A feature by Samuel Eshun
Accra, 13 Feb, GNA – In Accra’s teeming marketplaces, where mobile money agents dot nearly every street corner, Ghana’s digital finance revolution unfolds in staggering numbers. From a mere 3.78 million registered accounts in 2012, the reach of mobile money has surged to 65.6 million by 2023, outpacing the country’s entire population. Today, nearly 60% of Ghanaians aged 15 and older maintain a mobile money account, a reality that underscores its role as more than just a convenience. It is the pulse of commerce, the vehicle for financial inclusion, and, for many, the only viable alternative to traditional banking.
Against this backdrop, the government introduced the Electronic Transfer Levy (E-Levy) in May 2022, a tax designed to widen the revenue net and tap into the vast informal sector. Initially set at 1.75% before public pressure forced a revision to 1.5%, the levy targeted mobile money transactions, bank transfers, merchant payments, and inward remittances—with senders bearing the cost, except in the case of remittances, where the recipient was taxed. The rationale was clear: Ghana’s tax base was too narrow, its informal economy too vast, and its development needs too urgent to ignore potential revenue from digital transactions. But the levy’s implementation was anything but seamless.
Now, as President John Dramani Mahama pledges to abolish the tax within 120 days of his administration, the policy’s fate hangs in the balance. Was the E-Levy a necessary fiscal tool or a miscalculated burden on a fragile digital economy? The answer is buried in the numbers—and the delicate calculus of taxation versus economic growth.
A Tax Born of Necessity
When the E-Levy appeared in the 2022 Budget Statement, it was billed as a revolutionary instrument for a rapidly digitising economy. With mobile money transactions exceeding GH₵3.019 trillion in 2023, the government identified an opportunity to harness a sector that had outgrown conventional oversight. The tax, however, arrived with baggage: a complex rollout, widespread resistance, and a lingering perception of being an undue financial burden at a time when inflation and economic uncertainty were already stretching household budgets thin.
Despite the government’s insistence that the levy would help fund critical initiatives—entrepreneurship, youth employment, cybersecurity, and infrastructure—the scepticism was immediate and fierce. The levy’s impact was felt not just in revenue collection but in behaviour; Ghanaians, wary of additional costs, adjusted their financial habits to sidestep taxation, undermining its effectiveness.
The Shortfall in Numbers
Data from the Ghana Revenue Authority (GRA) suggests the levy performed better in 2023 than in its dismal first year. The GH₵1,194.50 million collected surpassed the budgeted GH₵1,111.28 million by 7.5%. But the broader reality is less encouraging. The initial projection for 2022 was an ambitious GH₵6.96 billion. By the end of the year, the levy had only amassed GH₵643.35 million, a staggering 90.8% shortfall that forced the government to slash its target to GH₵611 million. While the adjusted target was ultimately met—the levy exceeded it by 5.3%—the drastic downward revision illustrated the misalignment between expectations and execution.
Monthly revenue figures, detailed in the GRA’s 2022 Annual Tax Revenue Performance Report, revealed persistent underperformance. The pattern was unmistakable: many users simply found ways around the levy, either by reverting to cash transactions or splitting transfers to stay below the taxable threshold. What was meant to be a significant revenue stream instead became a lesson in tax avoidance.
Looking ahead, the GRA projects GH₵2,101.96 million in E-Levy collections for 2024—a 76% increase over 2023. But these forecasts hinge on compliance and public trust, two factors the policy has yet to secure.
A Double-Edged Sword for Mobile Money
Ghana’s mobile money landscape remains one of the most dynamic in Africa, with over 65.6 million registered accounts as of 2023. For many, particularly those in rural areas, it is more than a convenience; it is a financial lifeline. The introduction of the E-Levy sent ripples through this ecosystem, with transaction volumes dipping as users sought to minimise their tax liabilities.
Supporters of the levy argue that taxing digital transactions is a logical step towards formalising the economy. Critics counter that the levy stifles financial inclusion and disproportionately burdens low-income earners, who rely on mobile money for daily survival. The debate remains unresolved, but the stakes are clear: a tax policy that undermines the very system it seeks to benefit risks long-term damage to financial inclusion efforts.
Is Ghana on Its Own in This Regard?
Across the continent, the trend is unmistakable governments are scrambling to capitalise on the digital finance revolution, often citing revenue mobilisation and economic formalisation as justifications. Uganda introduced a 1% mobile money tax in 2018 before reducing it to 0.5% following public backlash, while Zimbabwe imposed a 2% transaction tax in 2019 amid economic turmoil. Kenya’s excise duty on mobile money transfers has fluctuated over the years, rising from 10% to 15% in 2022. These cases illustrate a common reality: as digital transactions increasingly replace cash, African governments view them as a lucrative and easily accessible tax base. However, the push for digital taxation often collides with economic hardships, financial inclusion efforts, and the unintended consequence of driving users back into informal, cash-based transactions—undermining the very revenue streams these policies seek to expand.
The IMF and the Fiscal Tightrope
Ghana’s fiscal crisis has put the government on a tightrope. In 2023, the country turned to a $3 billion IMF bailout, signalling the urgent need for revenue mobilisation. The IMF’s focus on fiscal consolidation makes it unlikely to support the removal of the E-Levy, especially considering its potential to erode Ghana’s fragile revenue base.
However, a closer look at the numbers suggests the levy was never the strong fiscal tool the government envisioned. Despite the government’s hopes, it has underperformed, raising questions about its long-term viability. If scrapping the levy becomes a serious policy proposal, the IMF will demand robust, credible alternatives to fill the void—an exceptionally difficult task in an economy still reeling from the aftermath of COVID-19 and global inflationary pressures.
From the IMF’s perspective, the issue isn’t just the removal of a tax but the broader implications for fiscal sustainability. If the E-Levy’s abolition is seen as part of a strategic overhaul—one that replaces ineffective taxes with more efficient, revenue-generating measures—the IMF may reconsider its stance. Yet, this shift must be backed by tangible evidence that Ghana’s revenue trajectory won’t be further compromised, which places enormous pressure on policymakers to find alternatives that can boost long-term revenue streams.
A Defining Moment for Economic Policy
The decision to retain or abolish the E-Levy will be a defining test of economic leadership. Politically, Mahama’s pledge resonates with a population exhausted by rising costs and mounting taxes. But political rhetoric does not pay bills. Scrapping the levy may score electoral points, but replacing the revenue will demand careful manoeuvring.
Ghana’s experience with the E-Levy offers sobering lessons. Taxation in a digital economy is a delicate equation—one that must balance fiscal imperatives with economic realities. The backlash against the levy was not just about its financial cost but about perceptions of fairness and necessity. A policy that lacks public buy-in is doomed, no matter how technically sound its foundation.
A Pragmatic Path Forward
Ghana stands at an economic crossroads, its choices poised to shape the trajectory of its recovery. The E-Levy debate is not merely about taxation; it is about governance, trust, and the viability of digital financial systems. Scrapping it without a concrete alternative would be reckless. Keeping it without reform would be equally misguided. The way forward demands pragmatism, innovation, and a willingness to learn from missteps.
As Joseph Kahn once noted, “Economic policy is not just about numbers; it’s about people.” Ghana’s leaders would do well to remember that as they navigate the next chapter of the country’s fiscal journey.
GNA