Accra, Ghana//-A leading online shop owner in one of the urbanised suburbs of the Accra metropolis has boldly stated that he does not use mobile money (MoMo) to transact business or personal stuff.
When asked why he does not employ the services of mobile financial platforms to receive and send money, he said because of the imposition of the Electronic Transactions Levy shortened as E-Levy.
He said he uses commercial banks to transact business because their service fees are low compared with the MoMo platforms.
Several middle-class income and high-income earners are returning to the banking halls to perform basic banking services following the introduction of the 1.5% tax on mobile money transactions in May 2022.
Although it was reduced to a 1% threshold after a year of its imposition, the tax is keeping most Ghanaians especially the poor and the vulnerable from accessing mobile financial services and other digital payment channels in the country.
Arguments and counterarguments
Those who are in favour of the e-levy particularly politicians in power and government officials argued that taxes on MoMo present an opportunity for cash-strapped governments especially the current Ghanaian government to raise funds in the complex post-pandemic era.
Also, MoMo taxes, in Ghana and other sub-Saharan African countries have been justified to “capture” the perceived untaxed millions of people working in the informal economy.
However, opponents have vehemently argued that informal workers comprising 89% of total employment in Ghana already pay a wide range of taxes and fees. So, they are disproportionately affected by the e-levy.
cash cow
Defiantly, the digital payments which helped the world to facilitate transactions during those trying times have now become the favourite cash cow for governments in Ghana, Uganda, Tanzania, and others to milk.
E-levy one of the barriers to digital payment adoption was imposed on Ghanaians immediately after the abatement of the covid-19 pandemic.
In his numerous town hall meetings to convince Ghanaians to impress upon their legislatures to pass the then E-Ley bill into law, Ken Ofori-Atta, Minister of Finance noted that the total value of transactions for 2020 was estimated to be over GHS500 billion (GHS78 billion in 2016) while total mobile money subscribers and active mobile money users have grown by an average rate of 18% and 16% respectively between 2016 and 2019.
This exponential rise was mainly attributed to the COVID-19 pandemic, during which the reliance on mobile money services and other digital payment channels including internet banking and fintechs grew phenomenally.
The government proposed the introduction of the e-levy on all electronic transactions to widen the tax net to rope in the informal sector to enable it to raise additional revenue.
It had projected tax revenue of about GHS6.96 billion ($1.1 billion) in 2022 and about GHS26.90 billion ($4.5 billion) from 2023 to 2025 after implementing the electronic transaction levy.
Transfers covered by E-Levy
The electronic transactions levy which was opposed by more than 80%, according to studies came into force, covering mobile money payments, bank transfers, merchant payments and inward remittances to be charged at an applicable rate of 1.5%, borne by the sender (except for inward remittances, whose cost is borne by the recipient).
Mobile money transfers are done between wallets on the same electronic money issuer– For instance, sending money from one’s MTN Momo wallet to another person’s MTN MoMo wallet.
Transfers from a wallet on one electronic money issuer to a recipient on another electronic money issuer – For instance, sending money from one’s Vodafone Cash wallet to another person’s ATM money wallet.
Transfers from bank accounts to mobile money wallets: For instance, Abena transfers money from his CBG bank account to Esther’s G-Money wallet.
Transfers from mobile money wallets to bank accounts: For instance, Razak transfers money from her Zeepay wallet to Aisha’s bank account.
Bank transfers on an instant pay digital platform or application originate from a bank account belonging to an individual: For instance, Mark transferred money from his UBA app to Cynthia’s ADB account.
The government had previously indicated that the levy would support entrepreneurship, youth employment, cybersecurity, agriculture, road infrastructure, and digital, among others.
There was nationwide public outcry in reaction to the levies because of their disproportionate impact on the poor and vulnerable of Ghanaian society.
The Electronics Transactions Levy Act took a phased approach to implementation and began phase two in July 2022, whereas key stakeholders believed that the e-levy would quickly reverse the gains made with digital financial services leading customers to revert to cash in the country.
Earlier, the government had predicted that 24% of users would drop off within the first couple of months but would eventually go back to using digital services as the benefits outweigh the negatives, its analysis of the impact of the e-levy stated.
This analysis expectedly proved to be wrong. Leading up to the implementation date of the e-levy, massive cash withdrawals were witnessed resulting in a significant decrease in cash availability through these channels.
