*HOW DID WE GET HERE,
WHERE DO WE GO FROM HERE?
Story: By Richmond Keelson & Atta Kwaku Boadi
The Today newspaper, in the national interest is beginning a series of write ups to run readers through all stages of the introduction and implementation of the one call that is still setting the country on the edge. The paper has thought it prudent to remind ourselves of the issues involved in order to help commentators and the citizenry alike to make informed inputs about the way forward. Our aim is to inform and educate the public about the E-Levy with the view to shaping and deepening national conversation on the subject.
So what’s “E-Levy”? On 17th November 2021, the Minister for Finance, Ken Ofori-Atta announced during the presentation of the 2022 Budget Statement and Economic Policy of Government to the Parliament of Ghana, the introduction of an “Electronic Transaction Levy” or “E-Levy” of 1.75 percent on electronic transactions above GHs 100 (US$16) per day to take effect from 1st February 2022.
According to the Minister, the levy was to be applied to “mobile money payments, bank transfers, merchant payments, and inward remittances (MoF 2022 Budget Highlights). All charges will be borne by the sender, except in the case of inward remittances where the charge will be borne by the recipient.” In March 2022, Ghana’s Parliament approved the bill with 1.50 percent taxation on electronic money transfers, but not without heated resistances including all the enthralling parliamentary procedural precedents set before the final approval of the levy.
What transactions fall under the E-Levy?
The Electronic Transaction Levy Bill clearly defines the mode of e-levy transaction: “Transfers done on the same mobile money network – For example sending money from your MTN Momo wallet to another person’s MTN Momo wallet. Transfers from one mobile money network to a recipient on another network – For example, sending money from your MTN Momo wallet to another person’s Vodafone Cash wallet. Transfers from bank accounts to mobile money accounts: For example, Kofi transfers money from his Fidelity bank account to Ama’s MTN mobile money wallet.
Transfers from mobile money accounts to bank accounts: For example, Esi transfers money from her Vodafone Cash money wallet to Yaw’s Fidelity bank account. Bank transfers (both Intra-Bank and Inter-Bank) on a digital platform or application which originate from a bank account belonging to an individual. NB: Daily threshold of Ghs 20,000.00 i.e. the tax will only be applied when the cumulative amount in a day exceeds Ghs 20,000.00.”
What transactions are NOT covered by the E-levy or are exempted?
“The following transfers,” according to the bill “are excluded from the levy: Cumulative transfers of GHS 100 per day made by the same person: Everyone has a daily tax-free threshold (limit) of GHS 100 – that is every person will be able to send up to GHS100 a day without the payment of the levy; Transfer between accounts owned by the same person: if you are sending money to your own account (i.e., of the same person) then you will not be charged the E-Levy. A transfer from Kojo’s AirtelTigo wallet to his MTN wallet or from his CBG bank account to his GCB bank account or from his Fidelity bank account to his own Fidelity bank account or from his savings account to his current or investment account, will not attract the levy.”
Transfers for the payment of taxes, fees, and charges: “Any payment of taxes fees or charges made to an MDA or MMDA using the Ghana gov. platform or other designated method, do not attract the levy. Electronic Clearing of Cheques: Clearing of cheques by the banks and specialized deposit taking institutions such as the savings and loans companies etc. are excluded. By extension, SWIFT, ACH and GIS transfers are all exempted. Specified merchant payments: Payments made to commercial establishments through a payment service (mobile money, bank application, Fintech etc.) to a person registered with the Ghana Revenue Authority for the purposes of income tax or value- added tax is excluded. This applies to both online and physical sales.”
Transfers between principal, agent, and master-agent accounts: To avoid charging the levy multiple times, transfers that pass through multiple service providers before they get to the actual recipient do not attract the levy. Deposits and withdrawals made at Agent point will not attract any e-levy. The following transfers are also excluded/exempted from the levy: 1. Loan Disbursement from Licensed Entity 2. Loan Repayment to Licensed Entity 3. Transfers from either Account Holder to Joint Accounts 4. Transfers from Trustees to In-Trust-For (ITF) Account 5. Transfers to Escrow Accounts on Instant Pay 6. Airtime Top-Up, Data Bundle, Utility Bills 7. ATM Withdrawals
The necessity of the E-Levy: In his financial 2022 fiscal statement to Parliament, the Finance Minister alluded to why the E-Levy was so crucial to save Ghana’s economy. According to the Finance Minister, “the country’s total digital transactions for 2020 were estimated to be over GH¢500 billion (about US$81 billion) compared to GH¢78 billion (US$12.5 billion) in 2016. As a result, Government is projecting to rake in tax revenue of about GH¢6.96 billion (US$1.1 billion) in 2022, and about GH¢26.90 billion (US$4.5 billion) from 2023 to 2025 after the implementation of the electronic transaction levy to help widen the tax net and rope in the informal sector (PwC 2022 Budget Digest).
