A commonsense approach to resolving the E-levy puzzle

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E-levy inimical to financial inclusion and digital transformation

“The Agyenkwa E-levy currently before parliament will however be imposed on the amount transferred in contrast to the repealed VAT that was imposed on the related charges. A transfer of the same GH¢1m is therefore expected to attract a levy of GH¢17,500 – representing 1.75% of the amount transferred. If this government saw a GH¢1,750 tax on a million cedi transfer as nuisance and insensitive enough to repeal it in 2017, then it is difficult to understand how the same government will turn around and want to impose a tax that charges one thousand percent (1,000%) of the repealed nuisance tax amount for the same transaction. Let someone explain this to us folks!”

The Agyenkwa (salvation) budget presented by the Finance Minister to the Ghanaian Parliament in November 2021 for the 2022 fiscal year proposed to impose an E-levy of 1.75% on all electronic fund transfers and inward remittances from abroad. An extract I have seen from the related bill laid before Parliament is however silent on inward remittances. It listed cheques and bank transfers among exempted transactions from the levy. The extract also stated in its preamble that the first GH¢3,000 transfers in a month will be exempted from the levy. The exemptions section of the bill however stated the exempted limit in daily terms at a GH¢100 per day.

The E-levy has since set both sides of Parliament against each other. While the majority side is determined to pass the levy as proposed by government without any amendments, the minority has also vowed to shoot it down at all costs because it is too harsh and insensitive.

Interestingly, each side of parliament is relying on nothing more than its numerical strength to carry its position through. The Levy has therefore not only exposed the propaganda-dressed cracks in the Ghanaian economy, but has also exposed the Ghanaian politician’s penchant for using muscle-power instead of the soft skills of negotiation and competent leadership. The brawn approach is rooted more in the win-lose psyche of both sides of the House than in seeking the best interests of citizens.  It has therefore become necessary to provide a pathway for resolving the puzzle in way that creates victory for all concerned – both sides of the House, government and the tax payers.

It is important to state emphatically that I totally disagree with the respective positions taken by both sides of the House on the E-levy, since neither of them represent the optimal solution to the problems confronting us. I, at best, see the majority side’s approach as incompetent and arrogant, while the Minority’s disposition appears to be nothing more than a populist adventure. All of them have ignored the real issues that need to be dealt with. I support the Levy in principle because we do need additional revenue lines to prosecute our development agenda. My problem with it lies with the way it is currently packaged. The Agyenkwa gown in which the levy is robed has not succeeded in disguising the death sentence inherent in it.

The first area of concern is the 1.75% rate proposed to be charged on transferred amounts. If the E-levy is passed at this rate, it will be the most shameless demonstration of political duplicity in our fourth republic. I will show you why. In 2015 or thereabout, the previous NDC government introduced a Financial Services Tax that imposed a 17.5% VAT on Financial Services. The 17.5% VAT affected bank transfers in the same way the E-levy will affect transfers on all mobile money platforms and at POS terminals. The VAT was however levied on the charges imposed by the bank for making the transfers and not on the actual amounts transferred by customers. I will use a GH¢1m transfer to make a comparative illustration of the tax amount that was charged under the previous VAT, and how much will be charged for the same transfer under the proposed E-levy to buttress my point.

The banks normally charge a 1% fee for electronic transfers made by their customers. The charges can be even as low as 0.25% for their prime customers, who actually make the biggest transfers. I am however using 1%, which is the high end of the charges, for the illustration. The VAT was thus levied on this 1% fee, which if applied to a GH¢1m transfer yielded a tax of GH¢1,750. The 1% fee on the GH¢1m transfer comes to GH¢10,000 on which the 17.5% VAT was levied to arrive at the GH¢1,750.  The VAT was therefore 17.5% of 1% of GH¢1m which comes to 0.175% of GH¢1.0m.

The NPP, then in opposition, led a campaign against it on the grounds that it was a nuisance and punitive tax. When that party took over the reins of government in 2017, one of the very first things it did was to scrap this tax as a practical demonstration of its conviction that the tax was indeed a nuisance one. The repeal no doubt increased the government’s popularity ratings in those early days, as it painted the outgone NDC government as wicked and insensitive and the then-new government as humane and people-oriented.

The Agyenkwa E-levy currently before parliament will however be imposed on the amount transferred in contrast to the repealed VAT that was imposed on the related charges. A transfer of the same GH¢1m is therefore expected to attract a levy of GH¢17,500 – representing 1.75% of the amount transferred. If this government saw a GH¢1,750 tax on a million cedi transfer as nuisance and insensitive enough to repeal it in 2017, then it is difficult to understand how the same government will turn around and want to impose a tax that charges one thousand percent (1,000%) of the repealed nuisance tax amount for the same transaction. Let someone explain this to us folks!

