Digital taxes have emerged as the latest cash cow in Africa’s quest for new revenue streams. However, researchers are concerned about their chaotic rollout and the lack of substantive evidence to support their implementation.
A digital tax, also known as a digital services tax (DST), is a type of tax that specifically targets digital businesses and their activities.
Traditional tax systems were designed in an era where most economic activity occurred through physical goods and services, but with the rise of digital technology, a significant portion of economic activity has shifted to the digital realm.
Digital taxes are typically imposed on revenue from digital services, such as online advertising, streaming services, e-commerce transactions, and data sales.
These taxes are often designed to ensure that digital companies, many of which operate across borders and may not have a physical presence in the countries where they generate revenue, contribute to the tax base of the jurisdictions where they have users or consumers.
The rationale behind implementing digital taxes is to address concerns about the erosion of the tax base due to the digitalization of the economy and to ensure that digital businesses contribute their fair share of taxes, similar to traditional businesses.
Professor Peter Quartey, Director of the Institute of Statistical Social and Economic Research (ISSER), stressed the importance of a collaborative effort between policymakers and academia to ensure digital taxation, like the proposed electronic transfer tax (e-levy), is grounded in evidence.
Speaking on behalf of Adazewa Otoo, Project Director of ISSER’s Retail Finance Distribution Research Initiative, at a conference in Accra organized by the International Centre for Tax and Development (ICTD) and the Ghana Revenue Authority, Prof. Quartey emphasized the need for evidence-based approaches.
The event, themed “Taxing Mobile Money — Lessons and the Way Forward,” convened experts from across Africa to exchange insights on mobile money taxation and chart future directions in this evolving domain.
Martin Hearson, Research Director and DIGITAX Programme Lead at the International Centre for Tax and Development (ICTD) commended Ghana for its forward-thinking approach to taxing digital financial services, describing it as a significant milestone in the country’s economic development.
Hearson underscored the importance of informed discussions, particularly as Ghana generates over GH¢1 billion annually from digital financial services taxation. Contrary to initial concerns about potential setbacks in the mobile money market, Hearson highlighted ICTD’s research indicating that the tax’s impact was modest and temporary.
Addressing worries about the tax’s long-term effects on mobile money usage, Hearson noted that growth in this sector has persisted.
Regarding its impact on individuals, ICTD’s findings revealed that while the tax affected low-income groups more, it also ranked among the more progressive taxes implemented across Africa.
“The GH¢100 per day exemption threshold emerges as a crucial factor in protecting vulnerable segments of the population,” he said.
Taxation Success And Implementation Challenges
However, he highlighted a crucial issue regarding the need to adjust the threshold in line with inflation, urging the government to prioritize further research to ensure continued effectiveness.
With 15 African nations implementing digital financial service taxation, Hearson applauded it as a strategic move for the continent’s economic advancement, acknowledging the significant role digitalization plays in promoting financial inclusion and positioning Africa in the global marketplace.
Dr. Charles Addae, Deputy Commissioner of the Strategy, Research, Policy, and Programs Department at the Ghana Revenue Authority (GRA), acknowledged the challenges faced during the implementation of the e-levy, introduced in May 2022. These challenges led to a revision of the revenue target during the Mid-Year Budget Review in the same year.
Despite the initial hurdles, Dr. Addae reported that the relevant agencies managed to exceed the revised revenue target by GH¢1.34 million by the end of the year. “In 2023, the GRA successfully collected GH¢1.19 billion from the e-levy, surpassing the set target of GH¢1.11 billion,” he said
The Deputy Commissioner attributed this success to various factors, including technological advancements, enhancements in filing and payment processes, educational campaigns, and a reduction in the levy rate from 1.5 percent to 1.0 percent.
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