A belated happy birthday Mr. President. I am sure you feel very happy that on your 78th birthday, the much talked about e-levy was finally passed.

I know you genuinely believe this will help solve the current fiscal challenges the country is facing. Every leader desires to find solutions and this, I am certain, was advised as one of the surest ways of killing a huge chunk of our financial woes with one stone and delivering us to the promised land of financial joy and prosperity.

But let’s take a step back, Mr. President. How would you feel if the much touted new age of digitization crumbles before our very eyes due to a levy which is so objected to, by many? How would you feel when electronic transactions are avoided like the plague and Ghana returns to the cash and carry age? Will the e-levy birthday present turn into sour grapes, or will you still be seen as having made an effort to solve the economic problems.

Mr. President, I understand you are not an ordinary Ghanaian, at least since becoming a President. Your job will not allow you the luxury to mingle with 'the ordinary people,' to learn firsthand, the challenges confronting the average Ghanaian. You will therefore rely on advisors, who I might say, also find themselves in the upper echelons of Ghanaian society hence do not feel the impact of a ‘measly’ 1.5% charge on their transactions.

The e-levy on the surface appears to be a masterstroke in our bid to raise tax revenue, but if something is too good to be true, then it probably is not. The Bank of Ghana data on momo for 2021 shows a total momo float (balances) of ₵ 9.7 billion and total transactions volume for the year of about ₵980 billion.

This means the velocity of the MoMo is about 100 times the balance in momo user accounts. This shows the number of times the balances on MoMo go round in a year. A tax of 1.5% will therefore mean that affected transactions will get taxed 1.5% by 100 times in a year bringing the rate of taxation in a year to 150% in total.

The reason for this high velocity is because people use MoMo for transactional purposes so the balances are always on the move. If there were no exempted transactions and a reduction in the transaction value used for the projection (which according to the Deputy Finance Minister, is some 25% of transaction volumes) the estimated revenue would have been more than the total MoMo balances.

Why E-levy may fail

They say statistics are like bikinis, what they reveal is suggestive, but what they conceal is vital. A much deeper breakdown of the data used by government to determine this tax policy or at least a further engagement with users on the ground would have revealed a lot of vital information.

Firstly, a lot of users find ways to even avoid the minimal operator charges. These, they do through such means as depositing directly into the recipient account, allowing cash out on their numbers to enable the recipients directly withdraw money from the sender’s wallets from distant locations.

That way they are able to send the cash to the recipient without transferring it thereby avoiding the charge thereon. Some of the operators try to prevent these by introducing controls and other requirements in order to reduce the abuse. A lot of avenues still exist to avoid the charges.

Secondly, a lot of businesses use momo to receive payments. The new levy is therefore going to increase their operational cost and may render some unprofitable. A business that has to pay 1.5% anytime they send MoMo to their suppliers will definitely want to explore other options that are cheaper. Any business owner who sends ₵100,000 a month will be incurring an additional cost of ₵1,500 apart from the operator charges. Some businesses that use MoMo have very small profit margins of between 1% to 5% and very short business cycles.

They, therefore, tend to have a lot of transaction volumes and if they have to transfer their sales through MoMo to their suppliers, they will lose 1.5% of that at each business cycle. This, they will definitely have to avoid to be able to stay in business.

The demand for MoMo is elastic because of the several alternative ways of payment and the fact that its major advantage is the convenience it offers users. MoMo provides a lot of convenience for users, no doubt about that, but it is important to also realize that there is a limit to how much people will pay for convenience as with all luxury goods. It is because of this that the leading MoMo operator has even capped their 1% charge to a maximum of ₵10.

It is also the reason why Vodafone Cash does not charge for transfers. A straight 1.5% on transactions will therefore lead to massive reduction in transaction volumes as users may not find the convenience, worth the cost.

A third important point to note is this, how is it that a sector that has just GHC9.7 billion will be a target for a tax of GH₵6.9 billion (less the bank transfers which do not account for much)? It will be erroneous to use the transaction volumes to justify the projected tax revenue. Once any amount is taxed, it is out of the balance on MoMo.

This will mean that by the end of the year, the balance left on MoMo will be GH₵2.8 billion if no new e-cash is added. Even if the same rate of increase as in 2021 (GH₵2.6 billion) is recorded in 2022, there will still be a reduced total MoMo balance of GH₵5.5billion.

While the bill might have been passed by Parliament, the effect of the levy on businesses and personal incomes will lead to avoidance of MoMo transactions in favour of cheaper alternatives, such as cash and bank payments and cheques.

Government may not be able to ignore a continuous or sharp decline in the transaction volumes of MoMo as that may lead to the collapse of the MoMo industry. The contribution of the sector to economic activity is so great that it cannot be allowed to suffer a major setback.

Given the issues discussed above and the overwhelming rejection by the citizenry in various polls and research that were done on the levy, there will be a significant drop in the transaction volumes and may lead to consequent withdrawal by government. It will then become difficult for government to reintroduce it even at a reduced rate.

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The writer, Dawda Hafisdeen, is a Business Consultant and provides Audit, Accounting, Tax, and Business Advisory Services. He holds a Bachelor of Science in Administration (Accounting Option), an MBA in Finance, and is a Chartered Accountant.