On 17 November 2021, Ghana’s finance minister Ken Ofori-Atta announced the government’s plan to introduce an electronic transaction levy (E-levy) during his 2022 budget statement reading. He mentioned that the move was necessary to “widen the tax net,” which would increase the country’s tax to GDP rate from 13 percent to 16 percent, or more.

The proposed E-levy, which came into effect on 1 February 2022, imposes a 1.75 percent tax on the value of daily electronic transactions above GHc100.00. This new charge covers Mobile Money (MOMO), merchant transactions, bank transfers, all points of sale, and inward remittances. But contrary to the government’s motive and positive prediction, the E-levy imposing would likely slow down the development of e-commerce in Ghana. 

While the finance minister maintains that E-Levy would be a driving force for Ghana’s economy, particularly in relation to the country’s high debt profile, sections of the populace and experts have greeted the proposal with disapproval. The minority in parliament insist that the 1.75 percent tax would exacerbate the plight of the already burdened Ghanaians heavily impacted by the COVID-19 pandemic. If given even more thorough consideration, one would see that it is also a policy that could delay the country’s digitization agenda.

As a result of the government’s inability to devise innovative solutions to tax the informal sector, the E-Levy appears to be the simplest way out. However, the implementation of the E-Levy would have negative impacts on businesses and impede the functioning of Ghana’s financial system and the real economy. 

Implementing the E-levy would equally result in the loss of jobs in the e-commerce and fintech industries due to a reduction in online sales.

Also, there would be a return to increased cash transactions, and it may send many Ghanaians who do not have bank accounts back to the days of financial exclusion. More worrisome is the possibility of a chunk of the levy’s burden falling on the shoulders of the rural poor, who have limited financial payment options and often depend on inward means of remittances.

Implementing the E-levy would equally result in the loss of jobs in the e-commerce and fintech industries due to a reduction in online sales. In Uganda, for example, the imposition of a 1 percent tax on MOMO transactions led to a drastic reduction in its usage by 24 percent, and values of peer-to-peer transactions fell by more than 50 percent. In light of the Uganda experience, the International Monetary Fund has subsequently warned that Ghana’s rural poor were most likely to be affected disproportionately by the MOMO tax. 

However, like in Uganda, e-commerce is still in its early stages in Ghana.

To fast-track the sector’s ability to withstand radical changes, the Ghanaian government should eliminate barriers to e-payments and encourage financial inclusion. The government should view MOMO transactions as an enabler to engage and capture tax revenue from the growing e-commerce sector instead of imposing E-Levy on MOMO payments. This solution should be a serious consideration because as the economy is becoming increasingly digitized and more transactions are moving online and outside of local tax regions, it costs the country billions in lost tax revenues.

Haleed Sulemana is a development enthusiast. He tweets at @haleed_Nemo.

Photo by Allen Altiner on Unsplash.