FROM THE BOARDROOM

Kotoko Business

Kotoko 2 Satellites 1
The beautiful thing about Kotoko today is that we have our own programme and we are sticking to it. We plan our matches, events, marketing, communication and development unaided. Planning is never easy when we have to accommodate constant change from within the FA.

Business as usual meant that last Wednesday evening Kotoko played and beat a strong and well-prepared Satellites team by two goals to one! Even though I am in Hong Kong I follow all of our matches with keen interest and am on the phone continuously with Mohammed Haruna. He gives me the updates and all the happenings surrounding the matches!

Following our defeat of the Burkina Faso national team I was fascinated to see what or rather how we would fare against our junior national team. Our squad is playing well. We could talk about a team that played without the likes of Ablordey, Lawrence Adjei, Godfred Yeboah, Osei Boateng, Nana Frimpong, Joe Okyere (injured), Kwaku Duah (Satellites), Frank Asoa, etc (all rested) but then that would defeat the principle that Ernst is establishing. He has established a principle that the Kotoko first team is anyone who wears the jersey and plays. We are course in terms of building a strong squad. This was particularly significant in a match, which saw the likes of Fuseini Adams, Joe Louis, Felix Yeboah, Patrick Dodoo and Michael Osei all excelling! I am particularly proud of the players who have learnt to understand that even if you are not picked you have to train extra hard to be able to eventually play regularly. It is not easy to force your way into the first team or rather first eighteen!

Goal scoring seems to be becoming a habit for Joe Louis and as for Patrick Dodoo it seems to be a habit. Their efforts and the support given them by the rest of the team needs to be commended!
I am only sorry that I was not in Kumasi to watch the match! As I said I am in the Far East! Well done boys…keep up the momentum!

VAT and Soccer
I need to thank Joe Owusu Ansah for his input here. The piece I am about to write is taken directly from a document that Joe prepared. I should point out before I commence that Joe is a professional Chartered Accountant with specialist knowledge in tax. He has an opinion that I greatly respect!

Most of you will be familiar with my views on VAT in soccer. This article by Joe is a more professional insight into the same topic

“VAT AND SOCCER ADMINISTRATION IN GHANA
It is the duty of governments all over the world to ensure the development of social and economic well being its citizenry.

To be able to achieve this objective there must be periodic and constant revision of policies and a continuous identification of potential sources of revenue generation.

Governmental agencies responsible for generation of revenue in their bid to achieve their targets tend to overlook certain important provisions in their laws that have been promulgated to guide them in the performance of their duties thereby opening themselves to legal tussles with their consequent public ridicule.

VALUE ADDED TAX ACT, 1998 (VAT A 546)
The new Value Added Tax (VAT) law Act 546 became effective in 1998 after an initial attempt to introduce VAT failed. VAT gained currency over the years to become one of the most efficient tax systems on consumer expenditure. VAT has been acknowledged by both the developed and developing worlds. The VAT Act, 546 comprehensively revised the previous Act that was withdrawn by the then National Democratic Congress government.

Since its promulgation, Act 546 has been amended several times. These include the lowering of business turnover threshold for registration and upward adjustments of the rate of tax, which except otherwise provided in the VAT Act was initially fixed at 10% calculated on the taxable supply of the goods, services or import.

GROUP VAT
Section 5 (8) of Act 546 states: “ A group of taxable persons may with the approval of the Commissioner be treated for the purposes of the tax as one designated taxable person; provided each member of the group undertakes to be jointly and severally liable for any contravention under this Act and regulations made under it.

Under Section 5 (8) one person within the group is nominated as a representative member. During registration it is only the representative member that is registered. The nominee then becomes responsible for filing returns and paying of VAT on behalf of the group members. Supplies made by or to any of the group members are assumed to have been made by the representative member. Similarly, imports are also treated as imported by the representative member.

The implication of these is that the representative member is supposed to handle all matters on behalf of the other group members. Notwithstanding this implication, the VAT law does not distinguish a nominated member from the other group members but are jointly and severally liable for any inconvenience under the VAT Act 546.

Two practical situations where the group provision is applicable are:

A single firm with a number of branches or divisions and Holding/ Subsidiary.

