The Ghana Telecoms Chamber has engaged in a lobby to avert the increase in the Communications Service Tax (CST) from six percent to nine percent as proposed by government at last month’s midyear budget review.
The Chamber is warning that the increase in the CST would increase service tariffs significantly if the telcos choose to pass the entire burden onto their customers.
Instructively, if government goes ahead with the proposed increase it would be the second time within one year that telecom service tariffs have been forced up by fiscal policy. In November last year, tariffs were increased across board by all the telcos in response to government’s separation of the five percent Ghana Education Trust Fund and the National Health Insurance Levies from the Value Added Tax.
Already, the telecommunications industry is one of the most heavily taxed in Ghana. Apart from the standard 25 percent corporate income tax rate, industry operators also have to pay a five percent National Fiscal Stabilization Levy. If the CST is indeed raised to nine percent then mobile network operators will be paying an overall tax rate that just about equals that paid by extractive industries, comprising mining and upstream oil and gas operators. It is instructive that the latter pay so much because they are deemed to be using Ghana’s natural resources within an enclave industry that does not directly benefit the average man on the street; the telcos however are leveraging on their own heavy investments in technology to meet the needs for the overwhelming majority of Ghanaians.
Proponents of government’s latest fiscal initiative argue that the state direly needs the extra revenues and that the telcos are excellent targets because their expenditure on marketing and corporate social responsibility proves that they are cash laden and so can readily afford the increased tax rate.
However we see cause to contest that latter argument. The telcos huge spending on marketing and CSR is the unavoidable result of the fierce competition – for both service patronage and the goodwill of the public – within the industry. Indeed, the inflation rate for telco tariffs has been the lowest among all the industries used by the Ghana Statistical Service to compute consumer price inflation. Instructively tariff increases over the past decade have primarily resulted from tightening of the fiscal regime within which the industry operates.
While we empathize with government with regards to its dire need to expand public revenues, we suggest it looks at the bigger picture. While services such as social media and an array of entertainment related value added services can be regarded as economically unproductive leisure activities, telecom services have also dramatically improved the economic efficiency of private enterprise and individuals alike, thus contributing heavily to economic growth and wealth generation. Each tax increase on the industry inhibits the optimization of these gains.
It should also be considered that all the mobile network operators are multinationals that could choose to divert their new capital expenditure elsewhere if they consider returns on such investment to be uncompetitive in Ghana.
Finally, the reason being given by government for the proposed CST increase – the need for higher spending on cyber security – is ominous; it serves as a warning that the much anticipated and unwanted tax on mobile money is very much on the cards, since this is an area where security is greatly needed.
For consumers, the worst may be yet to come.