HomeTrendingKofi Adofo Wadie writes: Agyenkwa budget, e-levy & matters arising

Kofi Adofo Wadie writes: Agyenkwa budget, e-levy & matters arising

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A few days ago the Finance minister, Hon Ken Ofori Atta presented on the floor of parliament the 2022 budget statement which specified the government’s road map for the revenue mobilization and financing of key governmental policies. The budget looks very promising in its outlook with the introduction of the Youth Entrepreneurship training program which would build the entrepreneurial capacity of the Ghanaian youth and with the introduction of the Ghana Cares/Obaatanpa program to revamp industries that were heavily affected by the Covid 19 pandemic through soft loans and tax incentives.

These interventions though meriting intense public discussion and scrutiny have barely been discussed in the public space. Public discourse has rather been ensconced with the introduction of the E-levy and its expected impact on the Ghanaian economy.

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This piece seeks to explain the rationale for this form of taxation, risks, and mitigation strategies that would ensure the government’s vision for revenue mobilization is met.

Rationale

We are all aware that digitalization especially in Africa is an expensive and laborious process, and pushing the economy towards a cashless model is a slow and painstaking process. Largely through private sector innovation, loosening of governmental restrictions, and favorable governmental policies, Ghana has become one of the digitally inclusive societies in Africa.

As stated by the finance minister the government is saddled with high expenditure and low cash inflows. Within our current collection tax regime, out of the 30 million Ghanaian citizens, only about 18% of the population pay any income tax, and a bulk of them (90%) are based in Accra. Also due to the pandemic lending rates on the international markets have increased while Foreign Direct Investments(FDI) and Foreign Aid have significantly reduced.

Current figures from the Bank of Ghana indicate that as of February 2021, total transactions worth $11.5bn have been made via the mobile money services while 17.5million people (representing almost 60% of the population) are active users of the service.

Against this backdrop, the government’s attempt to widen the tax net and boost its revenue mobilization efforts through the introduction of the e-levy might appear to be the next logical step.

Risks/ Issues

The timing of this particular tax appears to be flawed because the impact of the pandemic on the local economy has been devastating. There have been complaints of high inflation and the rising cost of basic commodities such as fuel which have made life difficult for most citizens .

Again the tax regime will negatively impact the gains made in our drive towards a cashless economy since people would feel reluctant to use mobile money transfers and would revert to the cash-based system of yore.
Aside from these two, another major issue lies in the flat rate of 1.75% to be charged on these transactions.
Imagine making a transaction of Ghc 5,000 via MTN mobile money to pay someone in Kumasi. You would be forced to make an additional payment of 135 cedis(ie. 2.75%) which would be very close to the price of picking a bus to Kumasi and back.

Plus the “ charges” that the recipient might request in order to accept the cashless transaction. This is an absolutely untenable position to put business owners in and will reduce the total volume of cashless transactions conducted by large business owners. Similar complaints about transaction processing fees have led to the low usage of Visa cards usage in Ghana.

Proposed Solutions

Rather than a flat rate charged on all transactions, a proportional taxation scheme would fix the challenge faced by large business owners. With the proposed implementation module, larger transactions would attract lesser fees while the baseline tax fee will not be affected. For instance transactions above Ghc 3000 should attract a 1% fee and above GHc 6000 should attract a 0.75% rate and so on and so forth.

This would ensure that transactions can continue without issue and the temptation of carrying out larger transactions via cash is averted.

Again, Transfers made to numbers registered as Business Accounts should attract lower tax margins to boost their profitability and ensure the ease of doing business.
Finally, there must be rigorous public education on the importance and the necessity for paying our taxes to desensitize us from the ingrained tax avoidance/evasion practices that have hampered revenue collection in Ghana since independence.

Hopefully, the stars review discussed in this piece will serve as a better road map for implementation.

Author: Mr. Kofi Adofo Wadie | Center-Right Social Commentator | +233278431572


Source:universnewsroom.com

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