In September of 2021, the Center for Law and Innovation Policy hosted a virtual event on “The Digital Economy and Taxation in Ghana, with a focus on approaches to widen Ghana’s tax net to cover revenue generated through the digital economy and move toward equal tax treatment for physical and digital business.
The panelists, Benjamin Annang, Digital Community Lead at FSB Consult; Theophilus Tawiah, a partner at WTS Nobisfields (WTS Ghana), and a Law Lecturer at the University of Professional Studies Accra (UPSA) where he researches and teaches the law of taxation, insurance law, financial services and company law); and Yvonne Wiafe – Konadu, a Chief Revenue Officer at the Strategy Research Policy and Programs Department of the Ghana Revenue Authority, and the Project Manager of the Ghana Revenue Authority E-commerce Committee, examined Ghana’s legal and regulatory framework, discussed how consumers use computer networks to identify opportunities, sellers, evaluate products and services, compare prices, and reach new customers.
To create some context around this topic, the Digital Economy is a global network of economic activity, commercial transactions, and professional relationships enabled by information and communication technologies (ICT). Corporate, economic, social, and cultural activities made possible by the internet and other forms of digital communication technology all fall within this sector. According to Thomas Mesenbourg, Assistant Director for Economic Programs, U.S Bureau of the Census, the three major components of the concept of the digital economy are:
• E-business infrastructure (hardware, software, telecom, networks, human capital, etc.),
• E-business (how business is conducted, any process that an organization conducts over computer-mediated networks),
• E-commerce (transfer of goods, for example when a book is sold online).
Under Ghana’s current tax regime, business entities are taxed on the basis of where production occurs rather than where consumers or, more particularly, users are situated. Since Ghana’s tax jurisdiction is predominantly based on physical presence, organizations without an office or a factory can earn significant income without actually incurring tax liabilities. This gap in taxation is not limited to Ghana only. In 2015, the Organization for Economic Cooperation and Development (OECD) completed the Base Erosion and Profit Shifting (BEPS) initiative, giving rise to proposals more often referred to as the two “pillars”. The first (“Pillar 1”) seeks to shift tax on large digital service providers into the countries in which their sales take place. The second (“Pillar 2”) seeks to establish a minimum global tax rate which have not been implemented globally. The absence of an international digital tax system has left a gaping hole in most countries’ tax nets. France, Italy, and the United Kingdom have implemented digital service taxes in the interim to regulate the activities of the digital sector, while most emerging countries are slowly reacting to and considering how to strategically narrow the gap without negatively impacting economic growth.
Even though Ghana had not implemented a digital services tax (DST) at the time of the panel discussion, Madam Konadu-Wiafe informed participants that it was on the horizon. The rising popularity and growth of DST in several African countries as well as the presence of entities such as Google, Facebook, Netflix and Amazon was considered an indicators for revenue streams that could be roped into the tax net.
A few months after the panel discussion, the Ghana Revenue Authority revealed that it had set April 1st, 2022 as the start date for collecting taxes from non-resident Ghanaians who transact business on line and carry on E-commerce transactions. Rev. Dr. Amishaddai Owusu-Amoah, Commissioner-General of the Ghana Revenue Authority, is sure that impacted firms would comply with the instruction and file their tax obligations through the computerized platform. Despite the fact that this is only the pilot phase of the project, the country is expected to generate around 1.7 billion in the first year of operation.
This effort by the Ghana Revenue Authority is an attempt to tackle loopholes in our tax system so that the impact assessment from the pilot phase can be used to drive a robust national roll out given the fact that the e-commerce or digital services sector seems to have emerged unscathed during the covid pandemic. Not only has it survived, it is thriving in the current adverse circumstances. Companies operating in the digital economy, including new entrants have in general reported a jump in earnings and in some instances have had to hire additional staff to meet unprecedented surges in the demand for their goods and services. Based on this, it is likely that the digital economy will be high on the list of many African revenue authorities as an untapped source of tax revenue.
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