A Common Sense approach to Resolving the E-levy Puzzle

The Agyenkwa (salvation) budget presented by the Finance Minister to the Ghanaian Parliament in November 2021 for the 2022 fiscal year proposed to impose an E-Levy of 1.75% on all electronic fund transfers and inward remittances from abroad. An extract I have seen from the related Bill laid before Parliament is however silent on inward remittances. It listed cheques and Bank transfers among exempted transactions from the levy. The extract also stated in its preamble that the first GHS3,000 transfers in a month will be exempted from the levy. The exemptions section of the Bill however stated the exempted limit in daily terms at a GHS100 per day.

The E-Levy has since set both sides of Parliament against each other. Whilst the majority side is determined to pass the levy as proposed by government without any amendments, the minority has also vowed to shoot it down at all costs because it is too harsh and insensitive.

Interestingly, each side of parliament is relying only on its numerical strength to carry its position through. The Levy has therefore not only exposed the propaganda-dressed cracks in the Ghanaian economy but it has also exposed the Ghanaian politician’s penchant for using muscle power instead of using the soft skills of negotiation and competent leadership. The brawn approach is rooted more in the win-lose psyche of both sides of the House than in seeking the best interest of the citizens. This essay attempts to provide a pathway for resolving the puzzle in way that creates victory for all involved, including both sides of parliament, the government and the citizens.

It is important to state emphatically that I totally disagree with the respective positions taken by both sides of the House on the E-Levy since none of them represents the optimal solution to the problems confronting us. I, at best, see the majority side’s approach as incompetent and arrogant whilst the Minority’s disposition appears to be nothing more than a populist adventure. All of them have ignored the real issues that need to be dealt with. I support the Levy in principle because we do need additional revenue lines to prosecute our development agenda but the way it is packaged is totally unacceptable. The Agyenkwa gown in which the levy is robed has not succeeded in disguising the death sentence that it is, in its current form.

The first area of concern is the 1.75% rate proposed to be charged on transferred amounts. If the E-Levy is passed at this rate, it will be the most shameless demonstration of political duplicity in our fourth republic. I will show you why. In 2015 thereabout, the previous NDC government introduced a Financial Services Tax which imposed a 17.5% VAT on Financial Services. The 17.5% VAT affected bank transfers in the same way the E-Levy will affect transfers on all mobile money platforms and at POS terminals. The VAT was however levied on the charges imposed by the bank for making the transfers and not on the actual amounts transferred by customers. I will use a GHS1m transfer to make a comparative analysis of the tax amount that was charged under the VAT and how much will be charged for the same transfer under the proposed E-levy to buttress my point.

The banks normally charge a 1% fee for electronic transfers made by their customers. The charges can be even as low as 0.25% for their prime customers, who actually make the biggest transfers. I am however using 1%, which is the high end of the charges, for the illustration. The VAT was levied on this 1% fee, which if applied to a GHS1m transfer yielded a tax of GHS1,750. The 1% fee on the GHS1m transfer comes to GHS10,000 on which the 17.5% VAT was levied to arrive at the GHS1,750. The VAT was therefore 17.5% of 1% of GHS1m.

The NPP then in opposition, led a campaign against it on the grounds that it was a nuisance and punitive tax. When the party took over the reins of government in 2017, one of the very first things it did was to scrap this tax as a practical demonstration of its conviction that the tax was indeed a nuisance one. The repeal no doubt increased the government’s popularity ratings in those early days as it painted the outgone NDC government as wicked and insensitive and the then new government as humane and people-oriented.

The Agyenkwa E-Levy which is currently before parliament, will however be imposed on the amount transferred in contrast to the repealed VAT which was imposed on the related charges. A transfer of the same GHS1m is therefore expected to attract a levy of GHS17,500 representing 1.75% of the amount transferred. If this government saw a GHS1,750 tax on a million cedi transfer as nuisance and insensitive enough to repeal it in 2017, then it is difficult to understand how the same government will turn around to want to impose a tax which charges one thousand percent (1,000%) of the repealed nuisance tax amount for the same transaction. Let us get real folks!

