Are VAT Tax Credit Refunds limited to Exporters only? – The case of The Republic vs. The Commissioner-General of the Ghana Revenue Authority; Ex Parte Agility Distribution Parks Ghana Ltd

The Background

The Applicant taxpayer is a private limited liability company in the business of constructing commercial warehouses for rent. The Commissioner-General of the Ghana Revenue Authority (GRA) had earlier decided that the company had paid excess tax amounting to GHS12,398,000.06. Despite this determination, the GRA refused to refund the excess payment to the company.

The company commenced judicial review proceedings seeking amongst others an order of mandamus directed at the Commissioner-General compelling him to refund to it a total of GHS12,398,000.06 which has been determined by the Commissioner-General to be excess tax paid by the taxpayer between the years 2015 and 2019, together with interest at the applicable rate.

The Taxpayers Case

The taxpayer’s pleadings were predicated on sections 66, 67 and 68 of the Revenue Administration Act, 2015 (Act 915), as amended (RAA). These sections provided as follows:

Section 66(1) A person may, within three years of the relevant date, apply to the Commissioner-General for a refund of tax paid in excess of the tax liability of that person.

Section 67(1) The Commissioner-General shall, within sixty days of receipt of an application for a refund under section 66, consider and make a decision that the Commissioner-General considers appropriate

Section 68(1) where the Commissioner-General is satisfied that a person has paid excess tax, either on application for a refund by that person, or by reason of an order of a court or tribunal, the Commissioner-General shall;

                         (1) Apply the excess in reduction of any outstanding tax liability of the person; and

                        (2) Refund the remainder to the person within ninety days of making the decision.

According to the taxpayer, the RAA is the general law governing revenue administration in the country. The taxpayer therefore has a right under section 66 of the RAA to apply for a refund of the excess tax it paid within 3 years of the relevant date. The taxpayer further submitted that the Commissioner-General is under a commensurate duty to, upon an application made under section 66 and upon being satisfied that the taxpayer has paid excess tax, to apply the excess in reduction of any outstanding tax liability of the taxpayer and make a refund of the remainder to the taxpayer within ninety days of making the decision.

Accordingly, having made a demand on the Commissioner-General to refund the excess tax paid, which demand has been ignored by the Commissioner-General without reason, a mandamus should lie against the Commissioner-General.

Lastly, the taxpayer argued that the refund provisions in the RAA takes precedence over section 50(1) of the Value Added Tax Act, 2013 (Act 870) as amended (VATA). Hence, the Commissioner-General erred when he relied on section 50(1) in crediting the said sum to the taxpayer instead of refunding same. The taxpayer further submitted that the section 50(1) of the VATA, an earlier enactment on administrative matters relating to VAT would be considered repealed by the provisions of the later RAA which deals specifically with the administration of tax law in Ghana. Thus, section 68 of the RAA has revoked or abrogated any provision in a prior law on granting tax credits instead of refunds.

Commissioner-General’s Response

The Commissioner-General submitted that the taxpayer was not entitled to a refund in respect of excess VAT credit under the VATA because under the VATA, it is only persons who engage in exports that exceed 25% of their total supplies and satisfied other conditions in the VATA who qualify for a refund. Thus, under section 50(1)(a) of the VATA, “any taxable person other than those engaged in export of goods who have excess tax credit within a tax period is required to carry forward the excess to offset any future output tax due and not entitled to a refund of the excess of the credit”.  The Commissioner-General further submitted that that RAA is applicable to other taxes other than the VATA. Additionally, the RAA is a general provision which does not override the specific provision being the VATA. As such, the VATA (specific law) which sets out the conditions for a refund of VAT in excess of tax credit as well as the persons who qualify for said tax refunds takes precedence over the RAA (general law).

The High Court’s Decision

The Court explained that the RAA prescribes a common approach to administering the various tax legislations in Ghana. The Court noted that consequential amendments and repeals in section 109 of the RAA provides for the repeal of sections 57, 66(3) and the 6^thSchedule of the VATA, further noting that the provision does not repeal section 50(1)(a) which provides for tax refunds for VAT. It follows therefore that the provisions in the Act which were not specifically mentioned are still operative and have the force of law.

