Whoever suggested the idea of Communication Service Tax in 2008 in Ghana deserves some praise. From a small beginning since August 2008, the Communication Service Tax, popularly known as talk tax has realized about GHS 2.93 billion as at June 2020. Data from the Ministry of Finance indicates the following total contributions:
|Year||Period||Amount (GHS Million)|
|2009||Jan – Dec||88|
|2010||Jan – Dec||137|
|2011||Jan – Dec||135|
|2012||Jan – Dec||128|
|2013||Jan – Dec||174|
|2014||Jan – Dec||217|
|2015||Jan – Dec||252|
|2016||Jan – Dec||339|
|2017||Jan – Dec||329|
|2018||Jan – Dec||420|
|2019||Jan – Dec||412|
|2020||Jan – Jun||274|
Source: MOF Fiscal Data
IMPOSITION OF THE COMMUNICATION SERVICE TAX (CST)
The CST Act, 2008 Act 754 imposed the tax on charges payable by a user of an electronic communication service other than private electronic communication. The Communication Service Tax (CST), popularly known as the Talk Tax, is that tax levied on charges for the use of communication services that are provided by electronic communication service providers. The CST is not only on phone calls but on all other communication services such as internet, broadcasting, cable, maritime and satellite services as well as other services provided through transmissions or signals to produce sounds or visual images.
The businesses required to charge CST includes National fixed network and mobile cellular network operators such as MTN, AirtelTigo, Vodafone, Glo, Internet Service providers (ISPs), Public/Corporate data Operators, Providers of Radio (FM) broadcasting services and Providers of free-on-air and Pay-per-view television services. The Act was first amended in 2013, under the Communication Service Tax (Amendment) Act, 2013 Act 864. Critics say the amendment was driven by the High Court decision in the case of Scancom Ltd & Others Vrs GRA (2012) Unreported, Suit Nos. FTRM 76-78/12, where the GRA sought to charge CST on interconnect when the law did not permit same. In 2019, the CST Act was amended the second time and became the Communication Service Tax (Amendment) Act, 2019 Act 998.
RATE OF THE COMMUNICATION TAX
Section 3 of the CST Act (Act 754) originally provided that 6% should be charged on the use of communication services. It was amended from 6% to 9% in 2019 during the midyear budget which was presented to Parliament in July 2019. In July 2020, the government announced a reduction in the CST rate from 9% to 5% as part of the measures to lessen the economic impact of the Covid-19 pandemic on consumers. The announcement was made in the 2020 midyear budget, and subsequently the Communication Service Tax Amendments Act, 2020 (Act 1025) was passed to reduce the rate from 9% to 5% effective 15th September 2020.
COMPONENT OF TOTAL TAXES IN A PREPAID SCRATCH CARD
There are other taxes such as GETFUND/NHIL and VAT embedded in the face value of the scratch card in addition to the CST and consumers are required to pay the taxes when they buy airtime and other communication services. Using a scratch card with a face value of GHS 10, the total tax components can be illustrated as follows:
|CST @ 9%||CST@5%||Reduction|
|NHIL/GETFUND Levy @ 5%||0.39||0.40||0.014|
|Base before VAT||8.89||8.89|
|Value to consumers||7.80||8.08|
|% of Taxes||28.25%||23.75%|
The reduction from 9% to 5% thus brought some relief to consumers.
IS THE TELECOMMUNICATION INDUSTRY OVERTAXED?
Critics say the telecommunication sector is overtaxed. Their reasons are that the Income Tax Act, 2015 (Act 896) imposed Corporate Income Tax of 25% on their taxable profit. In addition, the National Fiscal Stabilization Levy (Amendment) Act, 2019 (Act 1011) imposes a 5% tax on the profit before tax of the telecom companies. This brings to 30% total direct taxes in addition to the above indirect taxes of 23.75% on their services. Economists consider telecommunication services as inelastic so no matter what prices are charged, consumers will continue to demand telecom services. On this basis governments will continue to see the service as a good source of revenue.
USE OF THE CST REVENUE COLLECTED: The National Youth Employment Programme (NYEP)
Section 5 of Act 754 provides that, at least 20% of the revenue generated from the tax shall be used to finance the National Youth Employment Programme (NYEP). The 80% left goes to support the national development agenda of the country in general.
The introduction of the Communication Service Tax in Ghana in August 2008 was a good idea as it became another source of income for national development. Though the talk tax was rejected by majority of people when it was first introduced, the revenue generated goes a long way to supplement the national budget.
However, critics say the total taxes included in the typical communication service is very high. Considering that, consumers had to pay 28.25% in total taxes was too excessive. The reduction of the CST from 9% to 5% was therefore a great initiative by the government and even at the rate of 5% CST, the total taxes embedded in a typical communication service of 23.75% is still considered high. The telecom sector also appears to be overly taxed because they pay corporate tax of 25% and National Fiscal Stabilization Levy of 5%.
It is expected that, the rate will not be increased in the near future but rather consumers should see a reduction in taxes which will lead to reduction in cost of telecommunication services in Ghana.
The Writer is an Associate Tax Consultant at MTC,Tel: 0241426948
Email: [email protected]