E-Levy brouhaha, my perspective as an Information Systems Professional and Analyst

It is interesting to note how aggressive all governments across the African continent have become, so tasty to tax the citizens digitally or electronically. The question about whether or not the government should introduce an electronic transaction levy (e-levy) still ranges on. Businesses, citizens, Social media users, civil society organisations, pressure groups, tax experts and analysts, some members of the current party in government, and opposition political parties are up in arms against this policy.

However, the government of the day is resolute and defending its e-levy policy as the best since it will enable them to broaden the tax net and raise more revenue to develop the country.

The question is, can e-levy provide the government the best approach to collect revenue and broaden the tax net? My answer is a big YES. An electronic form of tax collection is not a lazy method but rather the most efficient and effective way to collect tax.

My next question is, should the government of Ghana start taxing the citizen electronically at this time? Well, this question will answer itself as we finish reviewing and understanding the data and the statistics below.

According to the Digital Report, 2022 by Hootsuite indicates that Ghana had a population of 31.40 million in January 2021, 57.7% (18.12million) of this population lives in urban centres, while 42.3% (13.28million) lives in rural areas. Social media users in Ghana as of the end of the year 2021 stood at 8.20 million representing 26.1% of the total population and 45.25% representing that of the urban population.

The number of social media users in Ghana increased by 2.2 million (+37%) between 2020 and 2021.

Mobile phone or device connectivity in Ghana stood at 41.69 million in January 2021. The number of mobile connections in Ghana increased by 3.1 million (+8.1%) between January 2020 and January 2021.

The number of mobile connections in Ghana as of January 2021 was equivalent to 132.8% of the total population. This is possible because many people have more than one mobile connection, so figures for mobile connections may exceed 100% of the total population.

Furthermore, on the effort of Ghana’s financial inclusion agenda, the data shows that only 38.9% of the mobile connected has mobile money account, 7.8% makes online purchases or pay bills online, 57.7% has an account with a financial institution and 5.8% has a credit card for the online transaction.

The above percentages were based on the population aged 15+ that report owning or using each financial product or service.

What does Levy or Tax mean?

The encyclopedia defines Taxation as an imposition of compulsory levies on individuals or entities by governments. Taxes are levied in almost every country of the world, primarily to raise revenue for government expenditures, although they serve other purposes as well.

In modern economies, taxes are the most important source of governmental revenue. Taxes differ from other sources of revenue in that they are compulsory levies and are unrequited—i.e., they are generally not paid in exchange for some specific thing, such as a particular public service, the sale of public property, or the issuance of public debt.

While taxes are presumably collected for the welfare of taxpayers as a whole, the individual taxpayer’s liability is independent of any specific benefit received.

There are, however, important exceptions: payroll taxes, for example, are commonly levied on labour income in order to finance retirement benefits, medical payments, and other social security programs—all of which are likely to benefit the taxpayer.

Because of the likely link between taxes paid and benefits received, payroll taxes are sometimes called “contributions” (as in the United States). Nevertheless, the payments are commonly compulsory, and the link to benefits is sometimes quite weak.

Another example of a tax that is linked to benefits received if only loosely, is the use of taxes on motor fuels to finance the construction and maintenance of roads and highways, whose services can be enjoyed only by consuming taxed motor fuels.

Registered momo users against active users

Based on the data reviewed above momo account subscription of 38.9% is a clear deterrence of the state to stay far away from introducing e-levy policy at this time. If out of 41.69million connected mobile devices recorded, only 38.9% are active on momo representing only 16.23million leaving over 25.47million to join the service is a cause to worry and be cautious about e-levy policy at this time. Taxing big transnational big e-commerce/tech businesses or firms is better than poor momo users.

According to BOG’s own summary of economic and financial data 2022, registered mobile money accounts as of November to December 2021 were 47.7 and 48.3million respectively, representing 0.6million increase between the two months specified. Out of the registered accounts, active mobile money accounts were 18.0 and 17.9million respectively, representing a 0.1million decrease between the month of November and December 2021.

This data should be worrying to the government. This is because 18.0 active momo users out of 48.3million registered momo accounts representing 37.27% is abysmal performance in face of governments efforts to bridge the digital device gap and build financial inclusion.

Juxtaposing the BOG’s data on that of Hootsuite, we see no significant disparities, which clearly defeated one leg of the government argument about the introduction of the e-levy policy in order to broaden the tax net. Just by the face of the data, it seems that the same people who are already paying physical tax in the country have been chased electronically for additional levy of the same kind.

According to Finance Minister, Ken Ofori-Atta, the introduction of e-levy as stated in the 2022 budget will increase the country's tax to Gross Domestic Product (GDP) ratio to 16.5% from the country's current tax to GDP ratio of 12%, which falls below the Sub-Saharan Africa average of 16.5%.

