Ghana: discussing the tax on electronic transactions … Our reasoned opinion (2)


This is the second part of the article published yesterday, the December 6, 2021 issue of the newspaper.

It was later followed by US economist James Tobin, who proposed a financial transaction tax using the famous description that it was to “throw sand in the wheels of excessively efficient international money markets.”

Tobin’s focus was on foreign exchange markets and how to preserve sound macroeconomic policies, hence his suggestion of a currency transaction tax to “throw sand” into the overheated gears of the global financial system and to limit speculation by reducing the speed and volume of transactions. .

Because these taxes are easily administered, FTTs have therefore often been introduced by countries experiencing budget crises as a quick way to generate substantial revenue.

It suffices for a few large financial institutions or, in the case of MoMo, mobile network operators (MNOs), to levy the taxes on their customers and remit them to the tax authorities. However, the introduction of TTFs has always been controversial.

The question is whether there is any justification for efficiency to impose such a tax. Why would anyone want to ‘throw sand’ in the wheels of our budding MoMo payments ecosystem? If this direct debit proposal became law, it would mean that as of February 1, 2022, the government would take 1.75% of the value of each MoMo transfer in excess of GH ¢ 100 per day.

This tax would still apply every time one used their MoMo account to make transfers, whether it was paying your child’s school fees or sending money to pay medical bills. of your parents in the village. The design of the tax raises a number of concerns. The proposed Ghana E-Levy will only affect a segment of financial transactions that involve the transfer of resources from one person (business or individual) to another if it takes place electronically and is connected with MoMo or payment cards. By only taxing electronic financial transactions associated with MoMo and payment cards, E-Levy can be avoided by simply switching to other payment methods.

There are good reasons to reconsider taxation in the financial sector. Since the proposed Ghana E-Levy only targets mobile money transactions, the tax would potentially result in substitution between financial instruments or payment methods and thus generate less tax revenue than projected in the 2022 budget. .

The tax will increase both the explicit and implicit transaction costs for MoMo payments. cash for transactions. These unintended consequences could outweigh any benefits to be derived from the income levy. To illustrate, assuming someone wants to transfer 10,000 GH ¢ to a customer or relative, there is a menu of payment options to choose from:

1) issue a check to the person;

2) deposit money into the person’s bank account;

3) transfer money from a bank account to the person’s bank account through online banking;

4) transfer money from a mobile money account to the person’s bank account;

5) transfer money from a bank account to the person’s mobile money account;

6) transfer money from a mobile money account to the person’s mobile money account.

E-Levy tax liability does not arise if the first three options are used; the last three options, which involve mobile money, are the target and would therefore result in a tax liability of GH ¢ 175. Therefore, the E-Levy discriminates against the use of an electronic medium – mobile money – to settle transactions. So the question is: do we have a problem with the frequent use of mobile money? We guess the answer will be no!

It is evident that the main objective of the E-Levy proposed by Ghana is to generate revenue for the government due to the apparent budgetary challenges. Tax revenues in Ghana are low: less than 13% of GDP compared to an average of 16.4% in sub-Saharan Africa. Indeed, the problem of the budget deficit has everything to do with the weak mobilization of domestic revenue.

Public spending as a percentage of GDP has been relatively stable, at least over the past decade, rising from 23.8% in 2016 to 19.4% in 2019 before rising to 25.1% in 2020 (largely due to expenses related to COVID-19 and the election year). syndrome). So, ideally, we should support any commitment to widen the tax net to increase revenues, reduce the deficit and debt accumulation and for the provision of public services and infrastructure in the country.

However, the proposed E-Levy is not the way to go. It is simply not an effective tax. The proposed electronic direct debit may hamper the functioning of both the Ghanaian financial system and the real economy. For more efficient tax management, the choices of taxpayers are not affected by tax policy.

The E-Levy will affect the medium to be used in the transaction or transfer payment: cash, check and electronic payment or transfer media. This will create inefficiency in the economy since an inefficient means of payment will be used because of the E-Levy. Payments and transfers will shift from electronic or digital platforms to cash or checks to bypass the E-Levy. Thus, the use of cash will increase and distort prices in the economy. The proposed electronic direct debit also has implications in terms of distribution and income generation. Due to its cascading effect, the incidence of FTTs, such as the proposed electronic debit, can be complex and capricious.

Although sometimes presented as progressive, the burden of the tax can end up falling on the poor who have limited financial payment options and on those who depend primarily on inbound remittances.

We know that there are differences in the elasticities of demand for electronic payments between different MoMo users. Transfers or gifts, which are usually urgent or necessary for the recipients, have low elasticity because there are few substitutes given the length of time the recipient has to get the money transferred.

Thus, the incidence will be high for groups providing urgent aid or living far from the people they care for. These are transfers to people who may have critical needs or who live in places far from the person making the transfer.

People who can wire transfers or make large payments (say 1,000 GH ¢) can switch to bank transfers, issue a check, or make direct deposits instead of using mobile money and paying GH ¢ 17.50. So a transfer of GH ¢ 1,000 to pay for goods and services – even a remittance to a parent – will incur a tax of GH ¢ 17.50, but if the same payment / remittance was made by direct deposit or wire transfer to the person’s bank account, no tax obligation would arise.

Essentially, there are options available for large senders to use for payments and transfers. They can easily avoid this tax. Thus, the burden of the E-Levy will fall disproportionately on people who might not be able to transfer substantial resources at once.

The ability to avoid using MoMo for settlement of transactions will also affect projected revenues for 2022. Although FTTs appear to offer easy tax management, their revenues tend to erode over time as the taxpayers learn to avoid them by using cash payments. and other payment methods.

A calculation on the back of the envelope suggests that the E-Levy will likely generate a lot less revenue than expected. In 2020, MTN MoMo recorded a total transaction volume of 2.6 billion, amounting to 549 billion GH ¢ (the total value of mobile money transactions for all service providers was 564 billion GH).

Total revenue generated from MTN’s 2 percent end-to-end fee was GH ¢ 1.3 billion (equivalent to 0.23 percent of total transaction value or GH ¢ 0.5 per transaction ). Assuming that the MoMo transaction value grows 100% annually to reach GH ¢ 2.3 trillion in 2022, using the average effective load of 0.23% on MTN in 2020, the E-Levy of 1, 75% on MoMo transactions will generate revenue of GH ¢ 4.5 billion (GH ¢ 2.4 billion less than the GH ¢ 6.9 billion projected in the 2022 budget report).

In addition, the volume and value will likely decline due to behavioral changes in the age of use of the electronic platform for financial transactions in response to the imposition of the E-Levy. This means that the revenues forecast in the budget are too optimistic.

In Uganda, for example, the imposition of a 1% tax on mobile money transactions (cashing, transferring and withdrawing) has led to a drastic reduction in mobile money transactions – the value of money transactions. mobile fell 24 percent. hundred. The IMF had warned that it was the rural poor who were at risk of being disproportionately affected by transaction taxes.

To be continued


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