On November 17, 2021, the Minister of Finance presented the Budget Statement & Economic Policy of Ghana for 2022 where he announced the introduction of an electronic transactions levy (e-levy).

For purposes of emphasis and analysis, this is what the Minister said on pages 15 and 16 of the Budget Highlights:

“Government will introduce measures that will revamp industry and make their products competitive in both the local and international markets. In this respect, it has become increasingly necessary to make the following policy changes:

Introduction of an “Electronic Transaction Levy” or “E-Levy” on all electronic transactions to widen the tax net and rope in the informal sector. The levy will cover mobile money payments, bank transfers, merchant payments, and inward remittances, which will attract an applicable rate of 1.75 percent, to be borne by the sender, except inward remittances which will be borne by the recipient. This will take effect 1st February, 2022.

Transactions that add up to GH¢100 or less per day will be exempt from this levy.” Breakdown of the E-Levy and its Incidence: The controversies, the arguments for and against the electronic transactions levy as well as the misconceptions require some analysis and education.

From the quotation, Government will from February, 2022 subject to the approval of Parliament begin the collection of 1.75 percent of taxes on all electronic transactions, including but not limited to the following categories or classes: 1. The first category are the senders or transferors of money using the mobile money platforms provided by the telecommunication network operators in Ghana. The question of who bears the tax appears to be misconstrued by many people. Passive persons, who merely receive mobile money transfers are NOT liable to pay the 1.75 percent tax even if they go to withdraw their moneys from their wallets. The incidence of the tax according to the Budget Proposal is only on SENDERS/TRANSFERORS.

However, we should note that prior to this e-levy proposal, senders of ‘momos’ pay transaction or service fees and the receivers drawing from their mobile wallets also pay 2 transaction fees. These fees which are distributed between the telecom operators and the mobile money vendors according to their governing agreements are not taxed at all and this will be analyzed shortly. What is clear though, is that Senders will bear the tax of 1.75% in addition to the transaction fee which is dependent on the amount being transferred.

The consequential effect is that cost of sending or transferring money using the platforms provided by telecom operators and the banks will increase. The illustration is that assuming, ‘T’ is transferring ¢100 to ‘A’ and has to pay ¢1 as transaction fee. With this 1.75% e-levy, it means ‘T’ in addition to the transaction fee will pay ¢1.75p as tax to the government for using either the services provided by the telecos or the combination of the services provided by the banks and telecom operators. Cumulatively, charges on the ¢100 will now be ¢2.75p to be borne by T. The difference between the transaction fee and this e-levy is that, whilst the fee can or may be deducted from the actual amount being transferred, the tax should NOT be made to be withheld from the actual amount. If the e-levy were to be withheld from the actual amount, the implication is that the RECEIVER will carry the burden of the tax instead of the Sender and that will be contrary to the Budget proposal or the intend of government.

The second categorization are the senders or transferors of money using the platforms provided by financial institutions mostly banks and they will also bear a tax of 1.75 percent. Thus, if ‘A’ transfers money from her bank account to either her mobile wallet or to ‘B’s mobile wallet, ‘A’ (the Sender) will be obligated to pay 1.75 percent as tax. Note again, that Banks also charge transaction fee which is dependent on the amount being transferred from the bank account and importantly, those fees are also not taxed.

Again, the incidence of the tax is on the SENDER. However, if the banks withhold the tax on the actual amount being transferred from the account, the incidence of the tax will shift to the receiver or transferee. Further, a seeming unpalatable and an unnecessary double taxation rears its ugly face in the following illustration: If ‘A’ transfers ¢500 from her bank account to her mobile wallet and charged both e-levy and bank transaction fee. Whilst the ¢500 remain in the wallet, it will not be taxed, however if ‘A’ decides to transfer the money to ‘B’s mobile wallet, ‘A’ will have to pay another 1.75 percent tax on the same ¢500 which tax was first withheld by the bank and now is obligated to pay another tax for using the platform of the telecom operators.

There is even potential for triple and quadruple taxation of the same amount in so far as that amount is moving from one wallet to another. And so, the best way to avoid this tax, tax avoidance being legally acceptable is to engage in cash transactions. There is a solution though, to solve this issue and that lies in technology, perhaps, a system I called the neutralization of double taxation of electronic transactions.