The tax to GDP ratio basically means the value of tax compared to the value of goods and services produced in the country within a year. Finance Minister, Ken Ofori-Atta, announced an Electronic Transaction Levy (E-Levy) in the 2022 budget, which is projected to raise GHC6.9 billion in the 2022 fiscal year.

Value of momo transactions

Bank of Ghana (BoG)’s data has indicated that the value of mobile money transactions has seen a marginal decline by GH¢3.2 billion in December 2021, less than one month after Finance Minister, Ken Ofori-Atta, announced in the 2022 budget of an electronic transaction levy (E-Levy).

Based on the report, the value of transactions decreased from November – to December 2021, from GH¢86.1 billion to GH¢82.9 billion respectively, representing a 3.8% points decline.

Prior to Mr. Ofori-Atta’s announcement by the introduction of the 1.75 percent E-levy, the value of momo transactions saw a sharp increment in October, from GH¢71.7 to GH¢80 billion in September 2021 accounting for more than 10% points increase between the two months.

The focus of the government is more on the value of monies been transacted as to the number of active users transacting or transferring the monies. This is dangerous to the survival of the financial inclusion agenda because it will send a bad signal to those the state is targeting who are un-banks and are okay to carry or keep money anywhere.

The scope of e-levy

According to the minister, the E-Levy will affect momo transfers between accounts on the same electronic money issuer (EMI); momo transfers from an account on one EMI to a recipient on another EMI; transfers from bank accounts to momo accounts (B2M); transfer from momo accounts to bank accounts (M2B); and bank transfers on a digital platform or application which originate from a bank account belonging to an individual to another individual (BI2I).

Question is, what happens to international mobile money transfer applications which work across borders but are used internally, for example, Remitly, Worldrimit, Sendwave, etc? This question is legitimate because some of these applications are been tweaked to respond differently. Typical example is where people in Ghana owns international phone numbers and can make call for you to think the call are coming from those countries.

What the government needs to keep close surveillance on, has to do with the business to an individual (B2I) and individual to business (I2B) approach which seems to be exempted. This is because individuals can be acting as a business and vice versa in an attempt to invade tax.

Surveillance of Mobile Money Platforms and how they work

Mobile money platform surveillance is multiuse and includes identification requirements for customers, aimed at preventing crime; the surveillance of mobile money agents by service providers as a means of mitigating fraud; and the monitoring of transactions by service providers for anti-money laundering (AML) and combating the financing of terrorism (CFT) and, increasingly, by governments for taxation purposes.

Identification Mandates for Mobile Money Customers

Two forms of identifications are required as form of surveillance of mobile money customers. SIM registration is done by the telecoms which is accepted globally to check security and fraud reduction validations.

The second form of identification is Know Your Customer (KYC) and Customer Due Diligence (CDD) requirements originated by Financial Action Task Force, which is deployed by all Central Banks and other financial regulators to enable mobile money providers at national levels for the preventing of financial crimes.

For one to be able to perform mobile money transaction, the system will make sure the user makes the disclosure of its device identity to enable the user access the mobile money platform, first, for connectivity and, then, again to activate a mobile money wallet.

By legislation in Ghana today, mobile operators granted physical access to Kelni GVG (a joint venture with the Global Voice Group) their systems to monitor traffic, using the Common Monitoring Platform in order to ensure that the taxes declared by operators are accurate.

The Ministry of Communications also wanted providers to disclose customer balances, transaction amounts, and the dates and times of transactions.

Prior to Kelni GVG, a Ghanaian technology firm, Subah, has launched its own mobile money monitoring platform which was presented at the 2017 International Telecommunication Union (ITU) Telecom World conference in South Korea.

Subah’s system is capable of capturing, analyze, and retain information on all mobile money transactions, such as the sender, receiver, and operator, automatically reports high value and repeat transfers to individuals and businesses, and summarizes service charges applied by all operators. Moreover, it claims to be “fully customizable for different mobile banking regulatory frameworks” (Communications Africa 2017: 4).

Digital advertisers in Africa

Google, Microsoft, and Facebook all run their Europe, Middle East, and Africa (EMEA) operations out of Ireland. Despite being classed as one region for administrative purposes, the continent of Africa is treated very differently from that of Europe.

If you happened to make a purchase on Google advertising in the UK, advertising TaxWatch, and received an invoice that did include VAT. However, according to Google’s own website, it does not charge VAT on purchases made in most parts of Africa.

Any output VAT Google collects in relation to supplies to UK customers could be offset against Google UK’s input VAT expenses. By contrast, there is no such incentive to collect output VAT in those African countries where Google does not have input VAT costs. Absent the opportunity to offset input VAT, the incentive flips: this is so because VAT-free sales are preferred because the lower cost to the consumer is likely to boost sales volumes.

