Govt to redesign E-levy after earning just GHc 800m as at May 2023

The Government Ghana is poised to overhaul the Electronic Transfer Levy (E-levy) in a bid to enhance revenue generation and streamline administrative processes.

As of May 2023, this tax mechanism has already amassed an impressive sum of over GHC800,000,000.00. However, the government believes that there is room for improvement in this regard.

This perspective is articulated within the Government’s Medium Term Revenue Strategy plan, which was unveiled by the Ministry of Finance in September 2023. The E-levy, which was initially introduced in May 2022, has already undergone certain modifications.

Initially, it was structured as a 1.5% fee imposed on all electronic and mobile money transactions exceeding ¢100 per day. The primary aim was to encompass a larger section of the Ghanaian population within the tax net, including those in the informal sector of the economy.

Nevertheless, concerns arose among the public about the high rate of this levy, as it was perceived to have adverse consequences for individuals with limited financial resources. Additionally, there were reports of people avoiding mobile money transactions and instead opting for cash transactions.

This trend raised concerns about the potential erosion of the gains achieved through the digitalization initiative. Consequently, the rate was reduced to 1%, but the specific alterations planned by the government remain unclear.

The government document also highlights concerns about the fact that direct taxes have contributed more to the total tax revenue than indirect taxes and international trade taxes over the past decade. It further notes that individuals in the informal sector have not been adequately included in the tax system.

The document reads

“To date, there has not been an effective mechanism to ensure that persons in the informal sector pay their fair share of taxes, especially income taxes. There are no simplified tax returns for small and medium enterprises, and the costs of tax compliance for such businesses tend to be burdensome. Several industries and companies, both small and large, within specific sub-sectors have enjoyed concessionary income tax rates since the 1990s and mid-2000s in an effort to stimulate investment and domestic production. However, the corresponding economic impact, including increases in exports, foreign exchange reserves, and employment, is not equally evident in these incentivized sub-sectors. Furthermore, inflation over the years has significantly eroded the progressivity of individual tax rates and the disposable income of the average Ghanaian.”

To address these issues, the government intends to reassess tax types that no longer align with current market conditions, such as stamp duty, income tax stamp, and vehicle income tax. It also aims to redesign certain policies, including the electronic transfer levy, and introduce new tax measures to address income tax matters arising from the digital economy.

On the front of indirect taxes, the government plans to implement an automatic adjustment formula for specific tax rates, review VAT exemptions to enhance their efficiency and reduce distortions, and reconsider the VAT and the imposition of levies to make them more supportive of the industrial sector.

SOURCE: Coverghana.com.gh