The E-Levy and Matters Arising

The e-levy that the government of the day is trying to introduce to shore up the finances of the state has brought in its wake serious repercussions in our governance processes. Both Parliament and Ghanaians are divided over the implementation of the e-levy. The question is whether government communications have not lived up to expectation in convincing them or the political elements within the society have continued to pollute the environment against the implementation of the e-levy.

What is e-levy?

The e-levy is a new tax measure that will be applied only to the originator of a transaction on an electronic platform. The electronic platforms include the following: fintech platforms, online banking, and momo platforms.

The momo platforms that affect the ordinary people are the most difficult one to explain. The reason is that most Ghanaians already live from hand to mouth and to tax the small momo they receive from relatives and friends will be difficult for them to come to terms with even when it has been explained that amounts up to ¢100 per day or  ¢3,000 per month are exempt. Hence, the reason most people reject it without knowing the other good side to it.

Government fiscal challenges

Government finances has been impacted negatively since the emergence of the covid-19 pandemic. Prior to the covid era, Ghana was among the fastest growing economies in the world and recorded positive primary surpluses for 3 consecutive years. In the same period, government recruited over 100,000 each in the health sector and that of the education sector. The security services sector and the general civil service were not left out. Even when there was a lockdown and public sector workers including teachers were home for a long time and civil servants and nurses who worked on shift basis had their entitlements paid in full without any lay offs as suffered by those in the private sector.

In 2020 alone, government lost revenue in excess of ¢11 billion while its unbudgeted expenditure increased by ¢14 billion. In addition, the cedi marginal depreciation as well as many of the loans falling due after expiry of the moratorium compounded the stock of the public debt and its accompanying interest liability. As a result, interest payments alone in 2022 is about ¢37.2 billion surpassing compensation of ¢34.6 billion for the first time in our budgeting history.

The two (Compensation and Interest Payments) constitute 80.6% of government total revenue in 2022. The budget deficit is about ¢39.2 billion. This means that the expected revenue from the e-levy (¢7.0 billion) is about 18% of the budget deficit. So, e-levy is not the panacea to all our problems, but it will certainly help boost government’s revenue and give confidence to the international investors that government can actually meet its revenue targets. It is the delays in passing the e-levy bill in Parliament that affected government’s sovereign ratings by the international rating agencies.

                    Why the need to introduce the e-levy?

Successive governments have been very poor in raising domestic revenue. As a result, Ghana lags behind its West African neighbours in terms of domestic revenue to GDP at 13% against the average of 18%. Government had to find innovative ways of taxing the informal sector. Hence, the need to introduce the e-levy. Government projects that e-levy will increase Ghana’s tax to GDP from 13% to about 16%.

Since the introduction of the interoperability, traditional banking services have reduced in favour of the e-platforms resulting in lower service revenues to the banks and higher service revenues to the telecom sector and operators of these e-platforms. It is, therefore, fair for these e-platforms to be taxed.

According to data from Bank of Ghana (BOG), momo transaction in 2021 was about ¢953.2 billion cedis up from ¢564 billion recorded in 2020. In the same vein, BOG market performance report on fintech transaction as processed by GhIPSS recorded 77 million transactions worth ¢254 billion. So, from the above statistics, it is obvious that a lot is happening in the fintech and momo platforms. Hence, the need to tax these transactions.

My opinion About the e-levy.

I think that the charges of e-levy should be on the recipients of cash and not the sender. The reason is that we say we want to capture those in the informal sector such as the artisans. As such, they should pay from the payments made to them through the momo. Also, those who receive momo from family and friends for no economic activity done have the civic duty to pay a token from the cash received from momo as a way of learning how to pay taxes.

In addition, most Ghanaians living abroad do not pay any taxes in Ghana. Yet, they have more properties and investments in Ghana than many of the citizens here. Yet, they do not pay property rates or any other taxes and are sometimes the first to shout about lack of good roads and the need to fix the country. Hence, in my opinion, the e-levy should include inward remittances to capture our compatriots abroad in the tax net the same way we are recommending e-levy on those who receive the cash such as the artisans.

What could the e-levy do?

The e-levy was expected to generate about ¢7.0 billion cedis. With the current delays in its approval, let’s say, it will generate ¢5.0 billion cedis. How could this be put into optimum usage to revive the economy? Government has already indicated it will use the e-levy for two things-Support entrepreneurship drives and roads.

