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Counting the cost: Paying taxes in foreign currency

Ghana's economy is fertile ground for investors - high rewards and medium to high risk. Multinationals have been investing in our country since the days of independence and earlier, with many others joining each year.

Financial reporting

Due to commercial requirements of group reporting, multinationals usually find it more convenient to prepare their financial statements in the reporting currency of their parent companies which invariably tends to be the US Dollar, the Euro or the Great British Pound. The obvious advantage of this is that it eliminates the need for the conversion of financial results from the Ghana Cedi into the functional currency of the parent company, thus making consolidation of financial statements a seamless process.

Paying taxes

With a company’s financial statements being prepared in foreign currency, the question arises regarding the currency they will pay their taxes in. Does it automatically follow that this will be in foreign currency also?

Commissioner-General’s Approval

The Ghana Cedi is the official currency for purposes of the Ghana’s tax laws. However, it is possible to obtain approval in writing from the Commissioner-General (CG) of the Ghana Revenue Authority (GRA) to take a foreign currency amount into account for the purpose of keeping records, submission of accounts or any other tax transaction as provided for in the Revenue Administration Act, 2016.

Once written approval has been obtained from the CG, the various tax calculations can be completed and payment made in the approved currency. The GRA has foreign currency accounts and as such, making payment is fairly straightforward.

Practical Challenges

What happens when?

  1. You overpay your corporate income taxes and you are due a refund?

  2. Your input VAT exceeds your output VAT and you are due a refund?

  3. You are exempt from import duties however are required to make payment and apply for a refund within 30 days?

In all the examples above, the transactions are conducted in foreign currency by the taxpayer.

Typically the GRA does not make tax refund payments in any other currency apart from the Ghana Cedi. As stated earlier, the Ghana Cedi is the official currency of Ghana’s tax laws, and any payment made to taxpayers by the GRA, will be converted from the foreign currency denomination it was received in, to the Ghana Cedi at the Bank of Ghana Interbank exchange rate on the date of the transaction.

With this in mind, one can imagine that any delays in obtaining refunds from the GRA could result in currency gains and losses; the latter being the case in recent times, due to the rapid depreciation of the Ghana Cedi against major world currencies thus having a negative cash-flow impact on taxpayers.

The current position

The GRA has acknowledged the difficulties foreign currency tax payments have caused both their office and taxpayers, and have stopped accepting payment of VAT in foreign currency. They are also requiring taxpayers to make corporate income tax payments in Ghana Cedi although they are permitted to file in foreign currency.

What do other countries do?

One could argue that Ghana is quite flexible in comparison to countries like Angola, South Africa and Zambia where local currency financial reporting and tax payments are mandatory. Maybe this is a blessing in disguise since exchange rate differences are dealt with as and when they arise and companies can plan adequately for this.

What next for taxpayers?

Taxpayers should weigh the costs and benefits of preparing their accounts and making tax payments in local currency, as opposed to foreign currency, particularly in the context of the current economic environment. The inconvenience of currency conversions during financial statement consolidation, may be insignificant compared to the potential losses in value when obtaining tax refunds, and the ensuing negative cash flow effect.