Consultant urges govt to improve audit capacity

Accra, Sept. 28, GNA - A report from a research carried out by the Ghana National Chamber of Commerce and Industry (GNCCI) on tax rate reduction and widening of the tax net has proposed an increase of in-house tax auditors and outsourcing of tax audit jobs to improve on the effectiveness and efficiency of auditing.

The research carried out by AA and K Consulting Services found that there were lapses in the quality of tax administration and enforcement resulting in inadequacies in tax audit, overpayment of tax and delay in tax refund.


It, therefore, proposed that tax authorities engaged the services of retired Internal Revenue Service (IRS) tax officers and polished their knowledge. They should also request them to set up offices and employ adequate hands to assist in auditing purposes.


The report was presented at a workshop on "Advocacy for Tax Rate Reduction and Widening of the Tax Net" for participants from the telecommunications industry, banks, Association of Ghana Industries, IRS, Ministry of Finance and Economic Planning and food processing companies.


Mr David Adom, a consultant with AA and K, who is a Former Commissioner of the IRS, said such people would be paid fixed and variable fees.


He explained that there was the need to pay a fixed fee for the running of day-to-day activities of the people to be contracted but at the same time they should be given a determined percentage of tax collected as motivation for effective work.

The proposal stemmed from the findings of the research, which indicated that total audit personnel and their total man-hours were inadequate.


Statistics given by Mr Adom indicated that only 102 IRS auditors looked through the books of 15,000 corporate tax payers, 45,000 self-employed and 1,700,000 employees on the tax records. Mr Adom said the research found something fundamentally wrong with the law on taxes being paid on overtime allowance. He said the law stipulated that a tax of 2.5 per cent should be paid on an allowance of up to 12 million cedis and 10 per cent to be paid on overtime allowance of from 12 million cedis up to 40 million cedis.


For an allowance over 40 million cedis, the tax is to be paid at a marginal rate of the taxpayer, which means that the tax was determined at the discretion of the taxing authority. "There is something basically wrong with the law. Nobody earns up to 40 million cedis in overtime in a month."


He said the research had, therefore, proposed that for an allowance of up to four million cedis, there should be a percentage tax of about 10 per cent while allowance of over four million cedis should be based on the marginal rate of the taxpayer.


Mr Adom said the revenue agencies had been duplicating efforts in tax analysis and this had resulted in overtaxing of certain companies. He proposed the coordination of auditing functions and merging of the audit groups to make a single visit to one facility, which could also result in the proper utilization of scarce resources.

In one instance, the long-term loan of a company was found to be 167 billion cedis in 2004 and 128 billion in 2005. The corporate tax liability of the company was 269 million cedis in 2005 but it was detected that there had been an overpayment of 22 billion cedis in tax overtime after auditing.


Mr Adom attributed the problem to duplication of payment of tax and said the error and the delay in refunding the tax normally affected capital of businesses.


He said the withholding tax was also a contributing factor to such errors and argued for the streamlining of tax regimes to improve businesses. He further proposed the speeding up of the automation of IRS to help to eliminate errors.


Mr Adom said the research process was ongoing and input from the discussions of the results would be made available to the Ministry of Finance and Economic Planning for the 2007 Budget. Professor George Gyan-Baffour, a Deputy Minister of Finance and Economic Planning, said it was observed in October 2005 that the sound macro-economic performance and structural changes in the micro economy had brought about a growth rate of 5.8 per cent from 5.1 per cent. He said the current budget deficit stood at about 1.5 per cent of GDP because IRS had collected about 98 billion cedis as at July 2006 This, he said, was more than what the Government had anticipated at the time of the 2005 Budget.


Prof. Gyan-Baffour observed that the performance of the IRS had strengthened Government's fiscal policy for development by availing more resources for social services, infrastructure development, job creation and sustainable economic growth. 28 Sept. 06