On the understanding that “tax laws are supposed to be interpreted rigidly”, the Court agreed with the Commissioner-General that section 68 of the RAA is applicable to other taxes apart from the VATA. This means that the RAA “is a general law and the VAT law is a specific law”. Therefore, section 50 of the VATA being an earlier enactment on administrative matters relating to VAT would not be considered repealed by the provision of the later RAA because the RAA is a general legislation on the administration of tax laws in Ghana and does not take precedence over the VAT.

According to the Court, even though the RAA “creates a right in the plaintiff and places a duty on the Commissioner-General for tax refunds, the avenue for Value Added Tax refunds has been specifically provided for under section 50 of the Value Added Tax Act, 2013. The legal principle that, specific laws will override the general provisions will therefore apply in this instance”. Consequently, having performed the duty placed on him by crediting the excess tax to the taxpayer as a book balance, an order of Mandamus will not lie to compel the Commissioner-General to refund the excess credit to the taxpayer.

Author’s Opinion

The Court erred in its analysis regarding the law and administration of VAT refunds in Ghana. The justifications for the above views are set out below:

Refunds under the VATA

The Court erred in law when it indicated on page 9 of the judgement that Section 50(1)(a) provides an avenue for tax refunds under the VAT Act and relied on same (at least in part) to dismiss the application. The said section 50(1)(a) of the VATA provides as follows:

“Where the amount of input tax which is deductible exceeds the amount of output tax due in respect of the tax period (emphasis is mine), the excess amount shall be credited by the Commissioner-General to the taxable person”

The VATA proceeds to define a “tax period” in section 65 as “one calendar month”. Another relevant subsection in section 50 that will make section 50(1)(a) complete is subsection 13 which provides as follows “Except as otherwise provided in this section, a credit under subsection (1) shall be carried forward to the next tax period”.

Section 50(1)(a) can therefore be re-worded as follows: “Where the amount of input tax which is deductible exceeds the amount of output tax due in respect of one calendar month, the excess amount shall be credited by the Commissioner-General to the taxable person and shall be carried forward to the next tax period except as otherwise provided”.

This is the rule that governs the monthly reporting obligations of a VAT taxpayer, i.e., where the input tax exceeds the output tax in a month, a credit is claimed and subsequently carried forward to the next month. This cycle goes on and on until the taxpayer decides to apply for a refund of the total accrued VAT credits. The monthly credit system allows for any adjustments including where the supply is cancelled, or the goods returned, to be made to the monthly returns or payments which may affect any outstanding credit that the taxpayer may have accrued.

I therefore submit that the section 50(1)(a) is not applicable when it comes to VAT refunds. It only addresses the carry forward of excess input VAT.

It should be noted that the relevant refund provisions under the VATA are in two folds (i) Section 50(1)(b) and (ii) Sections 50(3)-(9). Whilst the latter is of general application, the former is a specific provision applicable to only qualifying exporters. It is my submission that refund requirements under (i), and (ii) are not conjunctive as was argued by the Commissioner-General. In fact, Section 50(3) provides that “… where the amount of tax paid by a person other than in the circumstances specified in subsections 1 and 2 …” Clearly, the section anticipates that section 50(1) and 50(2) provide separate avenues for a VAT refund application. Hence, the argument that a refund opportunity is only available for exporters, respectfully, has no legal basis.

Following from the above, it is my submission that the Court failed to analyse the “general refund” provisions under Sections 50(3)-(9) as applicable to the taxpayer, resulting in an erroneous decision.

Section 50(3) provides “Subject to section 45, where the amount of tax paid by a person, other than in the circumstances specified in subsections (1) and (2), was in excess of the amount properly subject to tax under this Act, the amount of the excess shall be treated in the manner provided for under subsection (5) to (9)”.

Thus, where the excess tax paid in section 50(1)(a) is beyond one month, it loses its nature as an excess input VAT evolving into a VAT credit for identification purposes. The taxpayer now has a right to apply for a refund of the excess tax i.e. VAT credit under section 50(4) – “Where a person has overpaid tax in the circumstances specified under subsection (3), the person may apply in writing to the Commissioner-General for a refund of the excess amount of tax, accompanied by documentary proof of payment of the excess amounts”.

