Economists, Professor Charles Godfred Ackah and Dr. Kwadwo Opoku have stated that the E-levy is distortionary, discriminatory and inefficient and as such, urged the government not to go ahead with the introduction of the tax on electronic transactions in the country.
According to the Economists, they will support any effort by the government to raise revenues since Ghana’s tax revenue is less than 13%, lower than the Sub-Saharan Africa average of 16.4%. However, they argued that the levy is too radical and discriminatory and also flouts at least three of the principal canons of taxation; Neutrality and equity, Effectiveness and fairness, and Fairness or non-discrimination.
“The consequential distortions and the resultant deadweight losses that would be created by this tax handle could far outweigh the additional revenues that may be generated. The existing tax handles should rather be efficiently deployed to raise the needed revenue for the 2022 fiscal year and beyond. Here, the role of MoMo and banks or card transactions are very critical”.
(Ackah & Opoku , 2021)
Use MoMo as an enabler
In a detailed analyses of the E-Levy made available to The Vaultz News, Professor Charles Godfred Ackah and Dr. Kwadwo Opoku urged the government to rather employ MoMo and other electronic platforms as enablers for efficient implementation, monitoring and enforcement of existing tax handles.
“Thus, we advocate that the government should rather consider leveraging the massive usage of electronic or digital payments and transactions to monitor and enforce existing tax handles. In this regard, Government should encourage electronic or digital payment for goods and services and transfers between persons. This can be achieved through negotiations with Mobile Network Operators (MNOs) to eliminate charges on transfers and payments”.
(Ackah & Opoku , 2021)
The Economists are of the opinion that since some service providers have already removed charges on transfers and payments, the government should consider a confiscatory tax on MoMo charges with instant full redistributive transfer to users who pay charges on transfers.
Should the government insist on maintaining the proposed E-Levy in its current form, “then to ensure fairness and continuous use of the electronic system of payment, a tax could be imposed on cash withdrawals (both MoMo and bank withdrawals)”. This, they believe, will make the medium of payment or transfer neutral with regards to this tax handle.
Prose 0.5 % rate for the E-Levy
They suggested that a transaction tax of 1 percent on cash withdrawals and 0.5 percent of E-levy on all electronic person-to-person transfers (MoMo, bank transfers, including cash and cheque deposits, and electronic money transfers) may be enough to generate adequate resources for the government.
“This will serve as an incentive to settle transactions electronically and keep the money in e-form rather than cash. The rise in ‘electronic velocity of money’ in this manner has the potential to increase government revenue collection with a smaller E-Levy rate”.
(Ackah & Opoku , 2021)
They advised the GRA to rather seize the momentum brought about by COVID-19 and double up its efforts to accelerate the growth of new digital capabilities for micro, small and medium-sized enterprises and workers to emerge stronger and contribute to tax revenue.
“We should update the tax regime and make it more resilient as the digital economy grows. Government could consider extending goods and services tax to e-commerce, subjecting all digital and non-digital goods and services imported or locally traded to goods and services tax or value-added tax. This will ensure a level playing field between digital and traditional businesses and capture activities presently uncaptured by corporate tax rules”.
(Ackah & Opoku , 2021)
E-levy to reverse Financial Inclusion gains
The Economists believe the e-levy will do more harm than good with the burden rather falling on the poor who do small, frequent but urgent transactions. The 1.75% E-Levy, in its current form, they said, will be inefficient as people may switch to other modes of payments, citing Uganda’s experience as an example.
“Instead of an E-levy that has the potential of reversing the gains made in financial inclusion, government should support digital transactions by modernizing the ICT infrastructure to ensure quality broadband connectivity, reduce fraud, improve the e-payment environment, and develop e-commerce training activities for youth, women and people living in rural areas”.
(Ackah & Opoku , 2021)
Amid controversies over the approval of the 2022 budget by Parliament, Deputy Majority Leader, Alexander Afenyo-Markin hinted that the percentage to be charged on the E-levy will be reduced from 1.75% to at least 1.5% as per the revised budget submitted by Finance Minister, Ken Ofori-Atta. Earlier, Professor Peter Quartey, Director of the Institute of Statistical, Social and Economic Research (ISSER), advised the government to “listen to good counsel” and reduce the rate of the levy to around 0.5%. Economists Economists
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