The sudden E-Levy revenue failure; value of transactions or value of transaction fees?

Is E-Levy dead at 1.5%? I would be surprised considering the historical antecedents a few months ago. We’ve seen episodes of fisticuffs between seemingly sure political ‘pros’ and ‘cons’ over what ‘scripturally’ appeared like ‘e-levy answered all things’.

In the middle, were the ‘e-pockets’ of Ghanaians waiting to give unto Caesar what does not belong to Caesar.

After initial announcement in the 2022 budget, the implementation of the levy began on May 1, 2022, with an 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 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 May 1st.

According to a survey report by IMANI Centre for Policy and Education in collaboration with German Agency for International Cooperation (GIZ), a GH¢4 billion e-levy revenue at 1.5% is impossible as about 83% of Ghanaians surveyed 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 on both the value of the shirt and the price of convenience paying 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 fees. Vodafone charges zero fee and MTN and others charge 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 cedi. 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 shirt is 0.195*(2.75/100) = 0.536%. And this truly represent 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.