Section 2A of the Income Tax Act, 2015 (Act 896) of Ghana (As Amended): A Drafting Error or a Case for the Exercise of Discretion?

Source: Charles Acquah Esq.

BACKGROUND

On the 31st day of March, 2023 the Parliament of Ghana passed into law a bill entitled “INCOME TAX (AMENDMENT) (NO.2) ACT, 2022. Among other things, the bill sought to “tax the losses”, as it were, of companies operating within the jurisdiction of Ghana contrary to the general understanding that only tax, and not accounting, profits of companies are subject to tax.

This Article is not about whether or not the proposed policy of “taxing losses” of companies is fair. What the author of this Article seeks to do is to analyze how objectively the said section 2A of Act 896 (as amended) can be operationalized. The Author of this Article has assumed that the Bill that has been widely circulated is the specific Act that has been passed into law awaiting Presidential Assent.

The general position of the law is that tax laws are to be interpreted strictly. There is no intendment when it comes to tax. There is no room whatsoever for intendment when it comes to the interpretation of tax laws. The reason is simple. If Parliament intends to take from someone, it must be very clear that Parliament indeed, intended to take the money otherwise the subject must be allowed to keep the money he has toiled for. After all, we must give to Caesar only what unambiguously belongs to Caesar (the emphasis is mine) (Mathew 22:21)

GUIDING PRINCIPLES OF CONSTRUING FISCAL LEGISLATION

There have been several cases in which jurists have stated in no uncertain terms the guiding principles of construing tax laws. In WT Ramsay Ltd v. Inland Revenue Commissioners (1981) STC 174, the House of Lords held as follows:

“A subject is only to be taxed on clear words, not on intendment or the equity of an Act. Any taxing Act of Parliament is to be construed in accordance with this principle. What are ”clear words” is to be ascertained on normal principles; these do not confine the courts to literal interpretation. There may, indeed, should, be considered the context and scheme of the relevant Act as a whole, and its purpose may, indeed, should, be regarded.”

In National Land Finance Co-operative Society Ltd v. Director General of Inland Revenue (1991) 1 MLJ 99, (Federal Court), the court succinctly stated the overriding guiding principle of interpreting a tax law as:

“There is no room for intendment in tax legislation and the rule of strict construction applies. Unless there are clear words, tax cannot be imposed.”

In Ketua Pengarah Hasil Dalam Negeri v. Classic Japan (M) Sdn Bhd (2022) MLJU 1008, CA, the court could not have been clearer:

“It is well settled that the language of a statute imposing a tax, duty, charge or levy must be strictly construed, and with no intendment permitted. Words must be given their ordinary meaning. Nothing is to be read in, and nothing is to be implied, and once that meaning is clear due regard must be given to them…”

In 2011, the Supreme Court of Ghana speaking through Her Ladyship, Chief Justice Georgina Wood (as she then was) in Multichoice Ghana Ltd v. The Commissioner, Internal Revenue Service (2011)35 MJ 87-102 concluded as follows:

“My conclusion has been dictated by the strict constructionist approach to the interpretation of statutes reserved for fiscal legislation. The general principle is that tax statutes are to be construed strictly”

In the said judgment, CJ Wood (as she then was) quoted with approval the dictum of Rowlatt J’s formulation of the rule in Cape Brandy Syndicate V IRC (1921 1KB 64, 71):

“in a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used”.

SECTION 2A

At this stage, it is imperative that the full provision of the said section 2A of Act 896 be reproduced here for further analysis. Section 2A provides thus:

Despite section 2, a person may (the emphasis is mine) be required to compute and pay tax on a minimum chargeable income of five per cent of turnover where the person has been declaring losses for the previous five years of assessment.
Subsection (1) does not apply to a person
within the first five years of commencement of operations; or
engaged in farming.

The word “may” as emphasized above is the operative word in section 2A (1) of Act 896. Section 42 of the Interpretation Act, 2009 (Act 792) provides that the word “may” shall be construed as permissive and empowering where as “shall” shall be construed as imperative and mandatory.

As it has been established in the cases cited above, the words of a tax law must be strictly construed. There cannot be any intendment as to the words of a tax law. One must simply look at what has been clearly stated and assign its ordinary meaning to it. Thus, section 2A (1) above, if it is to be construed strictly, does not mean that every company that declares losses for the previous five years of assessment must be required to compute and pay tax on a minimum chargeable income of five percent of turnover. The word may is only permissive and not mandatory. This means that section 2A (1) of Act 896, as amended, only empowers the Commissioner General of the Ghana Revenue Authority to exercise a discretion as to which company, at any point in time, must be assessed for tax purposes based on section 2A (1) of Act 896.

If the intention of Parliament was to create an exception to the said provision, then it is regrettable to state that Parliament rather ended up creating confusion. Subsection 2 of section 2A of Act 896 does not operate to create the only exception to the provisions of subsection (1). By the wording of subsection 2 of Section 2A of Act 896, the Commissioner-General is only precluded from exercising any discretion whatsoever when it comes to a business engaged in farming or a business that has been in operation for at most, five years. If the word used was rather “shall” then subsection 2 of section 2A could have been interpreted as providing an exception and limiting the scope of the exception. In fact, what subsection 2 of section 2A did was to prevent the Commissioner-General from spreading his discretionary tentacles to reach businesses engaged in farming or that have been in operations for at most five years. If one assigns the ordinary meaning of the word “may” as it has been interpreted by section 42 of Act 792, then section 2A (1) cannot automatically apply in situations where companies engaged in businesses other than farming or companies that have not operated for more than five years declare losses in the previous five years of assessment.

The issue that follows naturally from the above is how the discretion of the Commissioner- General may be exercised. How uniform is his discretion going to be? What factors will the Commissioner-General consider objectively to determine in what situations section 2A (1) will apply? Is there any guarantee that the Commissioner-General will not be capricious and malicious in the exercise of his discretion? Did Parliament actually intend to give the Commissioner-General such degree of discretionary powers?

If there is a Commissioner-General who is actuated with malice and is politically motivated, what is the guarantee that section 2A (1) will not be used against his political opponents only? Concentrating such degree of discretionary powers in the hands of one person, The Commissioner- General, may be too great a temptation to human frailty. As John Locke opined in The Second Treatise of Civil Government (1690), “concentration of power in the hands of one person or one set of persons has the natural tendency to breed despotism and tyrannical rule because of the fallibility of man”.

CONCLUSION

The author of this Article is of the considered opinion that Parliament intended to use the word “shall” in section 2A (1) of Act 896 (as Amended) and that the word “may” was used in error. After all, Acts of Parliament are not drafted with divine prescience and perfect clarity (Seaford Court Estates Limited v. Asher (1949)2 KB 481). If the words of section 2A(1) are to be strictly interpreted, and Parliament did not make any drafting error, then, it only ended up giving the Commissioner-General unbridled and unfettered discretion the exercise of which can be likened to an unruly horse whose destination no one can predict.

Consequently, the author suggests that Parliament must amend the provision of Section 2A (1) by deleting the word “may” and replacing same with “shall”. This way, the Commissioner-General shall be deprived of any discretionary power in applying section 2A (1). On the other hand, the Commissioner General must come out with objective guidelines for the operationalization of section 2A (1) in order to forestall the potential capricious and malicious application of section 2A (1).

If the suggestions above are not adhered to, then section 2A of Act 896 (as amended) must never be applied in any situation for it will become an unruly horse whose destination no one can predict.