…can derail the national financial inclusion agenda
Recently, there was a report that the Ministry of Finance (MoF), Ghana Revenue Authority (GRA) and Ministry of Communications and Digitalization (MoC) are strategising ways to rake in revenue from Over-The-Top (OTT) digital services, as many telecommunication customers are moving away from traditional sources of telecommunication like voice which is reducing government revenue.
An over-the-top (OTT) digital service is a type of media service offered directly to telecommunication customer via the Internet. The OTT system bypasses cable, broadcast, and satellite television platforms. Presently, many Ghanaians are resorting to OTT communications to reduce communications expenses incurred from using the traditional calls. Thus, they are open to real-time communications solutions that operate over the Internet – such as WhatsApp, Facebook, Skype, Zoom, Instagram and others.
Data from the Chamber of Communication has revealed that revenue which has accrued to the state and the telecommunications companies declined by over 200 percent in the past nine years since the law was introduced. In 2010 revenue accrued stood about GH¢360million, but that figure has declined to some GH¢107million in 2019.
So as part of the steps to curb this revenue loss, government wants to engage the MoF AND Mobile Network Operators (MNOs) on how can shore up its revenue by taxing OTT. However, one may ask: are we not paying tax using the communication services provided by the MNOs?
Communication Service Tax
The Communication Service Tax (CST) is a levy on charges for the use of communications services that are provided by electronic communications service providers. CST is imposed under section 1 of the Communications Service Tax (Amendment) Act, 2013 (Act 864) which provides:
- There is imposed by this Act a tax to be known as Communications Service Tax to be levied on charges payable by a user of an electronic communications service other than private electronic communications services.
- The tax shall be levied on electronic communications service supplied by service providers.
- For the purpose of this section, the supply of any form of recharges shall be considered as a charge for usage of electronic communications service.
According to section 2 of Communications Service Tax, 2008 (Act 2008), the tax is paid by consumers to the communications service providers, who in turn pay all CST collected to the Domestic Tax Revenue Division of the GRA on monthly basis. The GRA is required under the law, to pay the CST collected into the Consolidated Fund.
CST is charged only by electronic communication service providers who are in the provision of electronic communication classified by the National Communications Authority under the provisions of the National Communications Regulations 2003 (LI 1719) and notified in writing by the Commissioner-General of the GRA to charge the tax.
An electronic communication service provider is required to levy CST on all charges for usage of communication services provided, in accordance with the provisions of the Act 745. It is unlawful for any individual to charge the CST.
Current tax (VAT) rate for CST
Currently, the tax rate of CST including the Value Added Tax (VAT) is 24.875 percent, and this includes:
CST = 5%
NHIL = 2.5%
GETFUND = 2.5%
COVID-19 Health Recovery Levy (CHRL) = 1%
VAT = 12.5%
What this means is that if the pre-VAT cost of data is GH¢100 and you want to determine the VAT to pay on it, it is:
Product of the data = GH¢100
CST = (5% * GH¢100) = GH¢5
NHIL = (2.5% * GH¢100) = GH¢2.5
GETFUND = (2.5% * GH¢100) = GH¢2.5
CHRL = (1% * GH¢100) = GH¢1
Sub-total = (GH¢100 + GH¢5 + GH¢2.5 + GH¢2.5 + GH¢1) = GH¢111
VAT = (12.5% * GH¢111) = GH¢13.875
Total cost of data will be = (GH¢111 + GH¢13.875) = GH¢124.875.
Thus, total VAT on data = (GH¢124.875 – GH¢100) = GH¢24.875
Effectively, under the current tax regime, the compound standard VAT rate is approximately 24.9 percent for every mobile data you buy. Aside, government’s plan is to impose additional charges for Facebook, WhatsApp, Zoom calls despite the fact that consumers are already paying a 5 percent CST on data – which is a tax for the use of communications services that are provided by the telcos.
What amounts to double taxation is when an income from a transaction is taxed twice in the hands of the same person. That is, if Facebook, WhatsApp, and zoom calls charge is from the same income from the consumer which she is already taxed 5 percent on CST – it is double tax – which is not allowed under our tax jurisdiction.
