles these professionals offer their advice, the ultimate decisions lies entirely with the client.
Conclusion
The government must ensure we have robust tax laws and regulations. The tax regime must be firm and fair to all taxpayers. Tax revenues must be invested in productive infrastructure to improve the business environment and public sector corruption decisively dealt with.
The government has shown goodwill with the recent cuts in taxes. It is about time the business community repays the faith by paying their correct taxes and lawyers, accountants and other professional intermediaries must guide them to do so.
As we strive to improve the efficiency of the tax system and mobilize domestic resources for development, let us all always remember that the government, the professional community and the tax paying public all have significant roles to play.
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The writer is a tax practitioner and policy enthusiast and a student of the Ghana School of Law. He can be reached at agyiri.danso@yahoo.com /0267518675
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