The Court of Appeal in the case of DANIEL K. BANNOR & 74 ORS v. KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY (KNUST) & ANOR [TLP-CA-2026-34] has upheld a High Court decision affirming that the Kwame Nkrumah University of Science and Technology (KNUST) lawfully deducted taxes from ex-gratia payments made to 75 retired employees, ruling that such end-of-service benefits constitute taxable employment income and are distinct from tax-exempt pension benefits.

The unanimous decision, delivered by Justice Dr. Poku Adusei with Justices Patrick Kwamina Baiden and Ali Baba Abature concurring, clarifies that although ex-gratia payments are contractual entitlements earned through years of service, they do not enjoy the constitutional and statutory tax exemptions reserved exclusively for pensions.

STAR OF THE MONTH - Justin Amenuvor Esq.

Background

The appellants, Daniel K. Bannor and 74 other retired employees of KNUST, challenged the university's decision to deduct taxes from the ex-gratia or end-of-service benefits they received upon retirement.

According to the retirees, their retirement benefits comprised two components: periodic pension payments and one-off ex-gratia payments made under the Unified Conditions of Service for Unionised Staff of the Public Universities of Ghana. While they accepted that they were entitled to the payments, they contended that the deductions made from their ex-gratia benefits were unlawful.

The retirees argued that the deductions violated the 1992 Constitution and Ghana's tax laws. They maintained that ex-gratia formed part of their pension benefits and therefore should enjoy the same tax exemption as pensions. They consequently sought declarations that the tax deductions were unlawful, orders compelling KNUST to refund the deducted amounts with interest, and an award of costs.

KNUST disputed the claims, insisting that the payments in question were not pensions but end-of-service benefits payable under the employees' conditions of service. The university argued that under the Income Tax Act, pensions are exempt from tax, but ex-gratia payments constitute taxable employment income. It further maintained that it merely complied with its statutory obligation by withholding the appropriate taxes before making the payments.

The High Court agreed with KNUST, dismissed the retirees' claims, and held that ex-gratia payments were subject to tax. Dissatisfied with that decision, the retirees appealed.

Appellants' Arguments

Before the Court of Appeal, the retirees argued that the trial court erred in holding that ex-gratia payments were taxable income at the time of their retirement. They contended that the Income Tax Act, 2015 (Act 896), does not expressly identify ex-gratia or end-of-service benefits as taxable income. Relying on the legal principle expressio unius est exclusio alterius, they argued that Parliament's failure to specifically mention ex-gratia as taxable meant such payments fell outside the scope of the Act.

The appellants further challenged the trial court's reliance on a practice note issued by the Commissioner-General of the Ghana Revenue Authority (GRA), arguing that the practice note could not impose tax obligations not expressly provided for by statute.

Court's Findings

Justice Dr. Poku Adusei identified the central issue as whether ex-gratia or end-of-service benefits paid upon retirement are subject to tax deductions.

The Court first distinguished ex-gratia payments from pensions, explaining that the two serve different legal purposes. While pensions arise from mandatory statutory retirement contributions under Ghana's pension regime and are paid periodically after retirement, ex-gratia payments are one-off contractual benefits earned under an employee's conditions of service.

The Court noted that pension benefits qualify for constitutional and statutory tax exemptions, whereas ex-gratia payments do not. Even though the trial court had described ex-gratia as a "gratuitous payment," the Court of Appeal clarified that this description was inaccurate. It explained that the payments were not gifts or acts of goodwill but contractual entitlements earned through years of dedicated service at the university.

Nevertheless, the Court held that the contractual nature of the payments did not remove them from the scope of the Income Tax Act. Interpreting sections 4 and 94 of Act 896 alongside the National Pensions Act, the Court concluded that ex-gratia payments constitute taxable employment income because they are retirement payments received in respect of employment and benefits arising from past employment.

The Court therefore rejected the appellants' argument that the absence of the specific term "ex-gratia" in the Act exempted such payments from taxation. It found that the legislation already captures these payments within the broader categories of taxable employment income.

On the second ground of appeal, the Court held that the trial judge did not treat the Commissioner-General's practice note as legally binding on the retirees. Rather, the trial court merely relied on it as an interpretative guide consistent with the provisions of the Income Tax Act. Justice Adusei observed that under Act 896, practice notes are binding on the Commissioner-General but not on taxpayers. They serve only as guides to the interpretation and administration of the tax law and cannot override statutory provisions.

Decision

The Court of Appeal found no error in the High Court's reasoning and held that KNUST lawfully deducted taxes from the appellants' ex-gratia payments. It concluded that the payments were taxable benefits arising from past employment and did not qualify for the constitutional and statutory exemptions applicable to pensions.

Accordingly, the Court dismissed the appeal in its entirety and affirmed the High Court's judgment. No order was made as to costs.

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