The country is losing millions in uncollected revenue from profitable online-based businesses, due to the lack of specific tax laws and the absence of a proper database of all online businesses operating in the country or providing services to the Ghanaian public.
For instance, online shopping malls, food vendors, fashion accessory retailers and other similar businesses that reside online and generate millions in revenue, are not properly profiled for tax purposes.
Tax expert, Mr. Abdullah Ali-Nakyea, said: “The current tax rules which were designed to address “brick and mortar” economies appear inadequate in the tax issues posed by the digital economy.”
He explained that unlike commerce, e-commerce as an aspect of the digital economy does not take place in a physical market and this renders the task of identifying the seller and buyer in those transactions for tax purposes very difficult.
In reference to a 2018 report by the Organisation for Economic Co-operation and Development (OECD), on the digital economy, he repeated that “there will be a drastic reduction in revenue mobilization as most tax avenues are dissipated through digitalisation.
However, he observed that “Due to the nature of the digital economy tax authorities face the administrative issue of identifying businesses, determining the extent of their activities, collecting and verifying information, and identifying customers.”
Mr. Ali-Nakyea, who was speaking at the ‘2nd Public Lecture Series’ organised by the Institute of Chartered Accountants Ghana (ICAG), in Kumasi, acknowledged that this ‘tax challenge’ posed by the digital economy is a worldwide issue.
He suggested the expansion of the ‘Permanent Establishment’ (PE) under the Income Tax Act, 2015 (Act 896) to include the provision of services in relation to e-commerce.
He added that a working definition for e-commerce could be adopted from the Value Added Tax Act, 2013 (Act 870).
He further called for the enforcement of Regulation 7 of the Value Added Tax Regulations, 2016 (L.I. 2243). This requires agents of non-resident persons in Ghana to register and charge VAT if a non-resident who provides telecommunication services or e-commerce to persons in Ghana fails to register and charge VAT.
He said a well-thought and tailor-made policy will be needed to address this challenge while considering the likely international consensus to be adopted to deal with it.
Mr. Ali-Nakyea, however, cautioned that the approach should be made simple as possible so as not to place unnecessary impediments in the way of players in the digital economy. Any impediments, he noted, will only lead to alternative innovative means of tax avoidance.
The ICAG public lecture was organized under the theme “Taxing the Digital Economy: The Way Forward.”
The President of ICAG, Prof. Kwame Adom Frimpong, said it has become necessary to address the tax challenges on digital businesses to ensure that international tax rules are applied to both the digital and the more traditional sectors of the economy.
He noted that a number of African governments have spotted the potential for raising money by taxing the increasing numbers of digital consumers.
Prof. Adom-Frimpong said the GRA needs to learn from other nations who have taken bold steps to tackle tax leakages in the digital economy through innovative tax legislation while adding that Ghana stands to gain a lot from that.
The Deputy Commissioner in-charge of the Large Taxpayer Office (LTO), of the Ghana Revenue Authority (GRA), Mr. Edward Gyambrah, who was one of the key speakers at the public lecture, said every citizen has a role to play in ensuring that the country is able to mobilise enough revenue to undertake development.
He said efforts are being made by both the Ministry of Finance and the GRA to ‘tax’ the digital economy as an emerging area.
He said the current tax laws provide an idea on how to go about this process but there is the need to come out with some guidelines and some regulations as to go about it.
However, he said this could be done with the collaboration of institutions like the National Communications Authority (NCA), which has the platform to register businesses online.
The Deputy Commissioner also said the GRA will be fully digitized by close of 2020. “All our business processes and procedures should be fully digitized.