TAXABLE PERSONS
A taxable person is someone who is required under Act 546 to be registered for the purpose of VAT. It must be emphasised that not all entities are taxable persons. Act 546 as amended by 2001 budget statement defines who is a taxable person. A person is liable to be registered for VAT if the value of his taxable supplies exceeds the statutory limit under section 5 (1) of Act 546 as amended by 2001 budget statement.

Taxable persons are the silent operators of the VAT administration in every country where the VAT is in operation. They are important agents since they have the responsibility to collect output tax at their own expense on behalf of the Commissioner without any financial reward but risk prosecution.

“Person” under the Act refers to different entities including natural persons, a body corporate e.g. as registered under the Companies Code, 1963 (Act 179) or an unincorporated association e.g. partnership, or clubs.

DIVISIONS AND BRANCHES: SEC: 5 (9)
Section 5 (9) ‘ a taxable person whose business is structured into distinct divisions may apply to the Commissioner for each division to be registered for the tax’.

A taxable person may grow large that managing it as a single entity becomes very difficult and are therefore organised as either profit or investment centres. These divisions and branches themselves become large and semi-autonomous unites with their own accounting systems. This makes it difficult for this ‘ taxable person’ to produce one VAT return for the whole entity.

However, in some cases the entities can apply to the Commissioner to be registered under section 5 (8). These semi-autonomous may elect with prior approval of the Commissioner to be designated as one taxable person under group VAT.

HOLDING/SUBSIDIARY
By law and generally accepted accounting practices two or more companies can elect to be treated as a group of companies if one company controls the other or one person controls them i.e. e. holding/subsidiary relationship.

Currently, almost if not all the Premier League Clubs are registered as limited liability companies. The implication of this is that the Companies Code of 1963 regulates their operations.

Strangely enough, the Companies Code, 1963 of Ghana, Act 179 only described the preparation of group accounts (sec. 127) but does not define holding/subsidiary relationship.

Since Act 179 is short of definition for holding/subsidiary, one needs to be guided by other countries regulations and generally accounting practices when establishing this relationship. The following indicate that there is no holding/subsidiary relationship between Premier Clubs and the National Sports Council. “ Ownership of a majority of the shares carrying the right to elect at least a majority of the members of the Board of Directors, (Canadian)”.

“ The usual condition for a controlling financial interest is ownership of a majority voting interest, and therefore, as a general rule, ownership by one company, directly or indirectly, of over 50% of outstanding voting shares… (USA).

“ A company is a ‘subsidiary of another company, its holding company, if that other company:
Holds a majority of the voting rights in it or is a member of it and has the right to appoint or remove a majority of its Board of Directors… (English).

Both New Zealand and Australia define subsidiary in much the same way. ‘ Control’ and ‘Ownership’ are the two key words that run all the above definitions. The Sports Council has no control and/ or ownership over any of the clubs. There is therefore no holding/subsidiary relationship between the Sports Council and the football clubs.

INTRODUCTION OF VAT AT LEAGUE CENTRES
Since June 2000 the Premier League Clubs have been charging VAT during all their matches. GHALCA opposed the introduction of VAT prior to its imposition. The position of GHALCA was that considering the elasticity of patronage of their matches any attempt to ‘impose’ VAT would adversely affect them financially. Another issue was that most of the clubs’ business turnover threshold was at that time far below the statutory limit of 200 million over a twelve month period (Section 5 1 (a) ).

Their plea and later protest notwithstanding , the Commissioner through the National Sports Council introduced VAT at all the league centres without enough notice to the clubs and in a manner that gives an erroneous impression about the existence of Holding/Subsidiary relationship between the Sports Council and Premier Clubs.

Conventionally, the source of interpretation of the Sports Council’s action should be obtained from the Companies Code of Ghana, 1963. Legal experts wonder whether this omission in the country’s statutes made the Premier League Clubs to accept the Sports Council’s interpretation of group VAT or through undue influence of the Sports Council. However, contract made under undue influence is avoidable.

Even though the VAT has been introduced at the league centres for almost a year now, its implementation and administration leave no one in doubt that both the Sports Council and VAT administrators have problems in the interpretation of Value Added Tax Act, 1998 (Act 546).

There are also computational inaccuracies in the direct contravention of Act 546, section 21 (5). These situations if not rectified would see the ‘aggrieved’ GHALCA members dragging the Commissioner of Vat and the Sports Council to the law courts.

