Ghana risks losing out on a golden opportunity to increase revenue generation from the fast growing digital economy. This loss is likely to be as huge as the revenue loss from the untaxed majority in the informal sector.
Hitherto, the government keeps complaining about shortfalls in revenue generation, but taxing the digital economy has even not taken off as yet, after laborious engagements with stakeholders and tax experts in the last couple of years.
Ghana’s digital economy is expanding and this trend has been accelerated by the Covid-19 pandemic as businesses are rapidly moving away from physical existences (‘brick and mortar’ businesses) to registering their presence online.
Taxation of Ghana’s digital economy is not a new phenomenon. Section 16 of Ghana’s VAT Act 2013 (Act 870) stipulates the requirements for persons engaged in taxable activities to include non-resident persons who provide telecommunication services or electronic commerce for use or enjoyment in the country.
Section 5 of VAT Act 2013 (Act 870) is unambiguous about the activities that are taxable and these include activities in the country or partly in the country whether or not for pecuniary profit that involves or is intended to involve, in whole or in part, the supply of goods or services to another person for consideration.
Problem of raising taxes from the Digital Economy
These notwithstanding, a fundamental problem that has delayed this process is implementation. And this is the same problem that the country faces with the amended law on Income tax Act 2015 (Act 896) regarding the informal sector and Small and Medium Scale businesses. The inadequacy of structures and systems by the authorities such as the Ghana Revenue Authority (GRA) has impeded the smooth implementation of these laws till date.
Another problem that plagues taxing the digital economy is the improper management of data. The availability of data has improved over the years considering the penetration of mobile data usage, SMS, phone calls. Thus, there is no difficulty for retrieving information on users of these services from telecommunication companies (MTN, Airtel-Tigo, Vodafone, etc.) which keep records on users of their services. The Tax Identification Number (TIN) provides another useful means to collate data on tax payers. These systems combined can be used to trace tax payments by individuals doing business on online platforms. Yet, the management of these data to be used in capturing online businesses for further taxation of the digital economy remains unexplored.
Furthermore, the complexities and nature of evolution of the digital economy also poses a challenge to authorities implementing the tax. However, waiting to understand all of the intricacies surrounding the digital economy before swiftly making inroads to tax digital services will have been too late an effort.
Analyzing ways to tax the digital economy
Maintaining a robust management system that would be used to track and trace persons who are involved in online transactions can be used to track such businesses in order to tax the digital economy. For example, with the use of the TIN, no one person has multiple identification and therefore where TIN is required for online transactions, this would help trace such businesses.
Every business that has a website has a web host, and this host site has records of all businesses hosting with them. Regulators may therefore monitor these host sites to be able to find information of online businesses on those platforms in order to capture them in the digital services taxation.
Online trading businesses or e-commerce are regulated by the National Communication Authority (NCA). Already, the NCAs partnership with the Ghana Revenue Authority (GRA) for generating revenue from the communication service tax has been largely successful. And this can be replicated in this regard to create an avenue for revenue generation for e-commerce.
Furthermore, Ghana is not alone in struggles with the complex nature of the digital economy, most countries in Europe does too. In such jurisdictions, however, businesses within the digital economy are taxed 3% of their gross income as digital service tax just so that they do not lose out on revenues from that space. For as long as the government waits to find ways to capture such businesses within the tax net, they are also looking for ways to evade paying taxes. The government can implement similar taxes for all such businesses in the digital economy for the interim and adjust as authorities better understand the digital economy.
The taxation of the digital economy is a very crucial issue that requires utmost attention from the government. At a time when the economy is facing challenges with a debt crisis, this avenue can help to reduce the debt burden. All that is required is the political will of the government and the commitment of institutions to make this move.
READ ALSO: New revenue measures: Ghana to join the digital services tax bandwagon soon?
Well informed…thanks
Interesting piece,but the issue of revenue generation through taxation transcends taxing the digital economy. I did a study on broadening the tax base in Ghana using rental income tax, and it will interest you to know that our tax system lacks the basic tenets of the Principles of Taxation – (1) benefit principle and (2) ability to pay principle. The vast majority of people in the informal sector do not pay tax, and the sad thing is, these people don’t see the need to pay tax as they alluded to inequality, lack of basic amenities, the ineptitude of tax collectors and corruption as some of the major factors that influence their decision not to pay tax.
Taxing the digital economy is a laudable idea but how many businesses are on the digital space? What about businesses who use the digital space for only advertisements? As you rightly indicated, adopting and augmenting digital taxation models from developed countries will be a step in the right direction, but until our tax system leave up to taxation principles, people may not see the relevance of paying tax. And if GRA succeeds in rolling out a tax structure for the digital economy, it only end up burdening the few businesses that will be using the digital space just like what is happening to businesses in the formal sector, and this will be in sharp contrast to the canons of a good tax. In furtherance, what GRA did in collaboration with NCA on communication tax was brilliant but it will be important if they take into consideration the elasticity of demand for certain goods and services, and the nature of market before implementing similar initiative in the future. It’s my hope that GRA will have convo with Vaultz Media on this subject and assess its feasibility in Ghana.