Ghana’s economy has often been lauded by officials as one of the most thriving in Africa.
However, the unprecedented challenges of the past few years, including the global Covid-19 pandemic, climate change, and the Ukraine crisis, have further squeezed the nation.
The country’s economic challenges are rooted in continued inefficient borrowing and lending, susceptibility to inflation, dependence on commodity exports, and environmental degradation, driven by the exploitation of Ghana’s rich natural resources, like gold, oil, and cocoa.
The government’s response has sparked controversy. An E-Levy has been introduced as one solution to Ghana’s economic woes, adding 1.5% tax on all electronic and merchant payments, bank transfers and inward remittances of more than 100 Ghanaian Cedis (GHS) ($12 USD).
Passed through Ghana’s parliament in March this year, this legislation has raised concerns around the impact on people’s incomes, and warnings it could reduce the use of hugely popular mobile money payments.
Analysts say additional fiscal measures like the E-Levy may prove necessary for Ghana to combat its recent economic challenges.
Positive payments
Many have made the case that the rapid adoption of mobile money payments presents a unique opportunity to raise tax revenue from previously ‘untaxable’ citizens.
Mobile phone payments have become ubiquitous in a country where only 42% of people have a bank account; transactions are growing rapidly, increasing from GHS 78.5 billion in 2016 to GHS 953.2 billion ($ 150 billion USD) in 2021.
The government is confident that the E-Levy will help raise 6.9bn GHS ($887m) this year. The money generated from the levy would be used for the payments of contractors, supporting entrepreneurship and security, improving road infrastructure, and providing jobs to about 11 million people in the country.
In particular, the potential money will be used to fund the ‘YouStart Initiative’, which would be a vehicle to help young entrepreneurs acquire access to finance, technical skills, training, and mentoring to start their own enterprises. It would go a long way toward solving the country’s youth employment problem.
The cost of living
There have already been reports of decreased mobile money transactions, even before the implementation of the tax.
Some commentators argue that such a tax will widen the already yawning inequality gap, stressing that the inequality enhancing effect of taxing mobile money payments could have far reaching consequences. Salaries received through mobile money platforms in Ghana will be affected, as the current law doesn’t distinguish between corporate and individual money accounts.
The passionate debate surfaced by E-Levies brings into focus a wider discussion around different ways to reduce poverty and boost shared productivity on the continent.
Countries recognise the need to urgently close two critical gaps. The first is the human capital gap, constraining Africa to only 40% of its potential. Secondly, closing the infrastructure gap would boost growth and increase GDP per capita by as much as 2.6% per annum.
Closing these gaps requires substantial amounts of financial resources. The World Bank estimates that Africa’s infrastructure needs exceed $93 billion USD per year over the next decade.
Experts argue that Africa needs home-grown tax systems to unleash the potential of its own fiscal resources, built on trust between government and taxpayer, and technology.
In recent years, financial technology firms and startups have attracted millions of dollars in funding. Some commentators have expressed concern the E-Levy could dent the sector.
Raising tax revenues continues to be the most growth-friendly way to stabilise debt. More broadly, building a country’s tax capacity is at the centre of any viable development strategy to meet the ongoing needs for expanding education and health care, and filling significant infrastructure gaps.
E-Levy’s bright future?
Africa’s E-Levies are still in their infancy, with only a few nations – like Cameroon, Uganda, Kenya, Egypt, Nigeria, and South Africa - weighing up the potential benefits (and detriments). Observers are cautious, with many asking why the focus has steered away from improving existing taxes instead.
According to Dr Nara Monkam, research director of the Forum on the African Tax Administration, the focus should be on improving efficiency and effectiveness of the tax administration, rationalising tax expenditures, digitalisation, effectively combating tax evasion, and illicit financial flows and dealing with corruption and fraud.
Other experts argue that the E-Levy could take on a different form. Instead of taxing the transaction itself, the government could impose a tax on the charges collected by the telecommunications companies. Depending on the price and demand for whatever they are taxing, the telecoms firms could then decide to either share the tax burden with their customers or absorb the whole tax burden.
Many feel that for the E-Levy to succeed, the government must be transparent and accountable around its use of the E-Levy. If Ghanaians see that their money is being put to good use, there is greater scope to raise percentages and broaden targets.
In the face of declining aid flows and rising debt, Africa’s best hope for closing its human capital and infrastructure gaps is to substantially increase domestic resource mobilisation, and equitable taxation policies form one, but arguably important, method.