The Premier League Clubs ‘collect’ output tax from the spectators but they are not able to recover their input tax from the Commissioner. For these clubs the neutral effect of output-input tax on business costs does not exist.

Tax experts consider that current contrived structures result in revenue loss to the clubs that go beyond the normal consequences of group VAT. The design also distorts the VAT grouping provisions, which aim to put a group into the same position as a single entity.

Furthermore, the VAT Act section 5 (8) is applicable after each of the members has undertaken to be jointly and severally liable for any contravention. There are substantial documentary and circumstantial evidence to prove that GHALCA vehemently resisted the introduction of group VAT when the Sports Council elected itself as their representative member.

COST OF VAT
VAT is not part of business cost unlike other indirect taxes has a neutral effect on business costs. It is therefore imposed on personal consumption for goods and services. But for a Ghanaian football club it is a non-allowable expenditure. The only ‘reward’ for taxable person is the credit mechanism provided under section 24 whereby subject to certain provisions taxable persons are allowed to recover their input tax which they have paid.

IRRECOVERABLE INPUT TAX
VAT Act section 24 (1): ‘ At the end of the accounting period provided in this Act or prescribed by regulations, a taxable person may deduct from the output tax due for the period, tax on goods and services purchased in Ghana or goods and services imported by him and used wholly, exclusively and necessarily in the course of his business’.

Input VAT is paid by the clubs on goods and services supplied to them and they include boots, jerseys, hotel accommodation, etc. and also on their imports. According to the law these input taxes on these purchases are recoverable from the Commissioner subject to certain conditions. Because of the existing arrangement between the Sports Council and the clubs, the clubs are not able to take advantage of the credit mechanism whereby (subject to certain conditions) they are not able to recover their input tax.

COMPUTATIONAL INACCURACIES
The tax rate is 12.5% based on the tax exclusive value of goods or services supplied. This is equivalent to 12.5%/112.5 (11.11%) of the tax inclusive value or gross proceeds of the goods or services supplied.

VAT Act section 3 (amended): ‘ except otherwise provided in this Act, the rate of the tax shall be 12.5% calculated on the value of the taxable supply of goods, services or imports’.

Section 21 (5): ‘ Where a taxable supply is made without a separate amount of the consideration being identified as a payment of the tax, the taxable value of that supply shall be the amount of the consideration paid excluding the tax’.

The football clubs are being made to pay the output tax 12.5% on gross proceeds in contravention of section 21. Recently, a sports newspaper confirmed this excessive output VAT being paid by the clubs when it published an operating statement of a Premier Club in Ghana. Thus the clubs for every 10,000,000 gate proceeds pay to the VAT 1,250,000 instead of 1,111,111 as output VAT. Therefore the Premier Clubs are entitled for refund or credit of excess tax paid since the introduction of VAT during football matches.

CONCLUSION
The National Sports Council, VAT Secretariat, GHALCA, GFA and Professional League Board must as matter of urgency take corrective measures to prevent the Ministry of Youth and Sports and the VAT Secretariat being dragged to the law courts.

In the meantime…
I would like to congratulate Coach Afranie (yes the same) for his civility in speaking with Coach Middendorp on Wednesday. He had earlier asked for the match against Kotoko and Middendorp had readily obliged. The discussions between the two were professional and Ernst agreed to try and arrange for assistance with practice matches for the Satellites whilst in Europe. Communication is often the key to moving ahead. We may still have some professional differences of opinion but with communication we can have cooperation and remove some of the mistrust that exists!

It is a shame that the process of government nominations for GFA positions have not been subject to discussions with the Ghalca or Executive Council members. The government of the day, the NPP has changed the way people think. In allowing total and sometimes excessive use of press freedom has meant that people with opinions tend to vocalize them! “NPP people” have also learnt to vocalize their opinions seemingly against their party if they believe they are not being listened to. The irony of the imposition of FA candidates has brought comparisons to the days of E.T Mensah. A staunch NPP person called me the evening of the nominations (I was in Hong Kong) and said that even with E.T. Mensah he would have consulted and worked a “deal” in this situation!

I have made great progress in matters concerning Kotoko on this trip. I have been in South Africa and now in Hong Kong. By the next edition I will reveal some of the achievements attained so far!
Fabulous, the greatest West African team of the 20th Century!