Ghanaians will recall that, as far back as 2014, before the implementation of the IMF Policy Credibility program with Ghana, they had complained about the public sector employees being over bloated. Fast forward, this current government has moved the numbers from 500,000+ employees to about 700,000+ employees. Hence, employment into the public sector is no longer an option. The reason why the Finance Minister recently at the University for Professional Studies, Accra informed students to rather concentrate on entrepreneurship and get support from government instead of hoping to be employed into the public sector. Many misconstrued him into thinking that there won’t be employment in Ghana.

With this background, my recommendation is that government should push ¢1 billion into the entrepreneurship drive for the existing and new SMEs to create the needed jobs for the unemployed youth and use the remaining ¢4.0 billion for the construction industry which is currently in crisis and can be blamed for our recent financial sector crisis in Ghana. So, when the liquidity in the sector is solved, the entire economy will pick up.

For instance, non-performing loans (NPL) as reported by the Bank of Ghana for 2019, 2020 and 2021 were ¢6.4billion, ¢7.1 billion and ¢8.2 billion respectively. This resulted in bad debts write off of ¢1.0 billion, ¢2.18 billion and ¢2.086 billion for the 2019, 2020 and 2021 respectively.

It is important to note that a large percentage of these bad debts comes from the construction industry. So, when government pumps money into the sector, the banks get paid and report no or little bad debts, the entire chain from cement suppliers, iron rods suppliers, tipper truck drivers, steel benders and the labourers get paid. Some of these vendors who also owe the banks pay off their loans. Hence, the banks become more liquid and can advance more credit to the private sector to increase their economic activities.

This was what happened during the HIPC era when the banks were chasing clients for loans because of surplus funds as the government then was paying of its debt instead of taking loans from the domestic banks. With liquidity in the banks, they can expand and employ more hands. Suppliers in the construction industry can order more materials and may even open new branches by employing new hands, construction workers get paid and can afford school fees and other services and even pay off people they owe. With money in everybody’s hand in the value chain, demand for goods and services become high resulting in expansion of businesses and generating of more jobs. This is how economies spend their way out of recession or embark on expansionary policies to grow their economies and create jobs.

This is just what the e-levy seeks to do from my understanding of the policy. Is this so bad for Ghanaians to oppose or is it pure politics?


What Alternatives are left to Government if the e-levy doesn’t get passed.

It isn’t that there are no options for Government to turn to. In fact, there are several options except that they may be costly to the economy and Ghanaians as a whole. So, if Ghanaians continue to protest the e-levy, then the government could be forced to take the following measures for the execution of needed developmental projects to support the revival and growth of the economy.:

  • Introduction of Agyapa: the NPP in opposition said they could find all the money needed for development in Ghana. And that they could do with little borrowing. This could have been possible if Agyapa was passed and implemented to the fullest. Ghana could have leveraged on our mineral deposits to raise the needed capital beyond what the e-levy could provide. Many foreigners come and lease gold concessions in Ghana and use it raise capital at the international capital market and sometimes divert the funds elsewhere away from Ghana.
  • Reduce the subsidies in the energy sector: Government in the last 3years spent not less than ¢6.0 billion annually to subsidise the energy sector. These subsidies could be removed to allow for full cost recovery in the sector. Additionally, Government could put more taxes on the petroleum products to generate the needed loss revenue that e-levy could have provided but for the suspension or in the event that it is not passed.
  • Revise the Free SHS Policy: This could be revised to allow those who are capable to pay and those that need sponsorship sponsored to continue their education. In an extreme circumstance, the policy could be suspended for a year or two or may even be cancelled until there is fiscal reprieve. This could return parents, guardians, and our MPs back to paying school fees for their wards and constituents respectively.
  • Make the public universities autonomous: Also, with the current demands of university teachers (UTAG members), government could make the public universities autonomous to charge their own economic fees and take care of their employees just like the private universities are doing. In that case, students with the national identification (NI) cards can borrow as much as they want to finance their education at the tertiary level. Government can then take care of education at the lower level.
  • Stop all the current recruitments ongoing including the NABCo and Afforestation programmes: Government just before the close of 2021 granted over 11,840 financial clearances for recruitment into the various Ministries, Departments and Agencies (MDAs). If the current agitation at the labour front continues and e-levy is not passed, then, government will be seriously constrained and may have no option but to call back the financial clearances given to the various MDAs.

Fellow Ghanaians, there are several other costly measures government could take. But the few above could suffice for now. These are the realities facing us with the delays in passing the e-levy. We have got to make the choice. As Rt. Honourable Speaker Bagbin said last week, if care is not taken, government may have difficulties paying salaries in the long run.

Assallamu Allaikum!

 Habibu Adam

Senior Economist

Office of the Senior Presidential Advisor

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