So­cial se­cu­rity sys­tems that need im­prov­ing

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Celia Becker

Time to clear the muddy wa­ters of con­tri­bu­tions fac­ing ex­pa­tri­ate work­ers in Ghana and Zam­bia

IN A pub­lic no­tice in the Ghana­ian Daily Graphic news­pa­per the So­cial Se­cu­rity and National In­sur­ance Trust (SSNIT) noted with con­cern the non­pay­ment of so­cial se­cu­rity con­tri­bu­tions by some em­ploy­ers of ex­pa­tri­ates work­ing in Ghana.

The no­tice, in the edi­tion of Fe­bru­ary 18 this year, fur­ther high­lights that, in terms of sec­tion 83(1) of the National Pen­sions Act (Act 766 of 2008), it is an of­fence for em­ploy­ers to fail to reg­is­ter any worker un­der this act and, with ef­fect from July 2 2013, the SSNIT will be prose­cut­ing em­ploy­ers in breach of the National Pen­sions Act.

This was an about-turn in the pre­vi­ous prac­tice in terms of which the SSNIT did not in­sist on col­lect­ing so­cial se­cu­rity con­tri­bu­tions from for­eign na­tion­als or ex­pa­tri­ate staff of Ghana­ian em­ploy­ers if those ex­pa­tri­ates con­trib­uted to so­cial se­cu­rity schemes in their home coun­tries.

This prac­tice, how­ever, did not have any le­gal ba­sis, as, in terms of sec­tion 58 of the National Pen­sions Act, the manda­tory first-tier ba­sic so­cial se­cu­rity scheme ap­plies to ev­ery em­ployer and worker of an es­tab­lish­ment in Ghana, un­less ex­pressly ex­empted by the con­sti­tu­tion or any other law.

In re­spect of non-Ghana­ians, ex­emp­tion is only pro­vided for in re­spect of diplo­matic agents (the head of the mis­sion, ad­min­is­tra­tive, tech­ni­cal and ser­vice staff of the mis­sion) and the United Na­tions and its spe­cialised agen­cies, which have diplo­matic sta­tus. Ac­cord­ingly, all other ex­pa­tri­ates work­ing in Ghana are thus re­quired to reg­is­ter and con­trib­ute to the so­cial se­cu­rity scheme.

Fol­low­ing the an­nounce­ment a num­ber of con­cerns have been raised, es­pe­cially in light of the fact that pen­sion ben­e­fits un­der the first­tier ba­sic national so­cial se­cu­rity scheme are only avail­able fol­low­ing a min­i­mum of 15 years’ con­tri­bu­tion to the scheme or at­tain­ing the pen­sion­able age of at least 55. Ex­pa­tri­ates would only qual­ify for such ben­e­fits in ex­cep­tional cases.

In a re­sponse to the Ghana Em­ploy­ers’ As­so­ci­a­tion dated April 24 2013, the SSNIT yet again changed tack and an­nounced that, in the in­ter­est of Ghana’s in­vest­ment drive, it will al­low for an ex­emp­tion of ex­pa­tri­ates where they are in Ghana on a short-term ba­sis (not more than three years) and are un­der­tak­ing the in­stal­la­tion of equip­ment or ma­chin­ery ac­quired by a Ghana­ian com­pany un­der a sup­pli­ers con­tract and for train­ing of lo­cal work­ers, or un­der­tak­ing a tech­nol­ogy trans­fer agree­ment un­der the In­vest­ment Pro­mo­tion Cen­tre Act, or where proof is pro­vided by the em­ployer that such ex­pa­tri­ate is still a worker in his/her home coun­try and a mem­ber of the pen­sion scheme of that coun­try.

This po­si­tion is yet again not sup­ported by any spe­cific pro­vi­sions of the National Pen­sions Act, and a num­ber of ques­tions arise in re­spect of its prac­ti­cal ap­pli­ca­tion. For in­stance, how is the three-year pe­riod to be cal­cu­lated, and how will the pro­vi­sions be ap­plied if an ini­tial short-term as­sign­ment is ex­tended be­yond three years?

