Leading lawyer, lecturer, and tax consultant, William Demitia, has urged the government to consider reducing the current rate of the Communication Service Tax (CST) in the near future if plans outlined in the 2024 Budget to onboard more charging entities lead to increased revenue for the government.
He made the remark when he took his turn as one of the speakers at the launch of the 2022 Mobile Industry Transparency Initiative report held on November 21, 2023, in Accra at the Ghana-India Kofi Annan Centre of Excellence in ICT (AITI-KACE).
Currently, the Communications Service Tax, which is charged at a rate of 5%, is levied on charges for the use of communications services that are provided by electronic communications service providers. It is paid by consumers to the communications service providers, who in turn pay all CST collected to the Domestic Tax Revenue Division of the Ghana Revenue Authority on a monthly basis. The GRA is required, under the law, to pay the CST collected into the Consolidated Fund.
According to Mr. Demitia, a further review of how the CST is even collected should also be looked at going forward.
“The 2024 budget, as read by the Finance Minister, indicated that there will be an onboarding of other persons who will be charging the CST. The aim of everyone is that, if they are onboarded and the revenue increases, then we should probably be looking again at the rate that CST is charged. And even how it is collected. As Dr. Ashigbey said, shouldn’t it be by way of usage as opposed to it being collected upfront?
Mr. Demitia further urged the Ghana Chamber of Telecommunications to engage the government to develop industry-specific medium-term revenue strategies that will grow the industry while at the same time preserving the government’s revenue.
On his part, Mr. Frank Kessie-Annor, the Co-Founder of advisory and assurance firm KKGO, called on the government and the relevant entities within the taxation ecosystem to ensure players in the telecommunications industry get their voices heard in a fair manner when there are tax disputes.
“We all know taxes are a creature of statutes, and in the interpretation of laws and regulations, there are bound to be differences. But this is an industry that pays so much in taxes, so you should give them a voice when there are disputes. The industry itself should demand for its voice to be heard when the need arises."
Mr. Kessie-Annor also called for increased support for the Independent Tax Appeals Board, which was inaugurated in January of this year. The outfit has a unique mandate to hear and speedily resolve all tax appeals made against decisions of the Ghana Revenue Authority.
2022 Mobile Industry Transparency Initiative report
According to the 2022 Mobile Industry Transparency Initiative report, the cumulative sum of taxes, fees, levies and other payments remitted and gathered by the telecommunications sector for the government of Ghana once again increased significantly by over 50% in the year 2022. From GH¢ 4.02 billion paid in 2021, the industry paid a total of GH¢ 6.07 billion in taxes and other payments to the government in 2022.
The report was launched by the Chief Executive Officer of the Ghana Chamber of Telecommunication (GCT), Ing. Dr. Kenneth Ashigbey, at an event held on November 21, 2023, in Accra, at the Ghana-India Kofi Annan Centre of Excellence in ICT (AITI-KACE).
The annual report, based on data from members of the Ghana Chamber of Telecommunications, including AT, MTN, Vodafone, ATC, Helios, Comsys, CSquared, Ericsson, and Huawei, aims to illustrate the industry's societal and economic contributions to the country's development.
Among other things, Ing. Dr. Ashigbey highlighted during the event on Tuesday, November 21, 2023, that the industry's contribution of GH¢ 6.07 billion constitutes approximately 8.02% of the government's 2022 tax revenue of ¢75.71 billion, as outlined in the 2022 annual report of the Ghana Revenue Authority (GRA).
Methodology
The study employed the Total Contribution methodology, encompassing both tax and non-tax contributions made by GCT members to the government.
Tax contribution breakdown
Corporate Income Tax (CIT) jumps from GH¢ 892.4 m to GH¢ 1.27 bn
The breakdown of tax contributions included Corporate Income Tax (CIT), which increased from GH¢ 892.4 million to GH¢ 1.27 billion, accounting for a significant rise of about 42.6%. A further analysis of the data showed that CIT made up 23.1% of all taxes paid by industry in 2022.
VAT grows from GH¢ 643.6 m to GH¢ 923 m
Value Added Tax (VAT) surged from GH¢ 643.6 million to GH¢ 923 million, marking it as the second most significant tax category for the industry after Corporate Income Tax (CIT). The report shared by the Chamber demonstrated a notable increase of 43.42% in VAT in 2022.