The taxpayer in the instant case, is applying for refund for accrued credits of 5 years. The Commissioner-General having satisfied himself through a tax audit that the credit is indeed due to be paid to the taxpayer is obligated by section 50(5) to perform his duty as indicated by the provision as follows:

(5) Subject to this section, where the Commissioner-General is satisfied that a person who has made an application under subsection (4) has overpaid tax, the Commissioner- General shall 

(a) first apply the amount of the excess against the liability of that person for any tax, levy, interest, or penalty administered by the Commissioner-General, and 

(b) repay any amount remaining to the person within thirty days of being satisfied that the person has overpaid tax.

Pursuant to Section 50(5)(b), the VATA does not grant the Commissioner-General the right to credit an excess VAT credit to a taxpayer after being satisfied of the said credit following an audit. Rather, the law specifically requires him to “repay” the said credit, if any, to the taxpayer and any other act is contrary to the law.

Refunds under the RAA

It is trite law that where general law is at conflict with a specific law, the latter takes precedence. However, with regards to the facts of the matter before the Court, there was no conflict between the VATA and the RAA. The refund possibility provided for under Sections 50(3)-(9) referred to above is consistent with the refund provision under Section 66 of RAA. Respectfully, the court misdirected itself by not recognising that the refund opportunity is not limited to only exporters; this then led to the unfortunate conclusion that a refund is not available to non-exporters for which reason it concluded that there was a supposed conflict between the VATA and RAA.

Additionally, the repeal of the 6^th Schedule to the VATA does not in any way suggest that the matters referred therein are the only administrative matters to be exclusively treated under the RAA. In fact, the 6^th Schedule, a remnant of the repealed Value Added Tax Act, 1998 (Act 546) is not the only administrative provisions in the VATA. Thus, although having repealed the entire 6^th Schedule, the RAA for the avoidance of doubt, expressly provided in Part 1 of the 3^rd Schedule that the VATA is under the full administration of the RAA.

To provide more context in what tax administration entails, we may seek guidance from the Income Tax Act, 2015 (Act 896) as amended (ITA) specifically the 7^th Schedule, which has been repealed by the RAA.  The repealed 7^th Schedule to the ITA which is also titled “Tax Administration” sets outs extensively matters that are considered by the ITA as tax administration. In the repealed 7^th Schedule, matters pertaining to tax refunds and set offs were provided. We can therefore deduce that tax refunds are administrative in nature. There is nothing peculiar about tax refunds. A tax refund, which is in essence the payment of overpaid tax, remains the payment of overpaid tax whether under the VATA or the RAA. The overriding principle of specific law taking precedence over general law is only applicable where there is conflict of provisions in the said applicable laws. This was not the case in the instant case as has been elucidated earlier. It follows, therefore, that whether under the VATA or the RAA, the taxpayer had the right to refund for excess taxes paid.

An order of Mandamus

An order of mandamus or simply a mandamus, which means ‘we command’ is issued by a superior court to compel a lower court or public official to perform a mandatory or purely ministerial duties correctly. It is thus, a judicial remedy which is in the form of an order from a superior court to any public official, subordinate court, corporation or public authority to do or forbear from doing some specific act which that body is obliged under law to do or refrain from doing, as the case may be, and which is in the nature of a public duty and in certain cases of a statutory nature.

It is worthy of note that an applicant asking for an order of mandamus must first prove a legal right  or duty which the public official is failing to perform. This, the taxpayer in this case has fulfilled because under section 50(7) of the VATA, the Commissioner-General is required to serve on a person claiming a refund, a notice in writing of the decision in respect of the refund claim. This the Commissioner-General refused, neglected, or failed to do, hence the application to the Court.

Moreover, section 50(6) of the VATA provides that “Subject to subsection (8), a claim for a refund under subsection (4) shall be made within six months after the date on which the excess arose”. The Commissioner-General had not complied with the duty imposed on him under Section 50(6). This is why the company took steps to compel the Commissioner-General to perform a duty imposed on him by section 50(6) of the VATA.

Concluding Remarks

The principles underpinning Standard VAT regime in Ghana are settled. VAT is a tax on consumption expenditure. Therefore, input VAT that is incurred and cannot be offset by an equal output VAT is an excess tax that is paid and should be refunded to the taxpayer. When this basic principle is not respected, the tax ceases to be neutral (i.e., a consumption tax) and has an economic effect on businesses.

Tax administration should not be construed as merely tax collection; where a tax repayment or refund is provided for by law, same should be respected, and complied with by the Ghana Revenue Authority.