SCANCOM PLC V. THE COMMISSIONER-GENERAL

Citation: Unreported Judgement of the High Court (Commercial Division) (CM/TAX/0008/22) dated 9th November 2023      

Digital Citation: [2023] DLHC16658

Brief Facts
Scancom PLC (the appellant), a Ghanaian incorporated company operating under the name MTN Ghana, disputed a tax assessment by the Ghana Revenue Authority (the respondent) for the period January 2014 to December 2017. Scancom PLC appealed the tax objection decision of the Respondent dated 9th September 2021 at the High Court.

Grounds of Appeal

  1. Scancom PLC primarily disputed the imposed Value Added Tax liability for imported services utilised to make both taxable (telecommunication services) and exempt supplies (mobile money business).
  2. The Appellant argued there is no statutory provision that authorises the Respondent to impose Value Added Tax by presuming the amount of total revenue generated through exempt supplies which is proportionate to the amount of imported services used to make taxable supplies.
  3. The Appellant further argued that the Respondent’s reliance on internal practice notes/guidelines to impose National Health Insurance Levy (NHIL) and Ghana Education Trust Fund Levy (GETFund) on imported services was contrary to law.

Issues

  1. Whether or not the Respondent erred in law and acted arbitrarily by imposing Value Added Tax for imported services from January 2014 to December 2017.
  2. Whether or not the Respondent relied on an internal practice note or administrative guidelines to impose NHIL and GETFund Levy on imported services used to make taxable supplies.

Areas of Tax Law Considered

  • Direct taxes- Value Added Tax
  • Indirect taxes such as the National Health Insurance Levy, Ghana Education Trust Fund Levy.

Arguments

 Appellant (Taxpayer)

  1. The Value Added Tax Act of 2013 does not permit the imposition of Value Added Taxes on imported services used for exempt supplies.
  2. Between 2014 and 2017, Scancom PLC utilised imported services for its “business” of mobile money, which is exempt, as demonstrated in its financial records.
  3. There is no legal basis or justification in law to impose a Value Added Tax liability by presuming that imported services for exempt supplies correlate with total revenue.
  4. The relevant statutes concerning NHIL and GETFund do not authorise the imposition of levies on imported services used to make taxable supplies.
  5. Between August 2018 and December 2018, Scancom PLC utilised imported services for taxable supplies, but the Respondent did not impose Value Added Tax for that period.
  6. Practice Notes are binding on revenue officers but not taxpayers and cannot be used to amend the tax law as stipulated in section 100 (3) and (4) of the Revenue Administration Act, 2016 (Act 915).  

Respondent’s Argument (Ghana Revenue Authority)

  1. During the tax audit, Scancom PLC submitted business records showing it used imported services for both taxable and exempt supplies. The Respondent reviewed these documents and discovered Scancom PLC used imported services for activities not directly attributable to taxable or exempt supplies. These included fees for:
    • Management and technical services.
    • Intellectual property fees to MTN Dubai.
    • Royalties paid for billing and reporting platforms.
    • Network infrastructure support services.
    • Overseas and Global Procurement services.
    • Procurement services from related parties.
  2. Between January 2014 and December 2017, “Mobile Money Limited” was neither trading nor operating as a business entity.
  3. The imported services applied to the production of both taxable and exempt supplies indicated that Scancom PLC was a partial exempt trader and under section 65 of the Value Added Tax Act, spanning January 2014 to December 2017.
  4. Even if Scancom PLC produced and supplied both taxable and exempt supplies, the extent to which it proceeds from both is merged as total sales/revenue, leaving no objective way to extract the proportion of the sales/revenue attributable to exempt supplies.
  5. Respondent determined the total value of imported services and calculated the proportion of each stream (exempt supplies vis-a-vis taxable supplies) to the total revenue and then applied splitting the imported services between the exempt supply revenue stream and taxable supply stream.
  6. The apportionment of imported services was an objective method to avoid tax avoidance.
  7. The Respondent’s actions regarding NHIL and GETFund are anchored on the applicable provisions of the National Health Insurance Levy and Ghana Education Trust Fund Levy.
  8. Practice Notes/Guidelines clarify the application of existing tax laws and are for the benefit of staff at the Ghana Revenue Authority and do not change the existing tax laws.
  9. In 2018, the National Health Insurance and Ghana Education Trust Fund levies were decoupled from the Value Added Tax and became separate indirect taxes, which are not subject to the standard Value Added Tax rate procedures.

Ruling

  1. The Court held that the Respondent did not err in law and did not act arbitrarily by imposing Value Added Tax liability on imported services from January 2014 to December 2017.
  2. The Court upheld the Respondent’s use of apportionment to determine the deductible input tax under section 49 (2) of the Value Added Tax Act of 2013.
  3. The Court found that the Respondent did not rely on any internal practice notes or administrative guidelines to impose NHIL and GETFund Levy on imported services utilised for taxable supplies.

Reasoning

The Court dismissed the appeal for the reasons stated below:

  1. The Court considered Scancom PLC as a Partial Exempt Trader for the period 2014 to 2017 and acknowledged the apportionment method as a valid means to isolate the portion of Value Added Tax attributable to exempt supplies.
  2. For the relevant period of August 2018 to December 2018, the Ghana educational trust fund levy and national health insurance levy each of which was 2.5% was applicable on the imported services used to produce taxable or exempt supplies.

Principles for Tax Practitioners

  1. The principle of apportionment can be used to determine the deductible Value Added Tax on imported services utilised for both taxable and exempt supplies by a Partial Exempt Trader.
  2. Practice Notes are for the benefit of the Ghana Revenue Authority’s staff and do not have the force of law hence cannot be used to amend tax legislation.
  3. The National Health Insurance Levy and Ghana Education Trust Fund levies are separate from Value Added Tax.

References

Constitutional and Statutory references

  • Article 174 of the 1992 Constitution of Ghana.
  • Ghana Education Trust Fund Act, 2000 (Act 581).
  • Ghana Education Trust Fund (Amendment) Act, 2018 (Act 972).
  • National Health Insurance Act, 2012 (Act 852).
  • National Health Insurance (Amendment) Act, 2018 (Act 971).
  • Revenue Administration Act, 2016 (Act 915).
  • Value Added Tax Act, 2013 (Act 870).
  • Value Added Tax (Amendment) Act, 2013 (Act 871).

Case Law

  • Development Data & 2 Ors v. National Petroleum Authority & Another, Unreported, HC, Suit No. BC553/2009 Dated 5th July 2010.
  • Fordjour vrs. Kaakyire 85 GMJ @85.
  • Fordjour vrs. Dompeh SCGLR 660.
  • Multichoice Ghana Ltd v. The Commissioner, Internal Revenue Service 2 SCGLR 783.
  • Newton v. Commissioner of Taxation 1 AC 450 PC.
  • Russell v. Scott AC 422 (HL) at 433.