Public, stakeholder reactions to E-Levy: The Finance Minister’s presentation led to different and varied reactions from Ghanaians and industry stakeholders. There was also the intense and belligerent divide on the subject in Parliament. As usual, the majority led the approval chorus with the minority vehemently opposing it. While some industry players supported the e-levy tax introduction, as a way to increase public revenues, others criticized such and its negative impact on digital payments. There have been concerns about the potential negative impact on government’s own digitalization agenda.
Some analysts argued that with “Ghana’s GDP contribution, led by the Services sector, accounting for an average share of 51.9 percent, first half of 2021 with the majority coming from the Information and Communication sub-sector, it thus makes a compelling case for Government to review that sector in its bid to generate more revenue.” In a counter view however, others opined that “government needs to explore multiple sources of tax revenue than to target a big source of its revenue from taxing electronic transactions.”
Why the E-Levy opposition by analysts, political parties & others: The main worry of these stakeholders is that it’s the users of digital payments that will bear the higher costs. This is captured in what they described as potential e-levy effects on “Peer to Peer” (P2P) transfers. They argue that “As of 2021, P2P transfers remain the highest transactions on mobile money platforms in Ghana and cost on average one percent per transaction (both for transfers and withdrawals) capped at GHs 10,000 (US$1,666).
The e-levy foresees an additional 1.75 percent tax on the transaction value that will result in total transaction cost of 2.75 percent on transactions above GHs 100, with no upper limit determined yet. The tax will be applied to the sender when they initiate the transfer.”
Again “Initial reactions after the announcement of the e-levy led to some panic withdrawals by mobile money customers, an indication that the e-levy can cause a reduction in the values and volumes of transactions resulting in an increase in the use of cash. Mobile money boasts of 441,000 active agents in the country who have also registered their displeasure due to the potential loss of income.”
Potential effects on merchant payments: They also argue of potential e-levy effects on merchant payments thus: “Merchant payments offer customers the opportunity to pay for products and services through mobile money. Point of Sale (POS), Quick Response (QR) Codes, rather than cash. In the case of MTN, MoMo Pay is gaining popularity gradually with its reduced transaction fee for the sender of 0.2 percent compared to the P2P transfer fee of one percent. Merchants have a five or six-digit code that customers can use to pay in place of a mobile number and are not charged to move money from their wallet to bank account.”
They continue: “Point of Sale terminals offer clients a safer and easier way to pay for goods and services using Visa and MasterCard credit or debit card from any part of the world in either cedi or foreign currency. New models of POS accept mobile money wallet payments. Currently, merchant POS commission ranges from Min 2 percent – 4 percent paid by the merchant and will be required to pay e-levy tax on their transactions. An additional levy on top of merchant fees would curtail the adoption of digital payments by informal MSMEs who tend to avoid transacting via digital payments because of merchant fees that eat into their already thin margins.”
Potential effects on bank transfers: Another area of concern is the “Bank to bank, transfer and transfer from bank to mobile money and vice versa, will also be taxed except transfers between own accounts which will not be charged. Banks still process small to large value transactions such as salary payments, P2P, B2B, B2G payments and charge various fees depending on the type of transactions through various channels including the branch, mobile banking, internet banking, ATMs. E-levy can result in lower transaction values and volumes, make banking expensive and reduce usage of financial products and services.”
Potential effects on inward remittances: Analysts believe, “remittance is a significant source of external financing and a major contributor to national income. Many Ghanaian families depend on remittances from relations living abroad to cater for various expenses including education, health, rent, housekeeping, and utilities. Ghanaians in the diaspora also send money home to fund the construction of residential and/or commercial buildings. Remittances therefore contribute to the economic well-being of Ghanaians (Bank of Ghana. Guidelines for inward remittance services by payment service providers. Feb 2021).”
They recall “In the recent past, remittances were sent mostly using informal channels given the prohibitive costs and difficult accessibility of formal channels; however new innovative channels have emerged and have given the opportunity to access international remittances in an easier, more efficient termination to wallet. Users can easily receive remittances from abroad in their wallet (at a transaction fee) and enjoy the financial services linked to the wallet, such as savings plan or insurance. Taxing the recipient of remittance inflow could result in double charges for remittances funds that terminate straight into mobile money wallets. For such clients, an e-levy fee will be charged when they receive their remittance into their wallet”.
(In our next article Wednesday, we shall look at the intriguing debates that preceded the passage of the e-levy in Ghana and e-levy experiences in other countries)