E-Levy: A smart policy gone bad

Ever since the beginning of time, each successive government has bemoaned the low rate of INCOME taxpayers in Ghana. The emphasis has to be on INCOME because almost all Ghanaians pay indirect tax in various ways in the course of their day.

However, INCOME tax, which is normally a progressive tax, is the fairest and surest way to ensure citizens contribute their fair share based on how much they make.

According to Ken Ofori Atta, the Minister of Finance, only about 2 million Ghanaians pay INCOME tax. For a country with a population of 30 million, that is a very deplorable situation for which all patriotic citizens should be ashamed, and any president, vice president, minister, MP should deem him or herself a failure. The problem is solely the government's to fix.

We have been made to believe that Ghanaians innately don't like paying taxes. The truth is it is not a uniquely Ghanaian thing. It is global. It is a common human trait to free ride on public goods when at all possible.

Even in countries with high tax payment rates there exists a whole industry of lawyers and accountants who specialize in using loopholes to reduce the tax burden of their very worthy clients.

In all countries, with no exceptions, if you make tax payments voluntary or allow loopholes, people will invariably take advantage of it. So, we cannot continue to berate Ghanaians for not paying INCOME taxes when: 1) There is no enforcement; 2) It is burdensome for those willing to pay; 3) No benefit or privilege accrues to taxpayers

Countries that have high tax payment rates are not occupied by saints. They are ruled by competent leadership that has over time deployed various measures to ensure each citizen knows that paying taxes is not optional, but a duty. One that subjects them to possible loss of property or even jail time should they fail to uphold it.

In Ghana, however, successive Presidents, Ministers, and MPs over the years talk about the need to expand the tax bracket, but as much as they do, they fail to implement policies to that effect, until the Bawumia effect in 2017.

Bawumia’s digitisation agenda over the last 4-5 years signaled to all that the government was painstakingly laying the foundation to once and for all rope in all who engage in economic activity into the tax bracket.

At his speech at Ashesy University in November 2021, Dr. Bawumia boasted and gloated about how for the first time in Ghana’s history, the government has implemented a system that issues identity cards to individuals and digital addresses to all buildings.

According to Dr. Bawumia, over 15 million people have been registered for the Ghana card and over 7 million properties have digital addresses assigned to them. So, with this achievement not only does the government know who you are, but it also knows where you live.

Even better, with mobile money interoperability, Bawumia openly declared that all mobile money subscribers in effect have bank accounts. Put it all together and not only does the government know who you are and where you live, but it also knows your bank account.

This is such a big deal and should be celebrated. To many experts, it was a panacea to finally formalising the economy. It is therefore ironic that the same government that has done all the hard work over the past 5 years will rather choose to throw all the hard work in the dustbin in favour of a Lazy-Easy approach: E-Levy.

It is a lazy approach because this hardworking competent government, in its quest to expand the tax bracket, decided to cast a wide fishing net with very small holes, which will not only catch the big fish but also bring along all the fingerlings as collateral damage. Sadly, it will achieve its short-term goal, but in the long run, the river will be rendered barren with very little fish left to catch.

How can the same party, and the person of Nana Addo Dankwa Akuffo Addo, who led throngs of people to protest against the introduction of VAT in the 1990s, today be the ones introducing such a retrogressive tax that levies people for merely moving money around?

The E-Levy discriminates against the use of a much more convenient way of moving money around. For a cash-dependent economy, it is mind-boggling that a tax policy will punish electronic transactions in favor of cash transactions.

In fact, armed robbers will be the best beneficiaries of this E-Levy. As much as Ghana’s mobile money industry has grown (USD$ 68 billion in 2020), it has not fully matured yet, and this new levy as proposed will only slow down growth and lead to marginal declines over time.

The E-Levy as proposed should be scrapped, and declared dead on arrival. Taxation should target profit-making transactions. It is almost sinful and plain thievery to impose a levy on the mere movement of money. The E-Levy in itself is not a bad tax.

It is only bad because its bracket is too wide. The levy should be surgically targeted at only transactions that involve the exchange of goods and services. On such transactions, the receiving party can opt to either absorb the levy or pass it on to the payer.

Of course, the challenge is how would the telcos differentiate between goods/service payment transactions versus mere transfer of funds. One approach is to require merchants utilizing mobile money to self-identify and automatically apply the much higher VAT rate on all payments to their accounts.

One would wonder how the government would deal with most people who might choose not to self-identify? The simple approach is to set a minimum daily or monthly transaction volume limit which would automatically subject such individuals to a much higher punitive E-Levy rate. Such people would eventually self-identify and register as merchants to avoid the punitive rate.

This volume-based approach will automatically exclude the proverbial grandmother in the village who occasionally receives money from her children for her upkeep; the student who received GHC 5,000 to use for his fees and feeding; the store clerk who received her net salary on her mobile money account.

Even though all these people would be automatically excluded from the E-Levy under the personal usage category, they will however have to pay the levy on goods and services provided by merchants who have either self-identified or have met the minimum volume requirement. The added benefit of getting as many people/businesses as possible registered as merchants are, they automatically become part of the formal economy.

After they have charged their customers and collected the E-Levy for the government, they themselves, just like civil servants, can now be taxed on their income. These hitherto informal actors in the economy now can voluntarily, or even be required to contribute to SSNIT just like teachers, nurses, doctors, etc.

One cannot fault the government for attempting to get a piece of the ever-expanding digital economy pie. As much as Ghana’s taxpayers' bracket needs to be increased, it cannot be done to the detriment of the wider economy.

The E-Levy should be one of many tax strategies to bring more Ghanaians into the taxpaying fold. The levy should be maintained but modified to target transactions that can be passed on to consumers. The rate can then be increased to a much higher VAT rate.

Also, the E-Levy should be expanded to include all aspects of the digital economy. For instance, Google, Facebook, Twitter, Microsoft, etc. are all making sales to Ghanaians but are likely not paying taxes to the government.

There are also several Ghanaians who currently earn money on platforms like Facebook, YouTube, Spotify, etc. The government can legally require these platforms to report and deduct withholding taxes on incomes earned by Ghanaian residents on their platforms.

The E-Levy should be a smart levy. Some form of digital or electronic tax is inevitable in any 21st-century economy. In an increasingly smart world, tax collection has to be smart. Unfortunately, Ghana and other African countries that have tried it have gone about it the dumb way.

It is extremely unwise, and even catastrophic, to cast a tax net that is so efficient that it drains the pond of all fish, big and small alike. The government has done all the hard work to digitize the economy.

It will be unfortunate to let it all go down the drain because it got too greedy. The E-Levy as proposed is a dumb tax in a smart economy. The E-Levy should not be scrapped but rather, it should listen to wise counsel, go back to school, and get smart.