Judgment summary
This is an appeal from a decision of the High Court, Accra, dated 23rd November 2021, which dismissed an earlier appeal by Blue Sky Products (Ghana) Ltd against the Final Objection Decision of the Commissioner General of the Ghana Revenue Authority (p.2).
The dispute concerned the interpretation of section 28(2) of the Free Zones Act 1995 (Act 504) and paragraphs 3(3) and 4 of the first schedule of the Income Tax Act 2015 (Act 896), specifically whether the appellant, a free zone enterprise engaged in the production and export of non-traditional goods, should be taxed at 8% or 15% after the expiry of its ten year tax concession (p.2, p.11).
The Court of Appeal, per Novisi Aryene JA (Eric Kyei Baffour JA and Stephen Oppong JA agreeing), dismissed the appeal in its entirety and affirmed the High Court's judgment, holding that the applicable rate was 15% under paragraph 4 of the first schedule of Act 896 (p.17, p.27).
Background
Section 28(1) of the Free Zones Act 1995 (Act 504) exempts Free Zone Enterprises from payment of income tax on profits for the first ten years from commencement of business (p.2).
The appellant, an agro-processing company engaged in the export of non-traditional products, self-assessed its tax liability for the half yearly period ending 30th June 2020 at £88,549.27, applying the 8% rate it contended was applicable under section 28(2) of Act 504 (p.2).
The respondent instead applied the higher rate of 15% under paragraph 4 of the first schedule of the Income Tax Act 2015 (Act 896), assessing the appellant's tax for the same period at £166,029.88 (p.2).
By letter dated 8th July 2020, the appellant objected to the assessment, arguing that paragraph 4 of the first schedule was inconsistent with section 28 of the Free Zones Act, and that as an exporter of non-traditional products it was subject to tax at 8% under paragraph 3(3) of the first schedule (p.3).
The respondent maintained that the 15% rate under paragraph 4 applied and, by tax decision dated 10th September 2020, dismissed the objection (p.3).
The appellant then appealed to the Commercial Division of the High Court on 7th October 2020 under Order 54 rule 2(5) of the High Court Civil (Procedure) Rules 2004, CI 47. By judgment dated 23rd November 2021, the High Court dismissed the appeal and affirmed the tax decision, holding that free zone companies and exporters of non-traditional goods operate under two distinct and separate tax regimes, and that paragraph 4 of Act 896 applied to the appellant (p.4).
Core dispute
The central question was whether the appellant, being a Free Zone Enterprise which had enjoyed the ten year tax holiday under section 28(1) of Act 504, was taxable after the concession period under paragraph 3(3) of the first schedule of Act 896 (at 8%, being the rate for companies exporting non-traditional goods generally) or under paragraph 4 of the first schedule (at 15%, being the rate for free zone enterprises after the concessionary period) (p.11-12).
The appellant argued that reading the Act as a whole and applying the rule that a taxpayer is entitled to arrange its affairs to pay the least possible tax, it fell within paragraph 3(3), and that section 28(2) of Act 504 had not been expressly repealed by the Income Tax Act (p.7-9).
The respondent maintained that paragraph 3(3) applied only to companies outside the free zone enclave operating within the domestic economy, while paragraph 4 applied specifically to free zone enterprises, and that no inconsistency existed when the provisions were read as a whole (p.10).
A second ground of appeal concerned an allegation that the High Court erred in holding that Article 17 of the 1992 Constitution (non-discrimination) did not apply to the appellant's circumstances (p.6-7, p.22).
Court findings
The Court of Appeal held that section 92(1) of the Revenue Administration Act 2016 (Act 915) places the onus on the person objecting to an assessment to prove, on the balance of probabilities, the extent to which the assessment was erroneous or excessive, and that the appellant bore this onus (p.11).
Applying the literalist and strict construction approach applicable to fiscal legislation, as set out in Amidu (No.3) v Waterville Holding BVI Ltd & Woyome (No 2) [2013-2014] 1 SCGLR 606, Mangin v IRC [1971] All ER 179, and Multichoice Ghana Ltd v Commissioner IRS [2011] 2 SCGLR 783, the court found no inconsistency between paragraph 4 of the first schedule of Act 896 and section 28(2) of Act 504 (p.12-15).
The court traced the legislative history of the concessionary rate, noting that the 8% rate for free zone companies after the ten year concession was originally provided for under the Free Zones (Exclusion and Concessionary) Regulations 2007 (LI 1834) and the Free Zone (Tax Concession) Regulation 2010 (LI 1963), inserted into the Internal Revenue Act 2000 by the Internal Revenue (Amendment) Act 2013 (Act 871), and was subsequently amended to 15% by the Internal Revenue (Amendment) Act 2014 (Act 885), which revoked LI 1834 and LI 1963; this 15% rate was restated in paragraph 4 of the first schedule to Act 896 (p.5-6, p.15).
The court held that paragraph 4, unlike paragraph 3(3), specifically refers to the rate payable by free zone enterprises 'after the concessionary period', and that having taken advantage of the benefits of section 28(1) of Act 504, the appellant could not also claim the concession under paragraph 3(3), which applies to non-free zone enterprises (p.15-17).
On the submission concerning tax avoidance, the court held that because the appellant's status as a free zone entity placed it squarely within paragraph 4, the concept of tax avoidance did not arise; what the appellant described as a tax avoidance arrangement was, in the court's view, a misconception (p.18-21).
On the discrimination ground, the court held that the onus was on the appellant to bring its case within Article 17 of the 1992 Constitution, and that the appellant failed to prove the alleged discrimination. The court further held that the provisions of chapter 5 of the Constitution refer to human beings and individuals, not artificial persons such as the appellant company (p.24). The court found that having elected to operate as a free zone entity with its attendant benefits, the appellant could not allege discrimination against producers and exporters of non-traditional products that are not free zone enterprises (p.26).
Outcome
The Court of Appeal held that the law draws a clear distinction between the tax regime applicable to producers and exporters of non-traditional products generally and that applicable to free zone enterprises which enjoyed the zero rated tax under section 28(1) of Act 504 (p.26).
The court affirmed the ruling of the High Court that free zone enterprises and exporters of non-traditional goods have two distinct and separate tax regimes with distinctive tax incentives (p.26).
The court held that the respondent was justified under section 34 of Act 896 in disregarding the appellant's arrangement, and dismissed the allegation of discrimination as unmeritorious (p.26-27).
The appeal failed in its entirety and the High Court judgment dated 23rd November 2021, which affirmed the respondent's tax decision, was affirmed (p.27).
Costs of GH¢10,000.00 were awarded in favour of the Respondent against the Appellant (p.27).
Major issues / areas of contention
- Whether the appellant, a Free Zone Enterprise engaged in the production and export of non-traditional products, was taxable after the ten year tax concession under paragraph 3(3) (8%) or paragraph 4 (15%) of the first schedule of the Income Tax Act 2015 (Act 896).
- Whether section 28(2) of the Free Zones Act 1995 (Act 504) is inconsistent with paragraph 4 of the first schedule of the Income Tax Act 2015 (Act 896).
- Whether the arrangement adopted by the appellant amounted to legitimate tax avoidance or planning, or fell outside the applicable tax regime.
- Whether the tax treatment of the appellant amounted to discrimination contrary to Article 17 of the 1992 Constitution.