The sudden E-Levy revenue failure: The death of Caesar and the saints in Ghana

Is E-levy dead at 1.5%? I’d be surprised considering the historical antecedents a few months ago. We’ve seen episodes of fisticuffs between seemingly sure political ‘pros’ and ‘nos’ over what ‘scripturally’ appeared like ‘e-levy answereth all things. In the middle, were the ‘e-pockets’ of Ghanaians waiting to give unto Caesar what does not belong to Caesar.

After the initial announcement in the 2022 budget, the implementation of the levy began on May 1, 2022, with expected revenue of GH¢600 million by June 2022. However, in a series of tweets by Mr. Otchere-Darko on May 28, 2022, e-levy has performed about 90% below the government's expectation thus far.

The government had hoped to rake in about GH¢7 billion from the collection of the 1.5% levy on mobile money and other electronic transactions, but the figure was revised downwards to about GH¢4 billion before implementation on May 1st.

According to a survey report by IMANI Centre for Policy and Education in collaboration with the German Agency for International Cooperation (GIZ), a GH¢4 billion e-levy revenue at 1.5% is impossible as about 83% of Ghanaians have reduced their mobile money transactions since the introduction of the levy.

It is safe to say therefore, that the current form of e-levy at 1.5% will struggle to survive. First, the sudden revenue failure is evidence that the current rate of 1.5% is unsustainable. Second, the e-levy which so far is imposed on the value of transactions looks very much like a consumption tax. However, it still fails to meet the basic principles of a consumption tax which makes the levy unreasonable altogether.

Suppose that I spend GH¢100 on a shirt at a boutique, this is the value of the shirt to me. Therefore, a consumption tax (e.g., VAT) may be imposed on the GH¢100 worth of shirt. However, if I pay for the shirt via MoMo, I consume two different goods/services; the shirt, and the convenience of paying by MoMo.

A VAT should therefore apply uniquely to both the value of the shirt and the price of convenience paid by MoMo. Unlike the shirt which is valued to me at 100 cedis, the value of the MoMo payment service is not 100 cedis. The value of MoMo payment service to me is the price I am willing to pay for using it, which is the transaction fee determined by the Telcos. This transaction fee is what may attract a consumption tax like VAT.

Yet, not all Telcos in Ghana charge a transaction fee. Vodafone is zero fee and MTN and others charged transaction fees from 0.75% to 1%. However, suppose for the purpose of collecting the E-levy, a benchmark transaction fee as high as 2.75% is applied across all Telcos. Then the value of the electronic payment service to me for the shirt I bought is 2.75% of 100 cedis = 2.75 cedis.

If the electronic payment service for the shirt is not VAT-exempt (which is another issue to be addressed), then VAT should be imposed on 2.75 cedis (not on the 100 cedis). At a total rate of 19.5% (VAT, NHIL, GetFund, Tourism, and Covid-19 levy), the MoMo tax as a percentage of the value of the shirt is 0.195*(2.75/100) = 0.536%.

And this truly represents the effective e-levy tax which is still the highest on the continent. The Ivorian government after implementing an e-levy rate of 0.5% later withdrew the tax after public outcry. Tanzania and Cameroon imposed rates of only 0.1% and 0.2% respectively.

It is obvious that the current e-levy will have to be amended for sustainability. In the end, e-levy should be imposed on the transaction fees determined through the Telcos and not on the value of transactions.