West Africa’s second largest economy, Ghana, is leveraging technology to improve access to public services and expand its revenue base. The government is consolidating a database of taxpayers, establishing a digital address system, and tapping a fast-growing mobile money system to bring more people into the tax system.
In most economies, one of the challenges tax officials face is lack of proper data on eligible tax payers, especially those in the informal sector. Property identification also remains a major challenge in most countries which makes it a herculean task to raise revenues through property tax.
The Vice President, Dr. Mahamudu Bawumia said in a recent speech that “it is possible to be born in Ghana, to live a full life, to die and be buried, and there will be no trace of you on any documentation”.
This highlights the severity of the problem but Ghana’s digital transformation agenda is proving to be a solution as the government is using digitalization to overcome these challenges and grow its revenue and economy.
One of the main pillars of Ghana’s digitalization initiative is to establish a reliable record of its population of 30.8 million. Through its Ghana Card initiative, the government has so far been able to enroll about 15.5 million people with the goal of covering most of its adult population by the end of this year as the card is one of the requirements for the nationwide SIM re-registration exercise currently underway.
Behind every card, is a unique national identification number, biometrically enabled through fingerprints, that will be the entry point for everything, including filing taxes, opening a bank account, registering a SIM card, obtaining a driver’s license, or renewing a passport.
Most importantly, the identification number doubles as a tax ID, allowing the government to widen the tax net among economically active adults. This is critical in a country where the revenue-to-GDP ratio has lagged others in the region.
“The more numbers that are issued, the wider the tax net grows. Under the old system of tax identification numbers, only 3 million had been registered”.Dr. Maxwell Opoku-Afari, First Deputy Governor of the Bank of Ghana.
National Digital Address System and the Ghana.gov.gh
Meanwhile, the same effort is going into documenting properties in a new national digital address database. Using GPS, Ghana’s Land Use and Special Planning Authority has identified about 7.5 million properties that can now be added to tax rolls.
Also, the Ghana Revenue Authority is bolstering collection of taxes and fees by conditioning renewal of driver’s licenses and professional licenses on tax payment. A new government portal, Ghana.gov.gh, provides a one-stop shop for a range of government services that can be handled online and can prevent losses to corruption. Ghana’s Revenue Assurance and Compliance Unit is also stepping up audits of large companies, especially those involved in the country’s sizable mining and resource extraction industry.
“The electronic collection of fees and taxes and other tax measures introduced in the 2022 budget should help the country significantly increase its tax-to-GDP ratio, which is currently 12 percent, to about 16 percent at the end of 2022″, says Dr. Opoku-Afari, who is also a board member of the Ghana Revenue Authority.
“We are coming at it from all fronts—digitalization, compliance, enforcement, and cleaning up loopholes—to be able to raise our tax-to-GDP ratio over the medium term to a 20 percent target”.Dr. Opoku-Afari
Albert Touna-Mama, IMF’s resident representative in Ghana disclosed “the next challenge is to equip the tax administrator with the capacity and technology to leverage big data. That’s where there’s still some work to do”.
Unique Mobile Money System And The E-Levy
The comprehensive digitalization initiative is bringing progress, albeit gradual, in revenue collection. Any future success, however, could get a boost from the country’s robust and unique mobile money system.
According to the World Bank, Ghana has one of the most active and fastest growing mobile money markets on the continent. It was also the first country to create a system that is completely interoperable between the country’s mobile networks and with bank accounts. For example, a person using a mobile money account provided by mobile MTN can make a payment to someone who uses Vodafone. Funds can also be transferred from a mobile wallet to a traditional bank account.
Unlike in other mobile money systems, the Bank of Ghana oversees all transactions through its subsidiary, Ghana Interbank Payment and Settlement Systems. Currently, there are 17.9 million active mobile money accounts in Ghana as of December, 2021 based on data from the Bank of Ghana.
This system forms another pillar of the government’s digitalization agenda because it has also introduced a powerful tool of financial inclusion the government is seeking to leverage.
However, as part of the 2022 budget, government proposed a tax on electronic transactions (E-levy) which would apply to mobile money payments, bank transfers, and merchant payments. The proposed 1.75 percent tax which has been revised to 1.5 percent, would apply to transactions beyond the first 100 Ghanaian cedis a day and provide a new source of revenue.
Government sees the E-levy as an opportunity to bring a growing portion of economic activity, much of it covering the informal economy, into the tax net. However, there are concerns that taxing mobile money transactions could send people back to cash and reverse a positive trend in the country’s financial inclusion resolve.
“The e-levy is a way of extending these services in terms of a social contract and everyone participating in the payment of tax. The question is more about creating a careful balance between financial inclusion and revenue generation”.Dr. Opoku-Afari
Currently, there are ongoing consultations with stakeholders to ensure successful passage of the e-levy by the legislature which has since received stern resistance from the opposition and a section of Ghanaians.
The Bank of Ghana is also piloting a new central bank digital currency, the e-cedi, that could further widen the availability of financial services. Meanwhile, the private sector, which has already been involved in several initiatives, is looking to harness government data to add value for users.
“The government’s work is putting the foundation and making it easy for the private sector to put the building blocks on top. I think, fundamentally, the work the government needs to do for this digital investment is to open it up from day one”, says Patrick Quantson, chief transformational officer for DreamOval Limited, a Ghanaian fintech company.
Undoubtedly, the government is doing very well in digitalizing and transforming the economy but more needs to be done to ensure that all these initiatives go a long way to improve government revenue mobilization, improve efficiency in the delivery of public services, as well as curb corruption.