Outside of the European Union, and South Africa, customers seeking information on VAT on the Google website are told “Google can’t charge VAT if your billing address is in a country that’s not part of the European Union”. The use of the word ‘can’t’ is clearly incorrect, because the company does charge VAT on South African accounts.

Instead, potential customers are told that they should self-assess as to whether they should pay the VAT themselves. It is likely that many people do not self-assess, and any VAT that is required to be paid is lost.

If those that are required to self-assess do not, then they themselves are committing tax evasion.

Facebook: average revenue per user 2011-2021, by region published by Statista Research Department, Feb 3, 2022, Facebook’s efforts to monetize its users have vastly differing results across global regions. In the fourth quarter of 2020, Facebook's average revenue per user (ARPU) in Asia Pacific was 4.05 U.S. dollars. This result pales in comparison to the combined U.S. and Canada market, where Facebook’s APRU amounted to 53.56 U.S. dollars.

Facebook accumulated an impressive 69.66 billion U.S. dollars in annual ad revenues in 2019. The social network generates the majority of its revenues via social media marketing and advertising. Almost all of Facebook's ad revenue is generated via mobile – a staggering 92% in 2018.

Facebook is the biggest social media platform worldwide and the platform’s annual revenue in 2019 amounted to 70.7 billion U.S. dollars. Despite Facebook’s impressive growth, the company still lags behind other online companies in terms of total revenue. The company stated in its 2018 10K filing that it was dependent on the retention and engagement of its users, which has become increasingly difficult in the North American market.

The bigger digital economy

Multi-national tech giants such as Facebook, Google, and Microsoft (operating out of their Irish subsidiaries) are failing to collect VAT on sales they make in Africa – even in countries where they have local offices.

This appears to be in contravention of local VAT laws requiring non-resident companies to register for VAT, and could be leading to large sums of tax going uncollected.

The government of Ghana is targeting the microcosm of the larger digital macro-space to enable it to collect its revenue to develop the country. The government must look at the bigger picture of the digital space by legislating and introducing digital tax as the case in Kenyan digital service tax. This should include but not limited to;

1.Monetised blogs, celebrities, and any other platforms.

2.Sale of, licensing of, or any other form of monetising data collected about Ghana users which have been generated from the users’ activities on a digital marketplace.

3.Provision of a digital marketplace.

4.Downloadable digital content including downloadable mobile applications, e-books, and films.

5.Over-the-top services including streaming television shows, films, music, podcasts, and any form of digital content.

6.Subscription-based media including news, magazines, and journals.

7.Electronic data management including website hosting, online data warehousing, file-sharing, and cloud storage services.

8.Electronic booking or electronic ticketing services including the online sale of tickets.

9.Provision of search engine and automated held desk services including supply of customised search engine services.

10.Online distance training through pre-recorded media (e.g MOOC Platforms) or e-learning including online courses and training; and

11.any other service provided through a digital marketplace.

Conclusion

18.0million active momo users out of 48.3million registered momo accounts representing 37.27% is abysmal performance in face of governments efforts to bridge the digital device gap and build financial inclusion.

Data do not support the government’s argument about the introduction of the e-levy policy in order to broaden the tax net. Just by the face of the data, it seems that the same people who are already paying physical tax in the country are the same people asked electronically to pay an additional levy of the same kind.

The government should focus more on creating the enabling atmosphere for the registered momo users to be active and transact or transfer monies on the platform to encourage un-banks or the late starters of the payment platform. An attempt to start e-levy now will be unsafe to the survival of the financial inclusion agenda because it will send a bad signal to those the state is targeting to join the platform.

In case the government is successful in passing the e-levy policy, it must keep its vigilance on international mobile money transfer applications which work across borders, however, been used internally, example like Remitly, Worldrimit, Sendwave, etc.

The government must also keep close surveillance on business to an individual (B2I) and individual to business (I2B) transfer method which seems to be exempted. This is because individuals can be acting as a business and vice versa in an attempt to invade tax.

Finally, multi-national tech giants such as Facebook, Google, and Microsoft (operating out of their Irish subsidiaries) are failing to collect VAT on sales they make in Africa – even in countries where they have local offices. This appears to be in contravention of local VAT laws requiring non-resident companies to register for VAT, and could be leading to large sums of tax going uncollected.

The government of Ghana must seriously be exploring robust systems or platform that will be capable of monitoring and reporting on all digital transactions as I have listed under section of the bigger digital economy. Digital service tax policy must be introduced now as is been done in other African counties like Kenya to enable it to collect more tax and increase its revenue to develop the country. The idea of the introduction of electronic transaction tax - e-levy is premature.