A sim­i­lar is­sue arose in Zam­bia in 2011-2012. In terms of the Zam­bia National Pen­sion Scheme Act (Act 40 of 1996) ev­ery per­son em­ployed by a com­pany that is reg­is­tered with the National Pen­sion Scheme Au­thor­ity (Napsa) is re­quired to be reg­is­tered as a mem­ber of the scheme. How­ever, in terms of sec­tion 10 of the act, in­ter alia an em­ployee of an in­ter­na­tional or­gan­i­sa­tion who is not a cit­i­zen of Zam­bia is ex­empt.

Pre­vi­ously, in­ter­na­tional com­pa­nies and Zam­bian sub­sidiaries of in­ter­na­tional com­pa­nies have in­ter­preted this to mean that ex­pa­tri­ates work­ing in Zam­bia would not be sub­ject to con­tri­bu­tions to Napsa. Napsa seems to have ac­cepted this po­si­tion and even con­firmed in the Napsa Em­ployer’s Guide that non-Zam­bians were not re­quired to con­trib­ute to Napsa.

How­ever, dur­ing a road­show in Jan­uary 2011 Napsa in­di­cated that they would, with im­me­di­ate ef­fect, be amend­ing their prac­ti­cal ap­pli­ca­tion of the act to en­force a strict in­ter­pre­ta­tion of the rel­e­vant ex­emp­tion. Ir­re­spec­tive of the fact that “in­ter­na­tional or­gan­i­sa­tion” is not de­fined by the act, Napsa an­nounced that in terms of their amended ap­proach an in­ter­na­tional or­gan­i­sa­tion is in­ter­preted as “an or­gan­i­sa­tion akin to the United Na­tions and its agen­cies”. As a re­sult, all em­ploy­ees of other Zam­bian reg­is­tered branches or sub­sidiaries were deemed to be sub­ject to Napsa con­tri­bu­tions. Any em­ployer who has not been sub­mit­ting Napsa con­tri­bu­tions in re­spect of all em­ploy­ees with ef­fect from Jan­uary 2011 has been sub­ject to penal­ties at 20% a month on a cu­mu­la­tive ba­sis, and a num­ber of in­ter­na­tional com­pa­nies re­ceived hefty as­sess­ments.

Al­though it is gen­er­ally held that Napsa’s cur­rent in­ter­pre­ta­tion is open to chal­lenge, em­ploy­ers do not have any op­tion but to com­ply un­til such time as the mat­ter has been con­sid­ered by the Zam­bian le­gal sys­tem (which, un­sur­pris­ingly, is yet to hap­pen).

Both dis­crep­an­cies be­tween gazetted leg­is­la­tion and its prac­ti­cal ap­pli­ca­tion (as in the above case of Ghana) and leg­is­la­tion that does not clearly define rel­e­vant terms and the ap­pli­ca­tion of its pro­vi­sions (as in the case of Zam­bia) con­tra­vene Adam Smith’s prin­ci­ple of tax cer­tainty that is re­quired for a good, fair and ef­fi­cient tax sys­tem. As far back as the 18th cen­tury he al­ready had the in­sight to state boldly that where the quan­tity and time and man­ner of pay­ment of tax is not clear and plain to the con­trib­u­tor and to ev­ery other per­son, tax­pay­ers are put more or less in the power of the tax col­lec­tor, with am­ple op­por­tu­nity for tyranny or cor­rup­tion on the part of of­fi­cials and a temp­ta­tion to law-break­ing and eva­sion on the part of tax­pay­ers.

There is still sig­nif­i­cant room for im­prove­ment in the so­cial se­cu­rity sys­tems of both Ghana and Zam­bia to avoid the ills of un­cer­tainty pre­dicted by Adam Smith.

Celia Becker is an ex­ec­u­tive in the tax depart­ment at ENS.

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