If the levy has to be imposed on transferred amounts as proposed, then the best parliament can do is to amend the rate to 0.175%, which will constitute a disguised restoration of the scrapped nuisance tax. It will in effect constitute a baptismal of the Financial Service Tax and christening it as E-Levy. It will just be a case of the NPP government getting converted after seeing the light of what it takes to raise revenue to govern a country. After all, Saul became Paul in the bible when he got converted. I am sure the Finance Minister had a home given name before he got baptized into a Ken. We will therefore not have any qualms with the government if after getting converted, it baptized the Financial Services Tax into an E-Levy. What we should not accept is replacing the repealed tax with one which imposes on us a 1,000% burden of the repealed one. Our Parliament must therefore sit up, stop the noise and do their work properly.

The second area of concern is about how the E-Levy is the way it sought to expand the tax net. That the country needs to expand its tax net to rope in more tax payers is not a matter of debate. We must necessarily do so. We however have to be diligent in coming up with a structure which brings those who do not pay taxes into the tax net without increasing the burden on those who are already in the net. The E-Levy as proposed, will be suffered by both those who are already paying their taxes diligently and those who are not paying anything at all. This is not equitable as it still makes the tax-obedient man suffer because of the disobedience of others. It is like lumping the innocent and the guilty together and sentencing both to prison.

One thing that an impartial parliament should do is to modify the structure to correct this anomaly. This can be done by exempting existing tax payers from the levy in the same way that diligent corporate tax payers are granted exemptions by the GRA from suffering withholding taxes. If we are truly digitalized, this can be done electronically by identifying TINs that qualify for exemption. TINs will then become an optional field in the documentation for carrying out money transfer transactions. If you don’t have a TIN or your TIN is not pre-qualified for exemption, then your transfer will automatically suffer the tax.

If we are however not digitalized enough to make this happen, then the e-levy collected from known diligent tax payers should be treated as tax credits when they file their Tax Returns. Such credits should be refunded, when confirmed by the Returns. The Returns filed by tax payers should be used for pre-qualifying future exempted TINs. This will even encourage tax payers to file their Returns. Doing it this way brings additional people into the tax net without imposing additional tax burden on existing tax payers. This is how to achieve an expansion of the tax net without deepening it for the diligent ones.

Another thing to look at is the exemption threshold for the vulnerable. Is the exemption GHS100 a day or GHS3,000 a month? The two are not the same. If it is a GHS100 a day and I send my 95-year old mother in the village GHS500, I will pay the tax the day I send the money because it is more than the GHS100 daily limit. If I don’t do any other taxable transfer for the rest of the month, my total transaction for the month will be the GHS500, which is below the GHS3,000 monthly exemption limit but on which I had already paid the tax because of the daily transaction limit. As at now, the only way to escape the levy on the GHS500 is to make such a transfer in five daily instalments or put it in an envelope and forward it to my mother by post. This confusion must be resolved. It can be done by removing the daily limit from the Bill for us to work with only the monthly limit.

It is very gratifying to note that the four-page extract from the E- Levy Bill I saw proposed an exemption for transfers between accounts owned by the same person or entity. Anything short of that would have been more of a legalized and state sponsored robbery than taxation.

The last thing I think Parliament should look at is the use of the proceeds from the Levy. We have to avoid a situation where the government uses one thing to justify the imposition of the Levy and then turn around to use the proceeds for something else. The Bill should therefore capture the intended uses plus a possible contingency allowance of no more than 10%. The collection of these levies can be tracked effectively given that it will have a reliable electronic trail. It is therefore easy to have real time information on the amounts collected. The Minister of Finance should be made to appear before Parliament every quarter with a Revenue and Expenditure Account of the E-Levy to show how the realized proceeds are applied. These statements will be subject to Audit at the end of the year to assure us of their judicious use. We cannot be made to bear the brunt of additional taxes only for the derived revenue to be lost to corruption and other profligate expenditures.

I am sure if both sides of Parliament could get serious and move away from their entrenched positions and focus on making these proposed adjustments to the E-Levy Bill, they would be addressing the need to expand the tax net in an equitable way. They would also be addressing almost all the legitimate concerns of the tax payers and the electorates even as they approve an additional revenue source for the state in a way that preserves the integrity of the government.

I, on this note, invite all Ghanaians including government communicators who don’t want to see the E-Levy become the operation table on which the party’s ambitions of breaking the 8 will be aborted, to support these suggested amendments and push our parliamentarians to do the needful in the interest of mother Ghana and the government.

Mathias Dorfe
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