Taxation of telecom firms

Denis Watson-Reed , Kumasi, Ghana
February 19, 2024

T he ICT sector in Ghana is consolidating but along the industry's supply chain, from mobile operators to submarine cable and towers providers, foreign firms have a large share of the market. In the mobile segment, the number of companies operating in Ghana’s telecommunications industry has narrowed to just three players. At the end of Q3 2024, MTN (South Africa) held the largest market share of mobile subscriptions, approximately 75 percent. Telecel Group (UK, Gilbratar) followed with a market share of 13 percent and AirtelTigo with about 12 percent. In 2023, the Government of Ghana completed the acquisition of AirTel Tigo (re-branded as AT). Helios and American Towers dominate the mast and towers infrastrucure market while five companies provide the submarine cables. These companies are also major tax payers.

The benefits of ICT¹ transcend the boundaries of economic sectors and industries. In 2023, the ICT sector contributed 4.1 percent to Ghana's gross domestic product (GDP)². But questions are emerging around the adequacy of the taxation of the sector. Elements of taxation vary but include general business taxes and sector specific taxes. For telecom companies, they also include license fees. The government argues that taxation is in line with current technological development³. Yet, the telecom industry says that they need room for capital investment.

Evolution of ICT tax policies

Ofori-Ata, the minister of finance, announced new digital tax guidelines in 2021. In 2022, the government launched the e-levy. The goal, the minister said, was to ‟widen the tax net and rope in the informal sector”⁴.

In April 2022, the Ghana Revenue Authority announced new VAT guidelines. The GRA began collecting value-added taxes (VAT) from non-resident companies or persons. The new guidelines apply to business transactions that take place over the internet. From September 2022, Ghana removed the existing minimum thresholds. This decision imposes VAT and other charges on suppliers of internet services including those outside of Ghana. The GRA then increased its VAT from 12.5 percent to 15 percent in November 2022 (effective 1 January 2023). This measure also targeted digital services transactions from non-resident suppliers⁵. The VAT measures affect website suppliers, web-hosting and remote professionals and businesses. It also affects contents such as images, audio, and videos, text and also databases.

Authorities did not spare any part of the digital economy. Music, computer games, and online gambling games developers will pay VAT. Online political, cultural and scientific broadcasts and events have to pay VAT. The last targets are sporting entertainment broadcasts events and distance teaching⁶.

The GRA has set up a special portal for non-resident companies to remit VAT payments. Non-resident persons (or companies) who supply electronic commerce or telecommunication services for use or enjoyment in Ghana, other than through a VAT-registered agent, must register for VAT if they make taxable supplies in excess of the general mandatory VAT registration threshold of approximately US$17,000 (GH₵200.000) for a 12-month period or its quarterly equivalent.

Registered companies pay via money transfer, bank cards, or other legal payments methods. Failing to register and inappropriate VAT declaration incurs penalties and interest charges.

Industry reaction

The telecommunication industry has been lamenting about taxation for years. In a 2015 report the Global System for Mobile Communications Association (GSMA) complained about the heavy taxation of mobile companies. The report said at the time that mobile operators paid 14 different taxes, regulatory fees and various one-off charges. The GSMA⁷ argued then time that too much tax decreases investment⁸.

In 2023, another report, this time by the Ghana Chambers of Telecommunications (GTC), on the tax burden of telecom companies rekindled the argument⁹. The report said that the nine members¹⁰ of the (GTC) paid over US$451.9 million (GHC 6.06 billion) in taxes for the 2022 fiscal year. The GCT said that the mobile industry provided 8.02 percent of national tax revenue in 2022¹¹. Total State revenues were US$5.6 billion (GH₵75.71 billion) in 2022¹².

A study by the U.S. Agency for International Development (USAID) found that ‟ high sector taxation and fees discourage investment and deter new market entrants.”¹³. Kenneth Ashigbey, the head of the Ghana Chamber of Telecommunication (GCT) concurs. He has arguied that ‟too many taxes crippling telcos”. The Chamber decries the fact that ‟despite contributing 2.27 percent to the country’s Non-Oil GDP, the industry bears a disproportionate tax burden”. For the Chamber, ‟industry-specific taxes” are distorting the market and deterring investments, resulting in low quality of the network, poor service delivery, and growth. The GTC called for an adequate understanding of this industry and its compliance costs.

Outlook

Ghana’s fiscal problems stem from weak domestic revenue mobilization. Tax to GDP ratio remains low compared to regional peers. Non-oil revenues continue to stagnate despite government efforts. The IMF has been highlighting the challenges faced by Ghana’s tax system since 2019.

The Fund said at the time that ‟tax policy design suffers from widespread tax expenditures (estimated at 4 percent of GDP), especially in VAT, and under-exploited taxes (property tax, excises)”¹⁴. In short, stagnant revenues reflect weaknesses in regulatory enforcement and recoveries. According to the IMF, these reasons explain why Ghana lacks behind peer countries in tax mobilization.

Ghana authorities are heeding the observations of the IMF and of the telecommunications industry. In the 2024 budget the government announced that it had identified ways to improve revenue mobilization. The government also renewed a committment to address efficiency and equity concerns. For example, Ghana has committed to the phasing out of value added tax (VAT) exemptions over the three years of the on-going IMF-funded economic reform program (2023-2026)¹⁵. These exemptions cost the country close to 2 percent of GDP annually. A new corporate income tax (CIT) will also phase out tax holidays and exemptions. Additional reforms will strengthen safeguards against profit shifting and reduce customs exemptions.

Additional measures will modernized progressivity in personal income taxes. The goal is to account for recurrent increases in fuel levies, by exchange rate movement or inflation. Authorities are developing a new fiscal regime for the extractive industries. The goal is to raise the revenue-to-GDP ratio, from 15.7 percent in 2022, to over 18.5 percent by the end of the ECF in 2026.

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