Social security systems that need improving
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.