Judgment summary
This is an appeal by Scancom PLC, trading as MTN Ghana, against the Objection Decision of the Commissioner-General of the Ghana Revenue Authority dated 9th September 2021. The appeal concerned Value Added Tax (VAT) imposed on imported services for the period January 2014 to December 2017, and National Health Insurance Levy (NHIL) and Ghana Education Trust Fund (GETFund) Levy imposed on imported services from August 2018 to December 2018. The Court dismissed the appeal in its entirety, finding that the Respondent had not erred in law or acted arbitrarily in imposing the disputed liabilities.
Background
Appellant is a Ghana-incorporated company operating under the brand name MTN Ghana. Before 2018, Appellant had telecommunications and mobile money as its two main business streams, and kept consolidated books and financial statements for both. Since 2018, a new and separate legal entity, Mobile Money Limited, took over the mobile money business, after which Appellant and Mobile Money Limited began keeping separate books.
In early 2020, the Ghana Revenue Authority commenced a comprehensive tax audit on Appellant spanning January 2014 to December 2018, covering input VAT claims, VAT on imported services, input VAT on office premises, NHIL and GETFund Levy on imported services, and withholding taxes on interconnect, roaming, trade discounts and mobile money fees.
By a Tax Audit Report dated 4th May 2021 (reference LTO/MTN/TAR/05/2021), Respondent assessed a tax liability of Six hundred and seventeen million, seventy two thousand, five hundred and nine Ghana cedis, eighty eight pesewas (GHS617,072,509.88), comprising Direct Taxes of GHS410,862,961.57 and Indirect Taxes (VAT/NHIL/GETFund Levy) plus interest of GHS18,650,860.00 (the Accepted Liability).
Appellant accepted and paid the GHS18,650,860.00 liability on 3rd June 2021, and applied for a waiver of penalty and interest of GHS26,955,473.00 on that liability, which was granted. In respect of the Disputed Liability of GHC571,466,177.00, Appellant lodged an Objection under section 42 of the Revenue Administration Act, 2016 (Act 915) on or about 3rd June 2021, making a 30% down payment (partly satisfied by an existing tax credit of GHS150,000,000.00).
Respondent's Objection Decision of 9th September 2021 deferred decision on withholding tax on international interconnect and roaming costs (GHS281,509,171.65), and waived penalty and interest of GHS26,955,473.00 on the Accepted Liability. After deductions, Respondent determined a Current Payable Assessment of GHS138,351,364.01. Appellant decided not to contest all but two heads of that assessment, namely VAT on Imported Services and NHIL/GETFund Levy on Imported Services, giving rise to this appeal.
Core dispute
The first ground of appeal was whether Respondent erred in law and acted arbitrarily by imposing VAT liability on Appellant for imported services for the period January 2014 to December 2017, where Appellant contended the imported services were used solely for its telecommunications (taxable) business and not its mobile money (exempt) business, and that the Value Added Tax Act, 2013 (Act 870) does not authorise VAT based on an apportionment tied to the proportion of exempt revenue.
The second ground was whether Respondent erred in law by relying on internal GRA Practice Notes/Guidelines to impose NHIL and GETFund Levy on imported services provided by non-resident entities, when Appellant argued the relevant statutes do not sanction such levies on imported services used to make taxable supplies, and that Practice Notes bind only Respondent and not taxpayers under section 100(3) and (4) of the Revenue Administration Act, 2016 (Act 915).
Respondent's position was that Appellant was a partial exempt trader which used the imported services to produce both taxable and exempt supplies during the relevant periods, justifying apportionment of VAT under section 65 read with sections 1(1)(b) and 2(1)(c) of the Value Added Tax Act, 2013 (Act 870), and that the NHIL and GETFund Levy liabilities for 2018 were founded on statute (the National Health Insurance (Amendment) Act, 2018 (Act 971) and the Ghana Education Trust Fund (Amendment) Act, 2018 (Act 972)) rather than internal guidelines.
