Too Soon: A case against e-commerce transaction sales tax in Ghana

As a follow up to my previous article, In Big Africa, Less is More, I stated that in an economy where the tax base is sub-optimal, the government should adopt the “technology-lite” approach that is characterized by recent trends where a community has a sense of ownership in a public good or service resulting in voluntary preferences to pay user/service fees that self-finance and thus sustain the service provision. If the Ghana Revenue Authority is really concerned about extra revenue, then they should consider reading my previous article.

Taxing e-commerce transactions at this early stage in Ghana will not be a wise decision. It will basically stifle growth, competition and kill the online delivery business in addition to killing gig employment in that space in Ghana. The GRA should not introduce this tax at a time when the government is doing all it can to bring the unemployment rate down. The GRA, in this case, will not be allowing the “cow” to grow to its full potential before it starts milking it.

I will strongly recommend that the GRA holds off taxing e-commerce transactions for at least 3 to 5 years to allow the industry to flourish and grow to its full potential. Taxing e-commerce transactions at this infant stage where this industry is going through it’s teething process in Ghana is equivalent to killing the 'cash cow' just for the beef. GRA will make it extremely difficult for small Ghanaian business to build strong presence in the online market space if this tax is introduced now.

Since United States of America is the originator of e-commerce as we know it, kindly permit me to give you a little background history of e-commerce and sales tax in that country. In the United States of America, online retail brands have enjoyed something called ‘Quill’, which according to Thomson Reuters was a 1992 U.S. Supreme Court ruling that barred states from collecting sales tax from retail purchases made via e-commerce unless the seller had a physical presence in the state: Quill Corp v. North Dakota. The case stemmed from North Dakota’s attempts to collect sales tax on computer software sold by the Quill Corporation, a firm incorporated in Delaware and with no physical connection to the Midwest state. It sold products via catalogs, print advertisements and telephone calls.

Quill Corp v. North Dakota became a policy which allowed companies such Amazon to grow and flourish to become one of the biggest companies in the world today. Online shopping business in the US contributes a lot more in revenue and employment to the US economy today thanks mainly to right decisions by the US Supreme Court. Quill simply allowed e-commerce to flourish in the Unites States until South Dakota v. Wayfair, a 2018 Supreme Court case in which the court stated that States may start charging tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state.

This means that the US Supreme Court with its foresight gave the e-commerce industry in America about 26 years of time and space to grow, basically the catalyst for e-commerce expansion. This is why the ruling on South Dakota v. Wayfair came as no surprise to industry players. E-commerce industry at this stage was big enough to withstand any shocks. One wonders why today companies such as Amazon have switched sides and welcoming e-commerce transaction tax which has the potential to stifle competition and kill small online merchants who will be caught in the complex web of state by states tax systems.

Below are few strategies that GRA can adopt to make sure that e-commerce grows to its full potential:

·Bring e-commerce businesses into the formal sector and rather focus on income tax generated but it.

·Give industry 3 to 5 years to grow and in the meantime start building a database and putting the right structures in place to make an easy transition when the time comes.

·Put systems in place to monitor e-commerce so that when the time is ripe, the GRA would be able help small businesses by capping revenues that are taxable.

·Have measures in places so that it will be easy to offer tax holidays during specific seasons including back to school sales.

In summary, GRA must give e-commerce in Ghana time and space to grow and flourish to its full potential. The benefits of waiting for few more years far outweighs what the government stands to gain if taxes are introduced today.

Myles

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