Withholding Tax sees a jump of over 11%
Withholding Tax (WHT) continued to grow in 2022 like it did in 2021, albeit at a slower rate of 11.27%. WHT rose from GH¢ 610.5 million in 2021 to approximately GH¢ 679.4 million in 2022. The continued rise can be attributed to escalating business costs and increased spending, impacting the overall industry value chain.
Communications Service Tax (CST) grows by 26.7%
Proceeds from the Communications Service Tax (CST) grew by 26.7% from GH¢ 403.9 million in 2021 to GH¢ 511.6 million in 2022. This rise of over GH¢ 100 million can be attributed to a significant pick-up in economic activity and the usage of telecommunication services. However, this industry-specific tax continues to put a damper on the potential volume growth and affect the affordability of data and voice for the Ghanaian subscriber. We would continue to propose that the rate of CST should be reduced in the near term.
GH¢ 768 m in GETF, NHI and COVID-19 levies
The report further highlighted that the levies, made up of the National Health Insurance Levy (NHIL), Ghana Education Trust Fund (GET Fund) levy, and the COVID-19 levy, collectively contributed GH¢ 768 million in 2022 compared to GH¢ 584.4 million in 2021, indicating a growth of 31.4%.
Weak Cedi impacts Import Duties
Import duty collections in 2022 saw a huge jump of 78.5% when compared to collections in 2021. This rise can be attributed, among other things, to the significant depreciation of the Ghana Cedi against its major trading partners in 2022. As highlighted in the previous edition of this report, there's a pressing need to focus efforts on developing and implementing local solutions that alleviate pressure on the local currency. Additionally, we would propose that the government consider some import duties and tax waivers on some critical telecommunications equipment that is very important for the country’s development. This should also include components for the provision of solar energy other than the panels that are currently exempt.
Significant rise in Pay as You Earn
The report's analysis revealed a significant growth in the Pay as You Earn (PAYE) tax line, inching up from GH¢ 138 million in 2021 to GH¢ 175.2 million in 2022, marking a 26.9% increase. This demonstrates not only the growth in payments made to our direct employees but also the numbers employed in an environment where unemployment is a critical national challenge. This is one of the reasons why the government should consider easing the fiscal burden on the industry to enable it to further expand its employment capacity.
E-Levy
Following the introduction of the Electronic Transfer Levy (E-Levy) in May 2022, which was a 1.5% tax on the transfer amount of electronic transactions, the government managed to raise GH¢ 482.8 million out of the GH¢ 6.9 billion that was targeted. The reduction in the E-Levy rate has resulted in some recovery in the volumes and values. But there is the need for further revision of this policy to align it with the government's digital by default strategy. Our recommendation to the Ministry of Finance is to consider reducing the levy on transfers to 0.5% and introducing a 0.5% levy on cash-outs, among other proposals.
An industry still struggling under taxes
The CEO of the Chamber once again emphasized the vital role of the Telecommunications industry in socio-economic development and argued against taxing it as 'a'sin' industries like alcohol and tobacco. The industry currently allocates 46.31% of its revenue to the government in the form of taxes, levies, and charges, down from 47.69% in 2021, indicating an unsustainable burden that needs addressing.
Despite contributing a significant 2.27% to the country’s Non-Oil GDP, the industry bears a disproportionate tax burden, contributing 7.28% of Government Tax Revenue. This inequitable differential militates against the government’s effort to transform the nation’s economy.
Elevated taxation levels have significantly impacted the industry, particularly concerning industry-specific taxes that distort the market and deter investments.
Employment Contribution
The report emphasized the industry's role in creating employment for Ghanaians. The industry is about people and for people. The industry employs directly over 2,600 persons and over 1.2 million indirect jobs. This includes over 505,000 active Mobile Money Agents. It is important to note that these more than half a million agents employ, on the average 3 persons to support their businesses.
The industry also invested over 3 billion in Capital Expenditure up from 2.2 billion in 2021. This was driven by increased investments in the industry but also because of the significant depreciation of the Cedi. All of these investments do not only expand the networks and improve the quality of service provided by the industry, but they also result in the creation of jobs for Ghanaians, that are not captured in the report. It is on the back of this that we need to consider a policy on accelerated depreciation for the telecommunications industry as well as see it as one of the critical industries that should benefit from tax waivers and holidays as captured in the 2024 budget policy presented by the Ministry of Finance.
It is important that the industry be viewed as a pivotal force driving the development of other sectors, including agriculture, education, health care, manufacturing, and government, rather than being considered the cash-cow that is overly taxed.
Source: Chamber News Desk
