E-Levy Needs Rethinking…

The economic managers are gearing up to pass into law the 1.75% Electronic Transaction Levy (E-Levy) as initiated in the 2022 Budget Statement. The E-Levy proposed to be charged on the value of digital payments and transfers above GHS 100 per person per day. On record, Ghana will be the nation with the highest levy on mobile money transactions directed at users should the bill be passed into law.

I chanced upon a conversation where some individuals are referencing the opposition NDC 2021-2025 manifesto suggesting that the NDC planned to implement such a levy as well. The reference is found on page 99. Number 8.7 (C) states that the next government of NDC will “`introduce a uniform transaction fee policy to guide the electronic payment industry“. However, it is observed that what the NDC proposed in the manifesto is quite the opposite of what the current government is proposing. As observed in 8.7 (c) the proposal by the NDC is to ensure a uniform or standard fee regime for the industry to regulate the fees that Service Providers charge on users. What this policy meant was that service providers will have regulated fees outside the range of which their fees cannot exceed. The NDC`s proposal for a regulated service fee scheme (not a levy for users to pay to the government nor for service providers to pay) seeks to protect the consumers from high fees/charges by the service providers. The proposal, therefore, is different from the of the NPP government because whiles the NDCs manifesto pledge would have ensured the lower cost of digital transactions, the NPPs E-Levy on the other hand is going to cause an increase in the cost of payments.

The E-Levy therefore cannot be compared in any way to the proposed standard and regulated fee policy as stated in 8.7 (c) of the NDC Manifesto. The NDC policy can be said to be an “equity and social justice policy“ as it would have an effect of regulating fees and making fees standard, hence making the cost of financial transactions lower, which then could have the potential of widening access and usage of digital financial services and payments.  However, the proposed E-Levy by the government does the exact opposite of the proposal by the NDC. The E-Levy will make digital financial services costly, limiting users purchasing power, which can impede gains made on financial inclusion.

The proposed E-Levy will be applicable under five (5) scenarios:

• Mobile Money Transfers between accounts on the same Electronic Money Issuer (EMI)
• Mobile Money transfers from an account on one EMI to a recipient on another EMI
• Transfers from bank accounts to mobile money accounts
• Transfer from mobile money accounts to bank accounts; and
• Bank transfers on a digital platform or application which originate from a bank account belonging to an individual, to another individual

The economic managers will need to tread cautiously with the projected outcomes they intend to realize from the 1.75% E-Levy. The repercussions could be devastating for the economy.  The E-Levy is not an innovative way of raising tax but rather an unfair, unthinkable and discriminatory levy that can be compared to the narrative that government wants to “put its hands in the pockets of people“ and take monies just because they have the power to do so. Again while there is some rationale by the economic managers to broaden the tax net to include a section of the population who remain outside the formal economy who are largely untaxed through the E-Levy, the levy in its current form will not achieve those outcomes because people in the informal sector thus the shop attendant, the food vendor etc will simply reduce the volumes and values of their mobile transfers. Cash becomes the superior choice, which then derails the nation`s financial inclusion efforts.

While youth employment, provision of digital infrastructure, support for entrepreneurship etc may be a rationale for the Government to demand more revenue to advance such policies and initiatives, start-ups and young entrepreneurs will find it extremely difficult surviving a market where their sales and revenues are levied at 1.75% on every payment and transfer made.

Again the government project to increase Ghana`s tax to GDP ratio from around 12.2% in 2020 to 20% by 2024 and believe that the E-levy may just be Ghana`s solution. They may be failing to predict the behaviours of rational human beings in the given context.  Transactions both in value and volumes will reduce should there be new levies because the cost of the transaction becomes higher. Users will therefore opt to transact business in cash, with the effect being that projected revenues of the state won’t be realized.  Therefore it is safe to predict that observing the data,   the E-Levy is highly unlikely to cause an increase to the tax-GDP ratio by 3.1% (from13.4 in 2021 to 16.5 in 2022) in 2022.

Dr. Mark Yama Tampuri Jnr

  [email protected]