Double Taxation Agreements and their implications for Ghana’s tax revenues

Taxation in general, as a matter of fact, has been observed by experts to have either direct or indirect effects on almost every aspect of production and distribution in modern economies.

Double taxation, however, is the imposition of comparable taxes in two or more states on the same tax payer in respect of the same income, in which case a person’s income has been taxed twice.

As a result of the growth in cross-border trade and investment activities between states, the need to avoid the situation of double taxation of citizens became necessary leading to Double Taxation Agreements (DTAs) or Treaties which is also referred to as Double Taxation Conventions.

Abdallah  Ali-Nakyea, a tax expert offers the following reasons for DTAs: The intensification of cross-border business activities in a globalized world;  The need to prevent international tax avoidance and evasion;  The need to discourage discriminatory taxation of foreign nationals and enterprises; The need to create an environment of fiscal certainty to encourage trade and investment.

He further explains that states enter into DTAs, which is an arrangement by which states avoid taxing the same income of their nationals and/or corporations twice on the same income.

However, it has been argued elsewhere that double taxation plays a role in undermining the comparative advantage principle on international trade and to an extent that is not exactly known discourages international trade and investment.

On the question of how mutually beneficial DTAs are, Ali-Nakyea said, “ideally we should see both countries benefiting, however, developing countries tend not to reap full benefits if individuals and businesses from the developed countries do not engage in foreign direct investments.”

He held that Ghana has benefitted from DTAs from the point of the donor assistance from countries with whom she has DTAs with. Ghana has also had benefits by way of more trade and investment owing to the certainty in the fiscal environment for investors from countries with whom Ghana has DTAs.

Ghana currently has DTAs with seven countries. These are; France, UK, Belgium, Italy, Germany, South Africa and Switzerland. Ghana is currently holding discussions with Iran to sign a DTA as the eighth country.

DTAs also apply to individual earnings as a recent development involving the Ghana Football Association (GFA) and the Internal Revenue Service (IRS) showed. This covers any profit or remuneration for personal and professional services. Each agreement gives the scope of incomes that should be brought under the DTA, hence it is on a country by country basis.

In the instance of the GFA, IRS issue, the IRS was demanding tax payment on the earnings of the national team, the Black Stars after their participation in the 2010 World Cup in South Africa.

As to how Ghana benefits from DTAs, Ali-Nakyea said DTAs are beneficial to Ghana in its form. “What I would wish to see is monitoring of the provisions of the various DTAs to ensure that there is no abuse or leakage of tax revenue due to the state,” he said.

He indicated that Ghana has the advantage of getting assistance from Tax Authorities in countries with whom she has DTAs as to information of their citizens and their businesses in Ghana in case there is any tax revenue leakage.

“One of the factors taken into account in entering into DTAs in Ghana include the other state’s donor support to Ghana. I thus wish that if the donor support ceases or fails to flow in, then the DTA ought to be reviewed otherwise Ghana losses the donor assistance and again losses some tax revenue,” he said.

By Emmanuel K. Dogbevi

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