De-taxation of momo, betting: Accounting for revenue shortfalls?

The government promised to untax mobile money and betting transactions, a fiscal policy re-iterated by the Finance Minister, Dr Ato Forson, during his recent appearance before the vetting committee. In his words, he says the e-levy is neither a direct, indirect nor an excise tax. 

Whilst this assertion may be true, the digital economy (internet economy) has challenged traditional tax principles, which has compelled most developed countries to enact digital services tax (DST) or equalisation levy as in India to bring digital transactions within the tax system.  

The Organisation for Economic Co-operation and Development (OECD) has worked hard to replace these DSTs, with a common new tax system under the OECD pillars I and II. For our domestic certain, mobile money and betting transactions are part of the digital economy and should be taxed.

For any argument against the e-levy and betting tax to be sustained, it must be balanced against economic efficiency, equity, simplicity and political acceptability. None of these factors standing alone can be dispositive of these taxes.

That being said, it is reported that the government will lose approximately GHS2.4 billion and GHC1.4 billion from e-levy and betting taxes respectively in 2025.

The question is asked of how the government will bridge this revenue gap and even generate more revenue to meet its budget for 2025 and beyond, without increasing the budget deficit. The answer lies in the following four fundamental actions:

Transfer pricing examinations

Transfer pricing involves tax avoidance techniques where multinational companies shift profits out of countries where they operate through inter-company transactions.

It involves a transnational company selling itself goods and services at an artificially exorbitant price so that it can claim huge deductions from its corporate income and drastically reduce its profits from which corporate tax is paid.

Transfer pricing audits are very intensive because they require serious factual analysis of transactions and functions performed.

A lot of revenue escapes corporate taxation in Ghana through transfer pricing schemes, particularly for companies in the oil and gas business, mining, telecommunications, construction, etc.

To bridge the revenue gap, the government should impose a revenue target of about GH¢1 billion on the Ghana Revenue Authority to be generated sorely from transfer pricing audits of capital-intensive industries in Ghana.

Thin capitalisation audits

Thin capitalisation is another tax avoidance strategy that companies adopt to shift and/or reduce their profits from which corporate tax is paid. They do this by relying on debt instead of equity to fund their operations.

Thus, thin capitalisation audits will determine the debt-to-equity ratio of a company, and where the entity is heavily reliant on debt instead of equity to fund its operations, especially loans from sister companies or subsidiaries, those transactions should be examined based on open market rates.

The consequential effect of a high debt-to-equity ratio is that the entity will reduce or eliminate corporate profit by high-interest deductions.

In the end, the government loses revenue through these kinds of financial manipulations.

It is recommended that the GRA should allocate a revenue target to be achieved wholly from thin capitalisation audits of capital-intensive industries to shore up revenue shortfalls from the de-taxation of ‘momo’ and betting transactions.

Social Networking Levy

The government should consider the introduction of a social networking levy (SNL) to be imposed on cross-border digital transactions, including all forms of subscription for which Ghanaians are charged by foreign-based companies.

The levy should also include social media corporations, such as Facebook, Twitter, TikTok, Instagram, YouTube, etc. for the commercialization and/or monetisation of the data of Ghanaians. Ghanaians now make a lot of international purchases of intangible goods/services and pay by debit or credit card.

Unlike physical goods which sometimes pass through customs for import duties to be charged, digital goods escape customs valuations and duties. How to bring the consumption of digital goods in Ghana into mainstream tax is the focus of the SNL.

We now have the technology to help the government generate revenue from the digital economy.

Revenue from IWCs

Under the Electronic Transactions Act, 2008 (Act 772), the National Communications Authority (NCA) issues licenses to International Wholesale Carriers (IWCs). The governing legislations, including the licenses, imposed a tax disguised as a “surcharge” on IWCs. However, the revenues from this surcharge/tax do not go into the consolidated fund.

It is shared under a sharing arrangement that is inconceivably inconsistent with public revenue laws.

With all intent and purposes, the surcharge, irrespective of its designation, meets every constitutive element of taxation and the Constitution directs all public revenues to go into the consolidated fund. 

It is recommended that the government should audit this surcharge and ensure that the revenues are properly accounted for.

As our economy is still struggling to take shape as a result of COVID-19 and the Russia-Ukraine war, the government should be very proactive in transfer pricing and thin capitalisation audits, consider the social networking levy and bring revenues from international wholesale carriers into the tax basket will generate more than enough revenue to help the government reset the economy.

The writer is a Tax Policy Analyst, USA.
E-mail: ma.abdulmumuni@gmail.com