BLUE SKY PRODUCTS (GHANA) LTD V COMMISSIONER OF GRA (DOMESTIC TAX)

(COURT OF APPEAL)

Citation: Unreported judgement of the Court of Appeal Suit No H1/42/2023 (25th January 2024)

Brief Facts: 
This was an appeal against the decision of the High Court which dismissed a tax appeal brought by Blu Sky Products (Ghana) Ltd (the appellant) against the Final Objection decision of the Commissioner General of the Ghana Revenue Authority (the respondent). The objection was in respect of 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). Section 28 (1) of Act 504 exempts free zones enterprises from payment of income tax on profits for the first ten years from the commencement of operation in business. The appellant contends that after the ten year concession period, agro-processing company engaged in the export of non-traditional exports shall be assessed income tax a rate not exceeding 8%.The Appellant being a free zones agro-processing company had assessed its own liability for the first half of the year under this Act and not 15% under the first schedule of Act 896. However, the respondent argued that the tax assessment of the appellant should have been worked out at 15% under Act 896. This was objected to by the appellant which submitted the appeal decision by the GRA to the High Court.

The High Court dismissed the appellants submission that they operated within two tax regimes and affirmed the tax decision of the respondent.  

Grounds of Appeal:

  1. The High Court erred in law when it held that the appellant is a free zones enterprise and had previously enjoyed the benefits of the tax regime applicable to free zones enterprises, and therefore no longer entitled as a producer and exporter of non-traditional products to the more favourable tax regime even though the appellant can be categorized as such. This conclusion flies in the face of the basic distinction in tax law between tax evasion and tax avoidance.
  2. The High Court erred in law when it ruled that the appeal is not against the Constitutional provisions of article 17.

Issues:

  1. Whether or not the appellant after the tax concessionary period under section 28(1) of Act 504 was taxable under paragraph 3(3) or paragraph 4 of the first schedule of Act 896.

Areas of tax law considered

  1. Interpretation of tax laws.
  2. Application of tax laws after the expiry of a tax concession.
  3. Free zones companies
  4. Tax avoidance

Arguments

Appellant (Taxpayer)

  1. Statutes must be read as a whole which in this instance was not considered by the High Court.
  2. It is a rule of tax law and practice that a taxpayer can organize his affairs to pay the least possible tax. Thus, the Court erred in considering the act by the appellant as tax evasion.
  3. The conclusion by the High Court that the appellant after enjoying a decade tax concession under the Free Zones Act could no longer be considered under paragraph 3(3) of Act 896. Thus, after the tax concession, section 28(2) of the freezones Act kicked in and they could not be asked to pay more than 8% after profit in tax.
  4. The definition of discrimination by the High Court was in error and that was so because the company is a foreign company.

Respondent (Ghana Revenue Authority)

  1. The appellant’s position is erroneous and untenable as paragraph 3(3) of the first schedule applied to companies outside the free zones operating within the domestic economy which are involved in the export of non-traditional products whiles paragraph 4 applies to free zone enterprises which export goods or services outside the national customs territory.
  2. The appellant fell under paragraph 4 of the first schedule of Act 896.
  3. Alleged inconsistencies in section 28(2) of Act 504 and paragraph 4 of the first schedule of Act 896 are untenable in law.
  4. The law permits the Commissioner General under section 34 (2) of Act 896 to disregard any tax avoidance arrangements.
  5. Appellant failed to prove alleged discrimination.

Ruling

The appeal failed.

  1. The company is required to pay the 15% tax under paragraph 4 of the First Schedule of Act 896 and not 8% under paragraph 3(3) of the same schedule.
  2. Respondent was justified in applying the 15% tax rate in the assessment of the appellants tax liabilities.

Reasoning:

  1. Fiscal statutes are subject to the general rules of interpretation and thus must be read as a whole and not in piecemeal. Where the language used in the fiscal legislation is ambiguous, which would require the courts to fall on external aids to interpretation, the strict constructionist approach will not be applied. The literalist approach may be more applicable.
  2. The company after enjoying the ten-year period tax concession, cannot opt to be considered under paragraph 3(3) of the first schedule of Act 896.
  3. The status of the appellant as a free zone entity by election placed it under paragraph 4 of the first schedule of Act 896. The concessionary rate of 8% applies only to companies that are not registered as free zones companies

Principles for Tax Practitioners

  1. Tax minimization schemes that are outside the spirit law may be disregarded by tax authorities
  2. Where a claimant establishes a prima facie case on the existence of a tax avoidance arrangement, the onus will shift to the respondent to demonstrate that this tax avoidance arrangement was not abusive.
  3. The concessionary rate of 8% under paragraph 3 of the first schedule of Act 896 applies only to companies that are not registered as free zones companies.

References

Constitutional

  • Article 17 of the Constitution

Statutory

  • sections 28 (1) and (2) of the Free Zones Act 1995 (Act 504)
  • paragraphs 3(3) and 4 of the First Schedule of the Income Tax Act, 2015 (Act 896).

Caselaw

  • Afrifa v Ghana Revenue Authority and Attorney General [2022] GHASC (unreported)
  • Amidu No (3) v Waterville Holdings (BVI) Ltd. & Woyome (No. 2) (2013-2014) 1 SCGLR 606
  • Asare Baah III and Ors v Attorney General and Electoral Commission [2010] SCGLR 463
  • Copthorne Holdings Ltd v Canada [2011] 3 SCR 721
  • IRC v Fishers Executors (1926) AC 395
  • Republic v Commissioner of Income Tax; Ex parte Maatschappij De Fijlmhouthandel [1974]1GLR 28
  • Mangin v IRC [1971] All ER 179 
  • Multichoice Ghana Ltd v Commissioner IRS [2011] 2 SCGLR 783

Books

  • Dominic Adjei (2020). Modern Approach to the Law of Interpretation. 3rd edition
  • Yaw D Oppong (2022). Contemporary Trends in the Law of Immovable Property.