Finance Minister Ken Ofori-Atta
Finance Minister Ken Ofori-Atta’s proposal to charge 1.75% levy on all electronic financial transactions has reignited the debate about the possible negative consequences for consumers and the economy at large.
Some people are of the view that demand for mobile money services has reached an inelastic level.
Therefore, though the tax may bite, there may not be much change in usage and adoptability as some fear.
It is a fact that the government has no choice but go for low hanging fruits like mobile money but the percentage should be reduced to one per cent or lower.
Communication Service Tax
The ongoing debate and fears are not different from the sentiments expressed when the Communication Service Tax (CST), popularly known as Talk Tax, was introduced in 2008.
The CST Act, 2008 Act 754 imposed the tax on charges payable by a user of an electronic communication service.
CST rakes in GH¢2.93bn
As at the end of June 2020, CST had generated some GH¢2.93 billion since it was introduced in 2008.
Per data from the Ministry of Finance, the annual figures are 2008- GH¢28 million, 2009 - GH¢88 million, 2010 - GH¢137 million, 2011 - GH¢135 million, 2012 - GH¢128 million, 2013 - GH¢174 million, 2014 - GH¢217 million, 2015 - GH¢252 million, 2016 - GH¢399 million, 2017- GH¢329 million, 2018 - GH¢420 million, 2019 - GH¢214 million and GH¢274 million for January to June 2020.
Electronic communication service providers
The CST is that tax levied on charges for the use of communication services that are provided by electronic communication service providers.
The CST is not only on phone calls but on all other communication services such as internet, broadcasting, cable, maritime and satellite services, as well as other services provided through transmissions or signals to produce sounds or visual images.
CST from 6% to 9% in 2019
It was amended from 6% to 9% in 2019 during the mid-year budget which was presented to Parliament in July 2019.
CST rate from 9% to 5% in July 2020
In July 2020, the government announced a reduction in the CST rate from 9% to 5% as part of the measures to lessen the economic impact of the COVID-19 pandemic on consumers.
The accruals from the CST did not reflect the fears expressed during the introduction of CST.
When countries such as Kenya, Uganda, Congo-Brazzaville, Côte d’Ivoire and Malawi introduced tax on mobile money transactions, backlash from the public forced Uganda and Congo-Brazzaville to reduce the percentages.
Kenya-20% excise duty on mobile money
In 2018, Kenya's government increased the excise duty on mobile money transfer services from 10% to 20%, increased telephone airtime tax to 15% and introduced a 15% tax on internet data services.
Tanzanian-0.7% tax mobile money levy
The Tanzanian government reduced by 30% the mobile money levy, reducing it from 1% to 0.7%.
Ugandan - 0.5% tax on mobile money
In June 2018, government imposed a 1% tax on mobile money before revising it to 0.5% amid an outcry from Ugandans
Côte d'Ivoire - 0.5% tax on mobile money
The government of Côte d’ Ivoire has imposed a 0.5% tax on mobile money payments, with the person making the payment subject to the tax.
No protection for the vulnerable in other countries
None of these countries protected the vulnerable by making transfers of the first 100 of their currencies free or exempt from the tax or levy.
What e-levy can do
Crunching some figures on the proposed electronic financial transactions for last year and first half of this year makes taxing the fast-growing industry attractive to support an economy facing serious challenges.
Total electronic transactions could near GH¢1 trillion
From the performance so far, it looks like total electronic financial transactions could near a trillion cedis by the end of this year.
GH¢522.9bn MoMo in 8 months of 2021
The Bank of Ghana (BoG) data revealed that mobile money transactions for the first eight months of this year hit GH¢522.9 billion.
MoMo could hit GH¢700 billion by year-end
With four months to end the year, which includes the yuletide where many people will be sending money to their loved ones electronically, it is possible for electronic financial transactions to hover around GH¢700 billion.
GhIPSS transfers
In the first six months of 2021, the Ghana Interbank Payment and Settlements Systems (GhIPSS) processed a total of 70.2 million transactions, representing a growth of 142% compared to 2020 half year.