According to experts, this showed that mobile money taxation would cause those who banked to revert to cash, but this trend had slowed.
Moreover, in addition to reversing financial inclusion gains, wrongly implemented tax policies will likely frustrate the government’s revenue-generating objectives as mobile money users resort to informal means of money transfer, according to the Unpacking the Implications of Mobile Money Taxation in Africa 2023 report.
In his 2023 budget speech, while proposing a further reduction of the levy to 1% of the transaction value, Mr Ofori-Atta acknowledged that the levy “has not yielded the resources as expected.”
The government’s initial projection was to raise GHS7 billion, but by July, it had raised GHS611 million, less than 10% of the projected revenue.
On 11 January 2023, the reduced levy took effect at 1% of the transaction value. The government, however, dispensed the GHS100 daily threshold meant to cushion vulnerable people.
While the reduction to 1% of transaction value is welcomed, it remains a significant barrier to mobile money services by low-income and poorer segments of society who already bear the brunt of high inflation and the cost of living crisis.
What has raked in so far
Recent data released by the Ghana Revenue Authority (GRA) revealed that the Electronic Transfer Levy (E-Levy) implemented in May 2022 raked in ¢861.47 million as of March 2023.
Benefits of Mobile Money
The introduction of MoMo in Ghana has led to an exponential rise in access to financial services among the unbanked in Ghana and across Africa.
Before the advent of mobile money, most economies relied on cash with limited access to formal financial accounts.
From 2017 to 2021, the average rate of account ownership for adults in developing economies increased from 63% to 71%. In sub-Saharan Africa, this expansion largely stems from the adoption of mobile money, Unpacking the Implications of Mobile Money Taxation in Africa 2023 report stated.
“Today, mobile money, fuelled by the entry of mobile phones into the African ecosystem, acts as an entry point for the unbanked and has grown into the most prominent financial transactions platform for mobile phones and e-money.
Mobile money is now prominent in adjacent markets, providing mobile insurance, savings, and credit services, thus improving consumers’ wellbeing, and living conditions”.
The 2021 GSMA State of the Industry Report noted that mobile money accounts grew to 1.35 billion worldwide — a tenfold increase from 134 million in 2012.
Today, the mobile money industry has over 518 million active 90-day accounts, which is a testament to the significance of mobile money in addressing financial inclusion gaps, it added.
Additionally, with Covid-19, MoMo money according to industry experts has proven to be fundamental to crisis response.
It has been vital in keeping people connected, providing safe, no-contact ways to pay for utilities, and delivering financial support.
The prevalence and success of MoMo have also created positive externalities for other industries, aiding in transactions related to water and sanitation products, energy, agriculture, and school fees.
The accessible and revolutionary nature of mobile money is unparalleled, transforming the role of financial services worldwide, particularly in sub-Saharan Africa.
The success of mobile money has plausibly attracted the attention of governments and tax authorities who seek to raise taxes and broaden their tax base.
This has led to increased taxation on mobile money transactions, indiscriminately applied to low-level retail electronic transactions, directly impacting low-income earners sensitive to transaction costs.
This disproportionate effect on cost raises concern about possible adverse effects. The challenge lies in the potential hasty return to cash transactions in developing countries when faced with additional taxes and a reversal of gains made in financial inclusion.
With 1.4 billion still unbanked and without access to basic financial services, we need to advocate for tax policies and regimes that enable the reach of these individuals, including women and persons with disabilities (PWD).
It is also important to note that the mobile industry is already one of the highest taxed in sub-Saharan Africa. Thus, those that offer mobile money services face three layers of taxation: general taxation, such as value-added tax, mobile sector-specific taxation such as excise duties of 17% on airtime usage and mobile money taxation, GSMA reiterated.
While this has a material impact on the investment incentives of the provider, it also does little to support the fiscal objectives of governments.
What can be done?
Speaking at a recent MoMo Stakeholder Forum organised by MobileMoney Limited, Eric Kotey, CEO of Cellulant Ghana, Mobile Network Operators (MNOs), and fintech players called on the government to remove the e-levy on the mobile money services in the country.
According to them, this is the only way that digital payments could continue to grow in the country which wants to become the fintech hub of West Africa.
By Masahudu Ankiilu Kunateh, African Eye Report
