Never has it become more pressing for government to raise enough resources on its own without resorting to borrowing from the international capital market than now.

Ghana’s revenue mobilization remains low even before the outbreak of COVID-19. The emergence of the pandemic with its accompanying challenges, has intensified this problem as it puts government resources under intense pressure.

Government’s debt continues to rise amid concerns over investors likely exit in the country’s bond market. With a debt-to-GDP ratio of 78.4% at End-November 2021, Ghana currently lost access to the international capital market, at least for this year with high premium on the country’s debt driving it deeper into distress, Bloomberg warned in an article.

This has awakened the need to build a robust system that will ensure constant mobilization of domestic resources going forward. The Institute for Fiscal Studies (IFS) has, for instance, advised government to resort to the extractive sector to try and milk its revenues that are mostly being controlled by foreigners.

Whether the government will heed to this call, remains unknown but it is now clear that government, through the Ghana Revenue Authority (GRA), is stepping up its efforts to address the old-long challenge of revenue mobilization in the country. But many have described these initiatives as temporary and may not provide an antidote to the revenue challenges of the country.

Whilst borrowing may not be an option, even though government remains an active participant in the domestic bond market, the country needs innovative solutions to the low revenue conundrum; widening the country’s tax net is critical.

According to Finance Minister, Ken Ofori-Attta, only 2.4 million people of the country’s total population of 30.8 million pay personal income tax and between 2017 and now, the country’s tax-to-GDP ratio ranges between 11% and 13%.

Taxing e-commence

In February this year, the GRA hinted that it has developed a software that will enable taxing of e-commence and online gaming, effective April 1, 2022. According to the Authority, the tax will cover both domestic and multinational companies.

A report on gaming on the African continent revealed that Ghana generated US$42 million as total revenues through gaming last year. The report revealed that 27% of people in Ghana play games as compared to 23% in Nigeria, 22% in Kenya, and 13% in Ethiopia.

The growth in gaming in Ghana further lends support for the GRA’s resolve to start taxing online gaming activities by April 2022. The Authority stated that taxing of e-commerce as well as the gaming and betting industries will help increase domestic revenue collection and most especially, help the GRA meet its domestic revenue target of GH₵80.30 billion this year.

With this, it will be appropriate for the government to tax e-commerce rather than taxing electronic transactions at the current proposed rate. This is because when government imposes the e-levy and people decide to reduce the use of MoMo, it will have severe impacts on the revenues of telecoms in the country and may also wipe out the progress made so far in the country’s financial inclusion agenda.

Additionally, Ghana can take advantage of the proposed global minimum corporate tax on multinational companies that do not have physical presence in the country to cushion the country’s revenue mobilization. With this, companies like, Twitter, Meta, Google, Apple, Samsung, among others, can be taxed.

According to the Global Web Index’s (GWI) flagship report on the latest trends in social media, the average social media user in Ghana spent an average of 3 hours and 20 minutes last year scrolling through all their favorite social media sites each day. With this time spent on social media, the report ranked Ghana as the third most addicted social media user on the African continent in 2021. This means with the right processes, more revenues can be mobilized from taxing such activities.

Conversations on the e-levy

Whilst conversations on the e-levy continues, President Akufo-Addo, speaking at the Labour Conference at Kwahu-Nkwatia in the Eastern Region on February 28, further called on Ghanaians to support the e-levy, describing it as “an innovative fiscal measure” which will help improve Ghana’s tax to GDP ratio on an equitable basis.

“We cannot continue to allow less than 10%, specifically 7.8%, that is, 2.4 million people of the population to carry the direct tax burden of 30.8 million people. We must provide an opportunity for every Ghanaian to contribute towards nation building.

“The proposed e-levy is such an innovative fiscal measure which will help improve our tax to GDP ratio on an equitable basis. I believe strongly that it is in the public interest that it should be enacted into law. We cannot continue to live on foreign savings”.
President Akufo-Addo

Moreover, the finance minister underscored that the e-levy will contribute significantly to increasing the country’s tax-to-GDP ratio which remains low compared to Ghana’s peers in the sub-region.

“We are determined to enhance domestic revenue mobilization and set the nation on a path to building an entrepreneurial nation. In truth, the E-Levy is a necessary tool to increase our tax-to-GDP ratio and support the thrust of the government’s direction in the medium-term promoting entrepreneurship, and supporting our youth”.
Ken Ofori-Atta

On the contrary, Experts have criticized the design of the e-levy and have suggested that if government can reduce the rate from 1.75% to at least 1% or even 0.5%, Ghanaians will be encouraged to continue using Mobile money services, aiding telecommunication companies in the country to continue to raise revenues to honour their tax obligations to the government. Such a rate will also not affect the government’s resolve to promote financial inclusion in the country.

The initiative by the GRA to tax e-commence, if well implemented, will raise some revenues for government as the cedi continues to depreciate, further worsening the debt servicing cost for the country amid recent credit downgrades by some major rating agencies. However, taxing e-commence must be done with care so as not to discourage entrepreneurship in the country since most start-ups now operate as online businesses. E-Commerce E-Commerce E-Commerce