Understanding the Enforcement of Section 74: What Taxpayers Need to Know

Introduction

In recent years, tax audits and the enforcement of tax laws have become increasingly common as the Ghana Revenue Authority intensifies efforts to boost revenue collection. With growing financial demands and the need to fund public services, the GRA is taking stricter measures to ensure compliance and minimize tax evasion. 

As a result, businesses are facing greater scrutiny, making it essential to adhere to tax regulations to avoid penalties and legal consequences. 

One of such measures is the enforcement of the Revenue and Administration Act, 2016 (Act 915) as amended (RAA), which the Ghana Revenue Authority GRA has, over recent years, taken an aggressive posture to enforce to the letter in their efforts to increase government revenue.

What does this Mean for Taxpayers?

With the stark rise in tax audits and the aggressive posture of the taxman during tax audits, taxpayers should expect to see the resurrection and application of horrendous sections from the statute books. One of such things to watch out for is section 74 of the Revenue Administration Act, 2016 (Act 915) in the tax audit assessments they receive.

What this means is that, in addition to the interest charged on failure to pay taxes by the due dates as per Section 71(1), penalties could be imposed up to 100% of the tax shortfall for providing false and misleading statements. The taxman will not accept any excuse of ignorance or negligence on your part.

It is important to note that the penalty will be reduced if the taxpayer voluntarily discloses an error to the Commissioner, an error inadvertently made by the taxpayer before the error is discovered by a tax officer or before the next tax audit of that taxpayer.

What should You do as a Taxpayer?

• Plan for regular tax health checks and tax reviews. This will help you identify and correct any errors or omissions in your tax records and returns.

• Outsource your tax function to a professional or competent firm. This will ensure that your tax affairs are handled by experts who are familiar with the latest tax laws and regulations.

• Put together all your tax documents and start preparing for tax audits if your business has not been audited for the past 4-5 years. This will help you avoid any surprises or delays during the audit process.

• Get a professional or competent firm to represent or support you once you are served with the introductory letter. This will help you deal with any queries or issues that may arise during the audit and negotiate the best possible outcome.

What does Section 74 say?

The spectre of an audit by the Ghana Revenue Authority (GRA) looms large over taxpayers, often invoking a sense of anxiety and fear upon receiving a notice. This reaction is natural, considering the implications of an audit and the potential application of stringent sections like Section 74 of the Revenue Administration Act, 2016 (Act 915). 

The uncertainty surrounding whether provisions such as Section 74 will apply to them only compounds the taxpayers’ anxiety. The best defence against this fear is proactive preparation. By diligently arranging your affairs to remain compliant with the tax laws, you can mitigate the stress associated with audits and reduce the likelihood of facing the severe penalties that come with non-compliance.

This provision has the potential to ruin your business. The provision is premised on providing false or misleading statements to the GRA, where it provides that:

“(1) A person who

(a) makes a statement to a tax officer that is false or misleading in a material particular; or

(b) omits from a statement made to a tax officer, any matter or thing without which the statement is misleading in a material particular, is liable to a penalty of

(c) one hundred percent of the tax shortfall where the statement was made without reasonable excuse; or

(d) thirty percent of the tax shortfall in any other case.”

A false and misleading statement is defined under Section 74(6) as where a taxpayer files a return and understates the tax payable by;

(a) by a margin of between thirty and fifty percent, the person is treated as making a false or misleading statement to a tax officer; or

(b) by a margin of fifty one percent or more, the person is treated as making a false or misleading statement to a tax officer without reasonable excuse.

The requirement of section 74(1) implies that, if the tax liability is understated by 30 to 50%, a penalty of 30% of the tax shortfall is imposed. If the tax liability understated is 51% or more, a penalty of 100% of the tax shortfall is imposed. The penalty is charged as a percentage of the tax shortfall.

Conclusion

Tax challenges can be costly and stressful. By following these tips, you can reduce the risk of facing tax penalties and interest charges.

Contact your tax advisors for your tax health checks, tax diligence, and plan your tax affairs as we navigate the year 2025.