After six months of tussles and brawls, the much-anticipated levy on electronic transactions announced in the 2022 Budget Statement in November last year takes effect today, May 1, 2022.
There are mixed reactions as customers and traders alike discuss the likely impact of the 1.5% levy on electronic transactions on their activities.
Nana Adwoa Animful, a 59-year-old woman who sells hair products and accessories at the Makola market in Ghana’s capital, Accra, said most of her business is carried out using mobile money, which is an electronic wallet service that allows registered users to store, send and receive payment using their accounts.
This payment method is faster, more convenient, and more reliable than the traditional banking system, Ms Animful said. However, the government’s new 1.5% tax on all electronic transactions above GH¢100 a day, known as the e-levy, is a source of concern for her.
“We have to add e-levy on top of the cost of the item, which will increase the price. Otherwise, we will go back to cash which sometimes doesn’t help us because we get fake notes and sometimes underpayments”.
Nana Adwoa Animful
“I’m very worried about the e-levy. The government did not educate us the citizens well about it”, James Mawuli, who works as a mobile money vendor in Accra said. The 32-year-old helps people manage their mobile money accounts and withdraw cash as needed. He said he had already lost many customers because of the planned e-levy and fears he might lose his job.
Mawuli added that “A lot of people have even started withdrawing all their money ahead of its implementation and our transactions have reduced. It’s going to be a big problem for us”.
Ms Animful and Mawuli are just a few of the many market sellers and MoMo vendors worried about the controversial tax. The e-levy will also apply to bank transfers and remittances as well as mobile money transactions.
Low-income workers to be affected by the tax
Critics of the law suggest it will hit low-income workers and small businesses the hardest, as they rely heavily on mobile money transactions. Last year, the parliamentary debate on the e-levy ended with punches being thrown, such was the level of disagreement. The law was eventually passed but only after opposition MPs staged a walkout.
Banks are far and few in rural areas of the country and mobile payments are seen as a low-cost, safe and efficient alternative to either a bank account or holding large amounts of cash. As a result, nearly 40% of Ghanaians aged 15 and above use mobile money platforms. But the e-levy has raised concerns over the future of mobile money.
Decline in MoMo transactions
There are already signs that people are turning their backs on electronic payments, just as Mawuli said. Data from the Bank of Ghana show that the MoMo industry lost GH¢9.9 billion in the two months from last November. Value of MoMo transactions declined from GH¢86.1 billion in November 2021 to GH¢76.2 billion in January 2022. Active accounts also declined from 18.0 million in November to 17.4 million in January this year.
The government is trying to build a digital economy in recent years to reduce the use of physical cash. But it now admits the new tax could see a big drop in the use of mobile money services within the first few months of it taking effect.
Deputy Finance Minister John Kumah told local media that “there will be about 24% attrition rate in the three months to six months that we will introduce it”. However, “The same research told us what should be done to bring back these people after a while, and we have all these things in place”.
Much of Ghana’s economy operates outside the formal sector and less than 10% of the population pay direct taxes. The authorities have defended the new tax by saying that it will widen the tax base, boost government revenue and put a dent in the country’s $58.6bn debt.
Targeted amount from the e-levy
In a recent interview with the BBC, Ghana’s President Nana Akufo Addo said that the country’s tax-to-GDP ratio was 13% – far lower than the average in West Africa of 18%. Most European countries have a ratio of 35-45%, while the US has about 25%.
“We are talking about taxing an industry where a lot of value is being created and we want to also bring that value into government coffers”, President Akufo Addo said.
The government said it will use the money generated by the e-levy for development projects such as building roads and hospitals, and creating jobs to reduce unemployment, although some fear that the extra money raised could instead end up in the pockets of officials.
The government hopes that the e-levy will raise GH¢4.5bn this financial year, a downward revision of the target from GH¢6.9 billion to reflect the reduction in the rate from the initial 1.75% to the current 1.5%.
Similar taxes and reactions
Similar taxes introduced in Zimbabwe and Cameroon also proved controversial. In 2019, Zimbabwe introduced a 2% money transfer tax that was hugely unpopular. Finance Minister Mthuli Ncube agreed to review it but said it was too early to make adjustments as it was a major source of state revenue.
In Cameroon, a proposed 0.2% tax on mobile money transactions triggered a huge backlash and resulted in a social media campaign #EndMobileMoneyTax. The government still went ahead and implemented it in January this year.
Tanzania’s government is also now considering taxing online businesses. A team of experts from Meta – the company that owns Facebook, Instagram and WhatsApp – visited the commercial hub of Dar es Salaam to hold talks with authorities on how to tax their services in the country.
However, taxing e-commence must be done with care so as not to discourage entrepreneurship in these countries since most start-ups now operate as online businesses. For Ghana, the success will depend on how people will respond to the usage of electronic payment platforms after the introduction of the tax.
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