The third group of persons to be affected by the e-levy are Receivers/Transferees of inward remittances. Interestingly, here, the RECEIVERS carry the burden of the tax of 1.75 percent and not the senders. Rightly so because, the senders are not within Ghana and it will be an exercise in futility if government were to impose the tax on the senders. Thus, remittance receivers will receive their funds either through banks or mobile transactions less the withholding tax of 1.75 percent on the principal amount. This illustration is 3 instructive: Assuming ‘A’ lives in London, UK and transfers £100 to ‘B’ in Ghana. ‘B’ will receive the cedi equivalent of £100 (about ¢824) less the withholding tax of 1.75% (¢14.42p) as well as bank charges. Note also that the bank charges on remittances which had always been there are untaxed.

Again, the consequential effect is that the amount expected to receive will decrease as a result of the e-levy. 4. The fourth class to suffer this tax are the senders or payors to persons who engage in the business of buying and selling of goods dubbed Merchandise Business. In short, the payments to merchants, referred supra as merchant payments will also attract a tax of 1.75 percent on those who make such payments. Clearly, the incidence of the tax is on the PAYORS. Merchant payments can be made either by cash, credit or debit cards or some other form of electronic payment.

However, the tax will affect any form of electronic or online merchant payment. In effect, by opting to pay cash, one can avoid the e-levy. On the contrary, if one decides to pay for a merchandise through an electronic means, in addition to value added tax (VAT), one will still carry the burden of the e-levy. Here too, the consequential effect will be that the purchase price of the merchandise will be high. Analysis of the E-Levy Some 1000s of years back, it was reported that two things in life were as certain as the dawn: death and taxes but that whilst there were astonishing cases in which people escaped death, taxes are completely unavoidable.

With this assertion, it is significant that we briefly remind ourselves of some historical antecedents. In 1995, when the government of the late President J.J. Rawlings and with Prof. John E.A. Mills, as the Commissioner of the Internal Revenue Service (IRS) proposed the introduction of value added tax (VAT) in Ghana for the first time, the current President, Nana Akufo-Addo, then spokesperson for Alliance for Change organized a massive, perhaps, the biggest ever public demonstration against the government.

The demonstration resulted in the death and maim of many innocent Ghanaians for a very useless course. Posterity has since proved that the demonstration against VAT defied common sense and in fact, had turned logic upside down. Today, nemesis is paying back, what the current president did to his predecessor. Some may argue that he deserves it. Be that as it may, I would analyze this e-levy from a very professional perspective. Suffice it to say that a threshold question which must be resolved is whether it is right, legal or moral to pay taxes and for that matter this e-levy? The answer, which forms the foundation of my analysis lies in the Gospel: And they came to him, calling Teacher, Teacher! we know that you are true and do not care about anyone's opinion.

Tell us, then, what you think. Is it lawful to pay taxes to Caesar, or not? But Jesus, aware of their malice, said, Why put me to the test, you hypocrites? Show me the coin for the tax. And they brought him a denarius. And Jesus said to them, “Whose likeness and inscription is this? They said, Caesar's. Then he said to them, Therefore render to Caesar the things that are Caesar's, and to God the things that are God's. 4 A clear admonition that we need to pay taxes because there are two broad ways of revenue generation for the sustenance of every government in the world.

The first category is through sustainable revenue generation which basically is through taxation and nothing else; and the second category is the unsustainable revenue generation through borrowing, grants, revenues from natural resources – which are finite, and revenues from illegitimate means such as unlawful occupations of other countries to syphon their resources etc. The latter clearly are unsustainable either in the medium or long term. Therefore, the only legitimate and sustainable means for the government of Ghana to raise revenue to fix the country as we have been agitating is through taxation. Borrowing and grants by now is clear to all of us that they are not sustainable and so if we do not support any government, whether NPP or NDC to widen the tax basket in order to generate enough revenue, then we should expect the same thing with our roads, utilities and everything else.

Issues with the E-Levy: From tax policy perspective, every tax just like this e-levy must be subjected to the three prong-tests to determine its appropriateness. These tests are the economic efficiency of the tax; its simplicity in terms of administration; and equity or fairness. In effect, is the tax system efficient, is it equitable and is it administrable? In the preliminary assessment of the e-levy guided by these tax policy techniques, it is my view that the e-levy meets the requirements of an efficient (not a lazy) tax system. The e-levy is also simple to administer because the platform exists already and it is fair and equitable that everybody must pay tax once you earn an income even if it is a gift beyond the allowable threshold. To argue, otherwise, will be affirmatively misleading. That notwithstanding, the e-levy is not sacrosanct. It has a fair share of its criticisms. First, as a matter of business economics, it is regrettable that the incidence of the e-levy is shifted to the Senders.

