Covid-induced expenditures and debts among countries everywhere are skyrocketing, and revenues are being disrupted alongside, but e-commerce or digital services have remained unscathed and are gaining momentum by the day. To make up for these challenges, countries are exploring raising direct taxes from digital services. Will Ghana join in the bandwagon?
It is with no doubt that, the government is grappling with a tight fiscal space and since the onset of the pandemic; it has had to borrow extensively to cater for the interventions- free water, electricity, stimulus packages for businesses as well as catering for the health repercussions posed by the pandemic.
According to the Bank of Ghana, Ghana’s debt-to-GDP ratio increased to 74.4 percent as at November 2020 from 73.5 percent in October 2020, representing an increase by 0.9 percent. However, with concerns that the public debt stock is likely to hit 80 percent this year, it has almost become imperative for the government to explore other avenues to mobilize revenues in order to service this ballooning debt and interest payments without too much dependence on additional borrowing.
Considering the foregoing, the Governor of the Bank of Ghana, Dr. Ernest Addison recently adduced that the current situation of the economy required a drastic move towards exploring new revenue measures and a commitment to a much more rationalized expenditure. While we anticipate the reading of the 2021 budget by the acting Minister of Finance which will outline the revenue measures that will be adopted to finance the country’s expenditures, the likelihood of an imposition of taxes on digital services may feature.
Countries in the sub-Sahara African region that have rapidly moved or have announced the possibility of imposing direct taxes on digital services for the purposes of moderating rising debt levels among others, include Kenya, Nigeria, Tunisia, South Africa.
Kenya, for instance, implemented the tax on digital services early this year, January 1, 2021 which imposed 1.5 percent of gross transaction value. This tax is levied on mainly digital platforms that enable interaction between buyers and sellers of goods and services- ranging from the sale of e-books, movies, music, games to other digital contents and also applies to foreign companies. The government estimates that the tax could generate up to $45 million in revenue by June, 2021.
For Nigeria, this revenue system is to be imposed on the taxable income of foreign companies whose services include video streaming sites, social media platforms, and companies that offer downloads of digital content and such companies are deemed to have Significant Economic Presence (SEP). Companies that qualify for such tax deductions are those with income of about N25 million and those with a Nigerian domain name or a website address in Nigeria.
It is worthy to note however that, there is still work ongoing in designing rules and frameworks by the Organization for Economic Co-operation and Development (OECD) aimed at addressing taxation of the digital economy. Hence, there is no standard global regulations for which such taxations are to operate. It is also worth noting that the African Tax Administration Forum (ATAF) has recently also started developing a draft approach that will be used by member countries as a means for developing digital services tax laws.
Indeed, the Covid-19 pandemic is changing us- businesses are rapidly adapting to the transition from the traditional way of doing business to a more digitalized economy- and for most businesses in Ghana, this has largely been triggered by the need for survival and less of the knack for exploring alternative ways of doing business. But also, this has created a good avenue that the country can explore to turn attention from the overly dependence on borrowing.