- The e-payment levy is said to broaden the revenue base and bring in the informal sector.
- There are concerns that it might jeopardize the country’s existing digitization effort.
- The e-implementation cedis may further reduce the use of cash by compelling consumers to make electronic payments, requiring them to pay the e-levy.
Ghana’s finance minister, Ken Ofori-Atta, has declared an introduction of the e – payment levy (e-levy) on all electronic transactions in the 2022 budget. He explained that this would broaden the revenue base and bring in the informal sector.
The proposed levy is a 1.75 % charge on all electronic transactions over $16 and will take effect from February 1, 2022. The levy will include payments made with mobile money, bank transfers, merchant payments, and inward remittances. The transaction’s originator will incur the charge except for inward remittances, which the recipient will fund. All transactions up to US$16 will not incur these charges.
The Finance Minister highlighted the rise in total digital transactions from US$81 billion in 2020, up from US$12.5 billion in 2016. In just five years, these electronic payments have seen a considerable jump
While economists expect this will broaden the tax net, given that the bulk of the population works in the informal sector, it’s an easy way for the government to raise income. It is no surprise that news of the levy is receiving widespread anger. There are concerns that it might jeopardize the country’s existing digitization effort.
Analysts do not predict a reversal of these responses, as happened recently with the payment of benchmark values at ports. Given the current cost of mobile money, the government may reconsider the introduction and additional charges. There are several reasons why the minister is unlikely to reverse course. Ghanaians should anticipate this levy on electronic transactions.
Why the government is unlikely to reverse course
There are no viable alternatives: While this e-levy may force some people to use cash, there is no viable alternative for the vast majority. Electronic transactions, particularly mobile money, is currently the most efficient and cost-effective method of transferring funds in Ghana because it is widely available. Its widespread use is due to its practicality, particularly in rural areas. The only other option is to use banks, which have a restricted number of locations. Banks are also digitizing their services to reduce the use of cash.
According to some studies into the use of financial technology in Ghana, mobile money is the only way for many people to access financial services without realistic alternatives. This study also found that the cost of using mobile money is not an impediment. People will continue to utilize mobile money regardless of the e-levy.
Revenue-generating methods that are simple to implement
Even though the informal sector employs the majority of Ghanaians and accounts for around 85% of the urban economy, successive governments have failed to discover new ways to broaden the tax net to encompass it. The government sees mobile money as an easy way to tax the informal sector because many people, even those in the informal sector, use electronic transactions. According to estimates, the overall amount of mobile money transactions in 2020 would be above US$99 billion, significantly exceeding the US$29 billion of cheque and cash transactions. Given the government’s potential revenue and its inability to develop a novel approach to Tax the informal sector, mobile money taxes appear to be the easy way out.
Institutionalization of digital payments
The government has recently launched digitalization projects to eliminate the use of cash. The e-currency (e-cedi) project, for example, will see the Central Bank issue its “own kind of mobile money.” The e-implementation cedis may further reduce the use of cash by compelling consumers to make electronic payments, requiring them to pay the e-levy.
The government is also transitioning to a digital-only payment option for its services to combat corruption and income leakage. This means that without digital payment, people may have difficulty getting a passport or driver’s license, registering a business, or clearing cargo at a port. Making it Another reason people will have no choice but to pay the e-levy.
With the introduction of COVID and the enforcement of movement restrictions, as well as the fact that mobile money, bank accounts, and cards have grown more closely linked, many people have turned to electronic transactions and payment for the majority of their day-to-day economic operations. Between February 2020 and February 2021, the government claims that the value of digital transactions increased by 120%. It increased by 44% in the preceding year. The government recognizes that most people’s custom now is to conduct business online. People will find it difficult to return to physical transactions since they are so handy.
Because of the present charges on mobile money, many individuals will oppose the e-levy. It also has the potential to stifle the expansion of Ghana’s FinTech ecosystem by making the country undesirable to FinTech entrepreneurs. This e-levy, for example, will limit profit margins for FinTech businesses that may not want to pass the expense on to customers. Zeepay, a Ghanaian FinTech firm, alone got US$7.6 million in financing in 2021.
Given the direct and indirect benefits FinTech brings to economies, this e-levy will exacerbate an already difficult situation for FinTech businesses. The administration appears to be mainly concerned with short-term revenue gains. As a result, instead of imposing a blanket e-levy on electronic transactions, the government should reconsider the implementation and deliberately target the Tax. Lessons learned from other nations that have adopted mobile money taxes, such as Uganda, should be influenced.