Telecom taxes are overkill

Government’s rush to Parliament to slap additional taxes on communication service consumers under a certificate of urgency is a cheap way of raising revenue, which will harm everybody unnecessarily.

Telecom operators pay about 40 percent of their total revenue as corporate taxes and levies, and the industry has been accounting for about a third of GDP growth.

This year, Government has estimated that it will rake in GH¢150.8million from Communication Service Tax (CST), otherwise known as “Talk Tax”, which is a 6% tax billed to consumers of communication services.

When the CST was introduced in 2008, it was fixed at an ad valorem rate of 6% on a one-minute call charge. In addition, an interconnectivity charge was added to raise revenue for services rendered by mobile operators to each other when they are dealing with calls from customers on other networks. The 6% was arrived at in order to remove the cascading nature of the interconnectivity charge.

Now Government wants some more. The Finance Minister, Seth Tekper, through a certificate of urgency has laid before Parliament a draft bill that when passed will impose an additional 6% interconnection fee on incoming international calls.

Already, telecom companies pay 15% value added tax (VAT) and National Health Insurance Levy (NHIL) on international calls, and the hike in the CST will compel operators to pass the new fee on to customers. If that happens, the effect of this bill in simple terms is that telephony consumers, especially mobile phone users, cannot receive international calls if they do not have credit on their phone.

This means that it will be a social and financial burden to receive international calls, which might even cut ties with friends and family.

The new bill also covers charges on text messages and Internet services such as email. So peoples’ communication-lives are virtually under attack from excessive taxation.

Consumers are not the only ones that the new bill will affect. The future of the entire communication industry is also at risk. Investments in infrastructure are also going to be impacted. Until recently, when telecom operators announced that they will invest several hundreds of millions to boost their network infrastructure and capacity, investments in the sector had been stable.

The CEO of the Ghana Chamber of Telecommunication, Kwaku Sakyi-Addo, puts it more succinctly: “The amendment of the Communication Service Tax (CST) bill will hurt subscribers and it will hurt Government... These taxes will diminish the industry’s capacity to invest to satisfy consumers.”

The intention of Government to raise additional revenue to support its programmes is without doubt a laudable one that everyone supports; but to milk one industry that is critical today in the lives of people in order to meet the state’s insatiable needs is gravely worrying.

Telecommunication companies have over the years had to shoulder a lot of responsibilities -- from optimising network quality to building educational and health infrastructure facilities, to contributing to state revenue; the pressure and strain on telecom operators’ purses is being stretched.

If additional taxes will suffocate an industry that has had so much impact on peoples’ lives, from healthcare to commerce, why would Government ignore warnings and strangle it to death?

The fact is that Government needs money and sees the telecommunication sector as the easiest way to raise the needed financial resources, since it has not been successful in devising creative ways to widen the tax net.

Government, and it is not the only one, thinks that telecom companies are making huge profits and so must be taxed more in order for the state to retain some of the revenue that the companies make.

Of course, telecommunication is a viable and profitable venture and some of the companies are making profits that really excite their shareholders. However, what is not clear to many - and Government knows but has glossed over it -- is that most of the companies are swimming in order not to drown.

According to industry analysts, including officials of the National Communication Authority -- the industry regulator -- the expectation is that a couple of the telecom operators will consolidate their operations within the next few years as there is uncertainty over their business profitability.

In a country of about 25 million people the market is too small for six global network operators, fuelling intense competition in the industry. And because the companies have to compete with each other through publicity events, advertisements and other marketing activities in order to gain some significant market share, many people think that the telecom companies are sitting on a stack of cash.

Additionally, competition has forced many telecommunication companies to cut prices and also absorb excess costs without passing them on to the consumer just so they could remain competitive.

According to figures from the Ghana Statistical Service, the inflationary pressure in the communication sub-sector is the least, recording only 0.4 percent increase as against the economy’s average 11.1 percent at the end of May this year, despite increases in input costs such as utilities.

As mobile subscribers reach 26.9 million, the mobile voice market is gradually reaching a saturation point with the Average Revenue Per User declining.

Asking the telecom companies and consumers to pay more taxes will worsen the plight of industry players -- and ultimately make Ghana an unattractive destination for telecom investments.

The sad thing is that the bill will pass anyway, so consumers must brace themselves to pay the “killer” taxes -- because Government is desperate for cheap money and the telecom sector is the easiest way to get it.