e-Levy, two years on

Asante Frimpong, Accra, Ghana
September 3rd, 2024

The parliament of Ghana passed the ‟Electronic Transfer Act”, more commonly referred to as e-Levy, in March 2022. After its promulgation, the government announced measures, it said would limit the negative effects of the new tax on the poorest and vulnerable sections of the population, who access financial services through mobile money.

The e-levy became effective from May 2022, with a rate of 1.5 percent, applied to electronic transfers above a threshold of around US$10 (GHC100). Relief measures included exemptions on withdrawals transactions, on merchant payments (P2B) on payments to government (P2G) and on electronic bank transfers below US$2,000 (GHC 20,000). But in the 2023 national budget, the government announced a reduction of the e-levy rate to 1.00 percent, citing disappointing collection results.

Examples of countries in Sub-Saharan Africa that have introduced E-Levy include Cameroon, Cote d’Ivoire, Kenya, Nigeria, Uganda, and Tanzania. In these countries, as in Ghana, debates rage on whether the e-Levy is an inequitable and regressive tax that is going to sink millions of people into poverty.

Revenue mobilization and burden sharing

The government of Ghana said it needs to widen its tax base to generate more revenues. In November 2021, during the presentation of the budget to the parliament, Minister of Finance Ken Ofori-Atta, said that the goal of the e-Levy Act was to ‟rope in the informal sector, by bringing into the tax bracket, transactions that could be best defined as being undertaken in the shadow economy”. The goal, he said was ‟to make sure that the government receives its due share of tax revenue from the digital economy”.

On February 28th, 2022, while delivering a keynote address at the National Labor Conference, the President of Ghana declared that the e-Levy was a part of a vision. He said: ‟it is time we accepted the full implications of our goal of Ghana beyond Aid, and designed our fiscal profile accordingly. The Asian Tigers, whom we envy and want to emulate, financed their rapid development from their own savings. We need to do the same”. President Nana Addo explained that the e-Levy contributes to the sharing of tax burden. To hammer this point, he declared: ‟We cannot continue to allow less than ten percent (10 percent), specifically 7.8 percent, i.e., 2.4 million people, of the population to carry the direct tax burden of 30.8 million people¹. We must provide an opportunity for every Ghanaian to contribute towards nation building”. The National Labor Conference took place at the Rock City Hotel, in Kwahu Nkwatia, in the Eastern Region.

Ghana’s tax revenue as a percentage of gross domestic product (GDP) continues to stagnate compared to its peers in the middle income bracket countries. According to data from the GRA, in 2023, tax-to-GDP ratio of 14.1 percent, which marks the highest ratio recorded in the last six (6) years. However, this improvement still places Ghana below the average of the 31 African countries in the OECD's Revenue Statistics in Africa 2023 (which stands at 16.0 percent) by 1.9 percentage points². Over the past decade, the lowerst tax-to-GDP ratio recorded by Ghana was 7.8 percent in 2000. According to the Ghana Revenue Authority less than 20 percent of eligible tax payers are registered for personal income tax.

Revenue mobilization is therefore a priority for the government. Prior to the e-Levy, and to address these shortcomings, the Government had introduced reforms to broaden the tax base and tackle structural weakness in tax administration. Ghanaian authorities also dismantled various tax exemptions, which were the major contributory factors to Ghana’s fiscal deficit.

Performance

In the Ghana 2022 Annual Tax Revenue Performance Report, the government announced that the GRA collected US$43.6 million (GH₵ 643.35) million during the eight months of implementation. This corresponds to a shortfall of 90.8 percent below the annual target of US$472.2 (GH₵ 6.96 billion). But it amounts to an increase of 5.3 percent above the revised target of US$41.4 million (GH₵ 611 million). The actual and target monthly e-Levy collections and the percentage difference between the two seesawed during the year 2022. In the mid-year fiscal Policy Review of the 2022 Budget Statement, the government revised downwards from GH₵ 6.96 billion to GH₵ 611 million, ‟due to the revised scope of the annual policy”³.

In 2023, e-levy collection gains momentum. According to the GRA, it registered a year-on-year growth of 85.7 percent attributable to an increase in transaction levels and an increase in person-to-person (P2P) transfers compared to the previous year. Also, MTN which accounts for 60 percent of e-levy revenue added a channel to the common platform in December and this accounted for the additional spike in revenue. Data from the GRA indicates that the e-levy in Ghana has raised GHS 612.34 million in 2022 and GHS 1.19 billion in 2023.

The Ghana Revenue Authorities (GRA) ran a nationwide awareness campaign with billboards, TV, and radio messages. It reiterated the government's goal that taxes ‟pay salaries of government workers and support common resources such as police, firefighters, and public health workers”. Electronic levies, the GRA said, will also finance road infrastructure development, to improve public transportation including the purchase of buses, health, and education.

Authorities set aside a portion of for entrepreneurial initiatives in the digital economy, youth employment, cyber security, and road infrastructure. The expectation is that the e-levy will boost gross public invesments (or capital expenditure) which stagnated between 2018 and 2022.

Impact of e-levy

Ghana’s experience shows that the economic context influences the effectiveness of electronic tax. In February 2023, the Groupe Speciale Mobile Association (GSMA) analyzed the impact of the E-levy on mobile money transactions in Ghana. The analysis covers the period from May 2021 to January 2023. This study attempted to capture the evolution of demand and supply of mobile money services before and after the e-levy in May 2022.

The GSMA study found that transaction numbers fell after the introduction of the levy. The organization also noted that the total number of P2P (peer-to-peer) transactions fell by 25 percent from a peak of 50 million transactions in March. But, the GSMA also found that decline actually started in March 2021, when the government announced the introduction of the levy. Consumers changed their behavior in anticipation of the reform. However, the GSMA acknowledged that transactions have since recovered, albeit on a slow growth trajectory. Data from the National Communications Authority (NCA) and from the Financial Access Survey (of the International Monetary Fund)⁴, also suggest that the e-levy has not reduced the growth of mobile money, even though it is still to meet its initial collection targets.

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