GhIPSS hits GH¢158 billion in 6 months
Total value processed by GhIPSS was GH¢158 billion, representing a growth of 40%.
GhIPSS can hit GH¢300 billion by year-end
Extrapolating the GH¢158 billion with 40% growth, GhIPSS could also process over GH¢300 billion by the end of the year.
GH¢1 trillion transactions possible
It suggests that all things being equal, the total value of electronic transactions could near a trillion cedis by the end of this year.
GH¢564.1 billion MoMo transactions in 2020
Going to back to last year, a total of GH¢564.1 billion (GH¢564,155,900,015), the equivalent of $99.67 billion worth of mobile money transactions, took place.
MoMo: GH¢6.9 billion balance on float in 2020
The balance on mobile money balance float in 2020 was GH¢6.9 billion (GH¢6,980,030,924).
GH¢254 billion GhIPSS transactions
In the same vein, the total value of transactions processed on various platforms managed by GhIPSS was GH¢254 billion.
Revenue e-levy could generate
Assuming the 1.75% levy is charged on the total value of all electronic transactions, it can generate close to GH¢10 billion a year.
Even if the levy generates GH¢5 billion a year, that is good revenue to invest in the areas government has outlined.
Ghana needs GH¢30bn to bridge gaps
Ghana needs a minimum of GH¢30 billion to bridge existing gaps in areas such as water, roads, bridges, electricity, hospitals, sanitation, among others.
Create separate vehicle for e-levy
Ghanaians agreeing to pay a 1.75% levy on all electronic financial transactions and government depositing the money into a separate account dedicated to infrastructure development will be a major boost to solving the debilitating infrastructure deficit.
Solving the infrastructure deficit with domestic revenue
Solving the infrastructure deficit with domestic revenue will bring huge relief to all Ghanaians as well as slow down the rate of borrowing to bring down the public debt stock.
ESLA type of vehicle
The 1.75% levy on all electronic financial transactions can be modelled in the structure of Energy Sector Levy Act (ESLA) to support the Ghana Infrastructure Investment Fund (GIIF).
E-levy to complement Infrastructure Investment Fund
GIIF is a $325 million infrastructure investment vehicle established by the government to invest and develop infrastructure assets.
The purpose is to raise money domestically to build infrastructural projects in the country.
GIIF invests $275m in 12 projects
Since it was established, GIIF has invested $275 million in a portfolio of 12 infrastructure projects in six different sectors across Ghana.
Every $1 of GIIF Fund invested yields $10
More importantly, for every $1 invested by GIIF from its own funds, it managed to bring in $10.
This means a planned total investment of $2.7 billion in Ghanaian infrastructure projects.
This is already a significant return on the initial capital deployed by the government in the GIIF.
The ongoing COVID-19 pandemic continues to make digital innovation a priority in Ghana and globally.
Fast pace of digitisation
The government has increased the pace of digitisation and the speed with which Ghana Card is being linked to several services, as well as a boom in online shopping and delivery services, means that electronic payments will leap in bounds.
Larger transaction tiers could migrate to banking halls
The likelihood of a drop in electronic financial transactions is possible in part due to larger transaction tiers migrating to the banking system where they did not attract similar taxes.
Banks charges a deterrent to return to banking halls
However, returning to banking halls will still not be a long-lasting option considering the fact that banks also charge for services provided in addition to the money spent on transportation to and fro the bank, not to talk about the time to be spent.
Investment in mobile money network infrastructure
Since the levy is not being borne by the operators, fears that providers may delay plans to invest in mobile money network infrastructure, particularly in less profitable rural areas, due to reduced profits may not arise.
Mobile money is a payment type based on accounts held by a mobile operator and accessible from subscribers’ mobile phones.
It offers simple person-to-person transactions rather than complex banking transactions.
It provides an easy, fast, secure and cost-effective way of making payment.
Factors like the increasing trend of convenience in service delivery, expansion in mobile money agent network and implementation of mobile money interoperability are driving the mobile money market in the country.
Mobile money services also offer methods for turning physical cash into electronic funds in a customer’s mobile account (also called “cash-in”) and methods for turning electronic funds into physical cash (also called “cash-out”).