E-levy to encourage Hawala and other unconventional modes of money transfer

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Over 40% of MoMo transactions are below GH¢100

Amid controversies surrounding the electronic transactions levy (E-levy), the President appended his signature to the E-levy bill, turning it into law just two days after the moot approval of the bill by the majority group in parliament, as the minority group staged a walkout.

The E-levy, which is to cover mobile money payments, bank transfers, merchant payments, and inward remittances, has been reduced from an initial 1.75% to a 1.5% rate.

Hailed by government as the panacea for the self-inflicted raft of economic and financial woes battering the country, the E-levy is estimated to raise an extra GH₵6.9billion, according to the finance minister, Mr. Ken Ofori Atta, when it was first announced during the 2022 Budget statement reading in parliament.

Citing delays that characterised the bill’s passage since November 2021, Mr. Ken Ofori Atta fears that the GH₵6.9billion projections might not be reached as the levy is expected to take effect come May 2022, when systems for its implementation could be ready.

Meanwhile, in a June 2019 publication by the World Bank, entitled: ‘Ghana Economic Update: Enhancing Financial Inclusion’, Mr. Carlos Vicente, a senior financial sector economist with the World Bank, was cited saying: “Universal Financial Access (UFA) is an attainable target in Ghana with the use of innovative technology and approaches”.

With rapid growth over the past decade, the widespread use of mobile phone devices, mobile money (MOMO) and other innovative financial technologies (Fin-Techs) have encouraged financial inclusion. This promised universal financial access for Ghana, but sadly, government’s conduct in passing the E-levy bill despite hardships facing the people, as the cedi keeps losing its purchasing power, is egotistic and portends bad news for universal financial access soon.

Taking cues from happenings on taxing mobile money in other African countries, government could have rather proffered tax on cash withdrawals as a catalyst for a cash-lite society.

The unpopular E-levy is highly likely to discourage the patronage of MOMO services that have come to serve as a means of savings and money transfers, for the unbanked among a largely underbanked population like Ghana’s, which has a rate of bank account ownership at 42.3% of the population aged 15 years and older as of January 2022, according to data available on statista.com.

Considering consumer rationality and the elastic demand for MOMO due to the ability to use cash, are consumers not being encouraged to make cash transactions after a decade-long seamless and somewhat cashless transaction although there is popular advocacy for a digital economy?

This is good news to robbers as people would rather withdraw their money and carry cash around to transact businesses.

Also, in a bid to avoid dips in finances without forfeiting one’s convenience, is government not consenting to a viable environment for unapproved means of monetary transactions among the people as they might exploit other means to avoid the E-levy?

Proponents of this tax may argue that if one can make transactions or transfers worth GH₵100 in a day, then one is rich and as such, the charges should be negligible.
Businesses and individuals who do high-volume transactions are billed to take very high charges.

Well, some consumers would resort to traditional banking hall transactions because the cost incurred on moving their working capital would cost them an arm and a leg.
This in turn could affect productivity because working hours would be spent in banking hall queues.

Can you imagine having to pay a 1.5% levy plus transactional rate per electronic transaction made for inputs bearing other taxes and operational costs that businesses and individuals incur? This issue makes me wonder why the E-levy could not be capped.
Is it not for similar disincentives that the Fin-Techs and telecommunication companies (telcos) have ceilings on their transaction rates to prevent consumer exploitation?

Did I hear you say that the E-levy on inward remittances is to be borne by the recipient?
I am sure that in sending money from Chicago to Hajia Ramatu in Tamale, Sambo would be impelled to add extra bucks to offset the E-levy his mom is required to bear as the recipient.

Thus, I wonder why it would not be cheaper to use the hawala system in sending funds back home.

Hawala is an ancient trust-based fund transfer system operated by a network of ‘hawalders’ (hawala brokers). Despite the slim chances of losing one’s money due to fraudulent hawalders compromising the network, it offers a limitless and cheaper alternative to making conventional fund transfers.

Also, due to anonymity and the absence of proper documentation, hawala provides a suitable environment for crimes like money laundering and terrorist financing to grow. Thus, stalling and eradicating progress made in monetary control so far.

So, in the quest to widen the tax net and rope in the informal sector, are we not encouraging a viable environment for hawala and other unapproved modes of money transfer to flourish via the introduction of the E-levy? Worth noting is the fact that inward remittances have been estimated to contribute about 4% – 5% to the Ghanaian Gross Domestic Product (GDP). This would mean that in trying to avoid the unpopular levy, some inward remittances may not be captured in subsequent GDP calculations, as transfers would be made through the parallel economy which offers cheaper rates without taxes.

Even more than that, businesses that choose to use the hawala system could end up producing understated invoices to authorities. This would again cost the state some loss of potential revenue.

I believe although the E-levy is now law, it should still be subjected to reviews with proper stakeholder consultations, as government cuts down on expenditure and stops revenue leakage through corruption.

E-mail: [email protected]

Edmund TERKPERNOR, the writer

 

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