A new survey has revealed that the e-levy is highly regressive with most of the key policy design of the tax based on mere assumptions without any scientific underpinnings.
The study found that despite the minimum threshold shielding some users, the tax likely has a negative impact on equity and that informal workers’ skepticism about the tax was rooted on concerns about equity and in mistrust of the government.
“Our data suggest that key decisions about policy design and implementation were founded on assumptions that are not backed by empirical evidence. Continued research on the impacts of the e-levy in the coming months and years will help ensure that policymaking is evidence-based, with a more complete understanding of how the levy affects citizens and workers.”
(Rogan et al, 2022)
Sixty-one percent of the users reported that they would be liable for some amount of e-levy payment based on their past MoMo transaction patterns and amounts.
“Here, our results provide some support for the government’s suggestion that the threshold would protect about 40% of MoMo users from taxation. However, when the mobile money transaction amounts over the threshold are calculated as a share of earnings, it is clear that the levy is still a highly regressive tax – meaning the tax burden is highest on the lowest earners.”
(Rogan et al, 2022)
The survey highlighted that the tax would account for just over 8% and 6% of monthly earnings for men and women, respectively, in the lowest earning quintile. Among the top earning quintile, in contrast, the projected tax would be less than 1% of earnings for both women and men.
Support for the e-levy would vary on political lines
As other surveys have highlighted, the e-levy is highly unpopular in Ghana, the authors said, adding that “We found that 83% of Accra’s informal workers disapproved of it. They worried about how it would affect the poor, that it would be unfair, or raise an already high tax burden”.
The levy was the subject of verbal and even physical fights in parliament between the two main parties. The New Patriotic Party administration blamed public opposition to the levy on alleged propaganda by the minority, National Democratic Congress.
“This might suggest that support for the levy would broadly fall along party lines. Our study found that supporters of the New Patriotic Party were indeed more likely to support the levy. But only 32% of them approved. Overall, perceptions of the government and its performance influenced opinions on the levy.
“We also found that women were more critical of the e-levy, even when we controlled for a range of demographic and political features. Only 12% of women approved of it, compared with 21% of men. This striking difference highlights the importance of further research in this area, particularly to explore the relative impacts on men and women.”
(Rogan et al, 2022)
E-levy will target higher earners
One of the assumptions prior to the implementation of the e-levy was that it would be an efficient way to target higher earning segments of the informal sector. These segments are perceived as being under-taxed and more likely than lower-income earners to use mobile money.
A key question, therefore, is whether mobile money usage is concentrated among higher income earners. However, the survey revealed that this assumption only partially stands up to the evidence.
The survey found that about half (51%) of the informal sector operators in Accra use mobile money. It is widely used by women and men, by different occupational groups and across the earnings distribution.
As expected, the top-earning group (quintile 5) reported transacting the most on the MoMo platform (about 500 and 700 cedis for female and male workers, respectively). However, lower-income earners will also be affected by the e-levy. This is because informal workers in the lowest earning group transacted more than those in several of the higher earnings categories, the authors noted.
“About 41% of MoMo users in the informal sector do not have a bank account. Mobile money transfers may be particularly important for the unbanked, who typically account for the lower earning and more vulnerable segments of the workforce. We found 43% in the lowest earning quintile had bank accounts compared with 54% in the highest earning quintile.”
(Rogan et al, 2022)
Threshold regularly adjusted for inflation
Based on the findings, the Authors recommended that the threshold should be raised and regularly adjusted for inflation. More generally, they noted that revenue authorities should focus on other ways of taxing high income workers in the informal economy, including professionals.
Ghana’s introduction of a 1.5% tax on mobile money transactions in May 2022 has been watched closely by policymakers across Africa. The proponents of the electronic transaction levy (e-levy) argue that taxes on mobile money — commonly referred to in Ghana as MoMo — present an opportunity for cash-strapped governments to raise funds in the complex post-pandemic context.
The recent study looked at the likely impact of the levy on high and low earners in the informal economy. It was based on a representative survey of 2,700 informal sector operators – employers and own-account workers – in Accra.
The study was conducted by Mike Rogan (Associate Professor, Rhodes University); Max Gallien (Research Fellow, Institute of Development Studies); Nana Akua Anyidoho (Associate Professor & Director, Centre for Social Policy Studies, University of Ghana); and Vanessa van den Boogaard (Research Fellow, Institute of Development Studies).
READ ALSO: Africa Is Ready For Business- President Akufo-Addo Urges Global Investor Community
