In order to engage taxpayers and create space for companies to determine their estimated chargeable income in concert with their financial performance, the Income Tax Act 2015 (Act 896) introduced self-assessment.
Under this regime, taxpayers estimate their chargeable income for the financial year and spread payment of the tax on a quarterly basis.
Due to cash flow constraints and other considerations, most taxpayers underestimate their chargeable income from the outset and do not keep a close eye on submitting a revised estimate to the GRA reflecting their profitability outlook as the year wears on.
The penalty exposure
Section 70 of the Revenue Administration Act 2016 states that where the estimate or revised estimate of tax payable with respect to chargeable income for a year of assessment under section 122 of Act 896 is less than ninety percent of the correct amount, the taxpayer is liable to pay interest on the tax due, from the date the first instalment for the year of assessment is payable until the date the person files a return of income under section 124.
“This is an avoidable tax expense — the Act permits you to submit revised estimates with supporting documents before the due date of the instalment payment.”
It is recommended that after the third quarter ending 30 September each year you work closely with your tax consultant on the preparation of a revised estimate in line with actual financial performance, where necessary, to forestall penalties.