Court findings
The Court found that Appellant's mobile money business was not run distinctly and independently as a separate entity between January 2014 and December 2017, since Mobile Money Limited, though registered, was neither trading nor operating during that period, and mobile money was instead conducted and reported as a revenue line of Appellant in its audited financial statements for 2014 to 2017.
The Court held that Appellant was therefore a Partial Exempt Trader under section 49 of the Value Added Tax Act, 2013 (Act 870) as amended, having applied its imported services to produce both taxable supplies (telecommunications) and exempt supplies (mobile money, deemed 'financial services' and exempt under paragraph 19 of the First Schedule).
The Court accepted that apportionment was necessary to isolate the portion of imported services attributable to exempt supplies, applying the formula in the Fifth Schedule (A x B ÷ C) and the ratios computed by Respondent: 2.35% for 2014, 6.02% for 2015, 20.39% for 2016 and 13.64% for 2017. On this basis, VAT assessed on imported services amounted to GHS580,801.17 (2014), GHS1,358,250.65 (2015), GHS2,135,605.94 (2016) and GHS4,718,930.58 (2017), with total output VAT of GHS8,793,588.65, interest of GHS10,933,119.14, and total liability of GHS19,726,707.80, calculated under section 44(2) of the Value Added Tax Act, 2013 (Act 870) with interest under section 71 of the Revenue Administration Act, 2016 (Act 915).
The Court found that Respondent did not err in law and did not act arbitrarily in imposing VAT liability on Appellant for imported services from January 2014 to December 2017, given Appellant's status as a Partial Exempt Trader.
On the second ground, the Court found that the National Health Insurance (Amendment) Act, 2018 (Act 971) and the Ghana Education Trust Fund (Amendment) Act, 2018 (Act 972) are separate laws from the Value Added Tax Act, 2013 (Act 870), and impose tax on import of service that is not subject to input tax deduction, irrespective of whether the imported services were used to produce taxable or exempt supplies. For the relevant period in 2018 (August to December), the VAT rate of 12.5% was inapplicable, but the NHIL and GETFund Levy of 2.5% each were applicable to the imported services regardless of their use. The Court found that Respondent's tax assessment on this point was anchored on the applicable statutes and not on any internal Practice Notes/Guidelines.
Outcome
The Court held that Respondent did not err in law and did not act arbitrarily in imposing VAT liability on Appellant for imported services for the period January 2014 to December 2017. The Court also held that Respondent did not err in law when it imposed National Health Insurance Levy and Ghana Education Trust Fund Levy (together with interest and penalties) on Appellant for imported services from August 2018 to December 2018, irrespective of whether they were applied to taxable or exempt services, and that this was not based on internal Practice Notes or Administrative Guidelines. The instant Tax Appeal was dismissed in its entirety, with no order as to costs; each party was ordered to bear its own costs.
Major issues / areas of contention
- Whether Respondent erred in law and acted arbitrarily by imposing VAT liability on Appellant for imported services for the period January 2014 to December 2017.
- Whether the Value Added Tax Act, 2013 (Act 870) authorises apportionment of VAT liability on imported services based on the proportion of total revenue generated from exempt supplies.
- Whether Appellant's imported services were used solely for its telecommunications (taxable) business or also for its mobile money (exempt) business during 2014 to 2017.
- Whether Appellant qualified as a Partial Exempt Trader under section 49 of the Value Added Tax Act, 2013 (Act 870) as amended.
- Whether Respondent erred in law by relying on internal GRA Practice Notes/Guidelines to impose National Health Insurance Levy and Ghana Education Trust Fund Levy on imported services from non-resident entities.
- Whether the National Health Insurance (Amendment) Act, 2018 (Act 971) and the Ghana Education Trust Fund (Amendment) Act, 2018 (Act 972) operate as separate levies from the Value Added Tax Act, 2013 (Act 870), applicable irrespective of the use of the imported services.
- Which party bore the burden of proof under section 92 of the Revenue Administration Act, 2016 (Act 915) in respect of the grounds of appeal and any imposition of penalty.