Whilst one do not begrudge government for deciding who carries the burden of the tax, it is totally inconceivable to shift the burden of the tax on the Senders in a volatile economic environment. What a smart government will do is not to burden the senders, but to rather impose the e-levy on the commissions or fees generated by the telecommunication network operators, the vendors and the banks. Lets look at this illustration: Assuming, ‘T’ is transferring ¢100 to ‘A’ either through ‘momo’ or the banking system. The telecom network operators will take a commission or fee of ¢1 either out of pocket payment or deducted from the ¢100.

When the Recipient/Receiver (A) goes to withdraw the money, he will be charged another ¢1 as withdrawal charges or commission. Now assuming that the transfer charge and the withdrawal charge are withheld from the ¢100, the Receiver (A) will receive ¢98. Note that a cumulative ¢2 have been withheld as commission to be shared by the telecos and the mobile money vendors according to their terms of engagement. Giving the market vicissitudes, a prudent government will start by imposing the e-levy on the commission or fee charged by the telecom operators and the banks for money transfers.

This way, the burden of the tax is on the telecom operators, the vendors and the banks. In the illustration, government e-levy of 1.75 percent of ¢2 will be 0.033pesewas. Even though, the revenues that will be generated will not be significant relative to directly taxing 5 the actual or principal amount, this will set the tone and consciously or unconsciously prepare the minds of the people for events that will unfold in the future. If the telecom operators and the banks decide to increase their commissions or fees, it will invariably increase government revenues as well from these transactions.

Secondly, there are no rational grounds as to why the government do not tax the commissions or transaction fees earned by the telecom operators and the banks from mobile money transactions. It is inherently unreasonable because the commissions or transaction fees do not form part of the core or traditional business of telecom operators. Government’s cavalier approach in intending to tax the people and leave the commissions paid by the same people to these industry players is unfortunate. Perhaps, the most poignant criticism of this e-levy has to do with the issues of potential double, triple or even quadruple taxation of the same money.

Take for instance where ‘A’ transfers ¢500 from her bank account to her mobile wallet. The bank withholds the e-levy of 1.75 percent and bank transaction fee. Whilst the ¢500 remain in the wallet, it will not be taxed, however, if ‘A’ decides to transfer the same money to ‘B’s mobile wallet, ‘A’ will have to pay another 1.75 percent tax on the same ¢500 which will be withheld by the telecom operator. There is even potential for triple and quadruple taxation of the same money if ‘B’ also decides to transfer part to ‘C’ and to ‘D’ in so far as that money keeps moving from one wallet to another.

And so, the best way to avoid this tax, tax avoidance being legally acceptable is to engage in cash transactions. Concomitantly, the government appears fixated or obsessed with the amount of money, ¢6.9billion we are told that will be generated by this e-levy and they failed or she has not been properly guided about the propriety of this tax vis-à-vis the Communication Services Tax (CST). The people are already burdened with the CST of 9% for every purchase of credit or data. The purchase of data or credit are electronic transactions for which the people are already taxed.

Thus, in the realities of politics, any additional tax in respect of mobile money transactions ought to have been proposed with a correspondent decrease in CST for the meantime, and for political purpose. Finally, it is clear beyond cavil that the intention of government is to raise revenue and for good reasons. What government should do which has greater potential for substantial revenue generation is for the Ghana Revenue Authority (GRA) to work assiduously on issues of transfer pricing in the petroleum and the mining sectors.

Another notable area of interest is profit repatriation by these foreign companies in the petroleum, mining, telecommunications, and the banking sectors. The mechanisms to avoid tax through transfer pricing and profit repatriation ought to be seriously investigated, instead of this happenstance e-levy. Conclusively, the e-levy, notwithstanding its challenges, just like VAT is a good source of revenue for government today and any government tomorrow.

The discussions should focus on fine-tuning the tax and not to scrap it. Any opposition to this tax today for political reasons other than sound principles of tax, economic, financial and social considerations will come back to hunt those opposing it. Its advantages far outweigh its disadvantages and scrapping it will not be in the interest of government which include the people. Let pay the e-levy, and hold government seriously responsible to fix the roads, the hospitals etc. and all the goods things we all want from the government.