If the levy has to be imposed on transferred amounts as proposed, then the best parliament can do is to amend the rate to 0.175% – which will constitute a disguised restoration of the scrapped nuisance tax. It will in effect constitute a baptism of the Financial Service Tax and christen it as E-levy. It will just be a case of the NPP government getting converted after seeing the light of what it takes to raise revenue for governing a country.

After all, Saul became Paul in the bible when he was converted. I am sure the Finance Minister had a home-given name before he was baptised into a Ken. We will therefore not have any qualms with government if after being converted it baptised the Financial Services Tax as an E-levy. What we should not accept is replacing the repealed tax with one that instead imposes on us a 1,000% burden. Our Parliament must therefore sit up, stop the noise and do their work properly.

The second area of concern is the claim of using the E-levy to expand the tax net. That the country needs to expand its tax net to rope-in more tax payers is not a matter of debate. We must necessarily do so. We however have to be diligent in coming up with a structure that brings those who do not pay taxes into the tax net without increasing the burden on those who are already in the net. The E-levy as proposed will be suffered by both those who are already paying their taxes diligently and those who are not paying anything at all. This is not equitable, as it still makes the tax-obedient man suffer because of the disobedience of others. It’s like lumping the innocent and the guilty together and sentencing both to prison.

One thing that an impartial parliament should do in this case is to modify the structure to correct this anomaly. This can be done by exempting existing tax payers from the levy in the same way that diligent corporate tax payers are granted exemptions by the GRA from suffering withholding taxes. If we are truly digitalised, this can be done electronically by identifying TINs that qualify for exemption. TINs will then become an optional field in the documentation for carrying out money transfer transactions. If you don’t have a TIN or your TIN is not pre-qualified for exemption, then your transfer will automatically suffer the tax.

If we are however not digitalised enough to make this happen, then the E-levy collected from known diligent tax payers should be treated as tax credits when they file their Tax Returns. Such credits should be refunded when confirmed by the Returns. The Returns filed by tax payers should be used for pre-qualifying future exempted TINs. This will even encourage tax payers to file their Returns. Doing it this way brings additional people into the tax net without imposing additional tax burden on existing tax payers. This is how to achieve an expansion of the tax net without deepening it for the diligent ones.

Another thing to look at is the exemption threshold for the vulnerable. Is the exemption GH¢100 a day or GH¢3,000 a month? The two are not the same. If it is at GH¢100 a day and I send my 95-year old mother in the village GH¢500, I will pay the tax the day I send the money because it is more than the GH¢100 daily limit.

If I don’t do any other taxable transfer for the rest of the month, my total transaction for the month will be the GH¢500, which is below the GH¢3,000 monthly exemption limit but on which I had already paid the tax because of the daily transaction limit. As at now, the only way to escape the levy on the GH¢500 is to make such a transfer in five daily instalments or put it in an envelope and forward it to my mother by post. This confusion must be resolved. It can be done by removing the daily limit from the bill for us to work with only the monthly limit.

It is very gratifying to note that the four-page extract from the E-levy bill I saw proposed an exemption for transfers between accounts owned by the same person or entity. Anything short of that would have been more a legalised and state-sponsored robbery than taxation.

The last thing I think Parliament should look at is use of the proceeds from the Levy. We have to avoid a situation where government uses one thing to justify imposition of the Levy and then turns around to use the proceeds for something else. The bill should therefore capture the intended uses plus a possible contingency allowance of no more than 10%. The collection of these levies can be tracked effectively, given that it will have a reliable electronic trail.

It is therefore easy to have real-time information on the amounts collected. The Minister of Finance should be made to appear before Parliament every quarter with a Revenue and Expenditure Account of the E-levy to show how the realised proceeds are applied. These statements will be subject to Audit at the end of the year to assure us of their judicious use. We cannot be made to bear the brunt of additional taxes only for the derived revenue to be lost to corruption and other profligate expenditures.

I am sure if both sides of Parliament could get serious and move away from their entrenched positions and focus on making these proposed adjustments to the E-levy bill, they would be addressing the need to expand the tax net in an equitable way. They would also be addressing almost all the legitimate concerns of tax payers and the electorates, even as they approve an additional revenue source for the state in a way that preserves the integrity of government.

I, on this note, invite all well-meaning Ghanaians from all sides of the political divide – especially the governing party stalwarts, to support these suggested amendments and push our parliamentarians to do the needful in the interest of mother Ghana. If the levy is passed as proposed without the necessary amendments, it may just become the operation table on which the party’s ambitions of breaking the 8 will be aborted. I will be surprised if the NDC does not milk it to the full.

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