Unless government is telling us that the tax they intend to impose is a direct tax, whereby they don’t need to add the income from the Facebook, WhatsApp, and Zoom calls to the CST income anymore, regardless of that, it will still amount to double tax. But the motive is to impose an indirect tax. Then again, the question that comes in mind is: is there not an indirect tax already called CST?
In July 2020, government cut CST from 9 percent to 5 percent. According to government, this was part of a measure to lessen the economic impact of the COVID-19 pandemic on consumers. So if government wants to impose tax on Facebook and other calls, it is indirectly increasing the CST. And so far as it is an indirect tax, note the telcos will not be the ones to bear it. They are going to pass it on to consumers. Therefore, the cost of accessing the internet service will be higher; and that will work against the purpose for which the National Financial Inclusion and Development Strategy was established.
National Financial Inclusion and Development Strategy
From 2018 to 2023, the government of Ghana seeks to reduce economic vulnerability and income inequality through the development of a broad financial inclusion policy. The Ministry of Finance, in collaboration with financial sector regulators and other key stakeholders, developed a National Financial Inclusion and Development Strategy (NFIDS) to address the fundamental barriers preventing the underserved population from accessing financial products and services that would enable them to generate income, build assets, manage financial risks, and become economically empowered.
The NFIDS is a strategy that provides a roadmap of reforms and innovation in the financial ecosystem to address financial exclusion and support broader development of the financial sector. Ultimately, the strategy seeks to increase financial inclusion from 58 percent of Ghana’s adult population to 85 percent by 2023.
During the presentation of the 2021 budget to Parliament, government indicated that it is considering rolling out creative revenue mobilization measures to fund its projects. For that matter government needs creative revenue mobilization measures that will enable it to roll out its policies for the 2021 fiscal year. This has further culminated in government’s effort in rolling out the tax on Facebook, WhatsApp, Zoom and other calls charges is to increase revenue mobilization. Nonetheless, it can be said that although Ghana’s tax rates are high, the nation is not accruing enough revenue because of the low efforts in revenue mobilization.
Government must ensure efficient means of revenue mobilization rather than continuously rolling out new taxes which will end up meeting the existing challenge of inefficiency in mobilizing the revenue. Domestic revenue mobilization (DRM) is the generation of government revenue from domestic resources, from tax or non-tax sources. Improving DRM of developing countries is a crucial factor in sustainable development. According to research conducted by the Ghana Anti-Corruption Coalition (GACC) in 2020, about 1.5 million out of the six million eligible Ghanaian taxpayers pay tax, making Ghana one of the lowest tax to Gross Domestic Product (GDP) ratio in Africa.
So Ghana has a lot to do to meet the Sub-Saharan average target of 17 per cent which is above the nation’s 13 per cent mark as her various governments have over the years tried to upscale the country’s challenge of collecting less tax and relying mostly on external help: International Monetary Fund, World Bank, bonds and others. That notwithstanding, we should note that the increasing in tax imposition will not inure to the achievement of the NFIDS due to their inefficiencies in the revenue collections – as well the goal of reducing the financial vulnerability of low income people may not be met if more regressive taxes are imposed.
Ugandan Tax on Facebook and WhatsApp ‘to stop gossip’
In 2018, the Ugandan Parliament passed a law to impose a controversial tax on Facebook and WhatsApp ‘to stop gossip’. This, according to the Ugandan President, Yoweri Museveni, was because social media encouraged gossip. So he wrote a letter to Finance Minister insisting that the revenue collected from the social media tax would help the country “cope with consequences of gossiping”. That notwithstanding, he noted in the letter that there should be no tax on internet data. Obviously, one can say that this was because of the tax on Facebook and WhatsApp, otherwise it would amount to double taxation.
Unlike the Ghanaian case, the idea of the gossip tax is a ‘sin tax’, i.e., a regressive tax, which is a form of tax imposed to discourage people from somewhat engaging in certain negative social activities. But that is not the motive of the intention to impose tax on Facebook, and WhatsApp calls on us. So, it does not come in handy, and it should be abolished.
>>the writer is a research assistant at Center for Data Processing and Geo-Spatial Analysis (CEDPA), and a graduate of GIMPA Law Faculty. Email: [email protected]