Government’s Taxing Task [Article]

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Reading the Budget in Parliament, the Minister of Finance at a point looked like he was the host of an Oprah Winfrey or Ellen DeGeneres episode – You get a tax! You get a tax! Everyone gets taxes!!! But the irony of it was that the beneficiaries of his giveaway were not just those sitting in the audience that day. We all got taxed.

The tax-maker (essentially the Government) is being taken to task by tax-payers over the proposed Electronic Transaction Levy (or e-levy) in the just-read, Agyenkwa budget. Rightly so? Well, no one loves to pay extra for anything.  More so when the benefit from that expense is deemed not so direct.

The e-levy train sits in the tunnel now because Parliament will have to debate the Budget and pass it before implementation kicks in.  The train is expected to start calling from 1st February 2022 so we don’t have to mind the gap in our pockets just yet. All governments handle tax increases or the introduction of new taxes with great caution. A real, morbid fear of raising taxes to solve budget problems does exist.  There is always great unwillingness to do this just as there is to cut social welfare programmes to solve these challenges. So why the introduction of this tax at this time?

Simply, the Government has decided there cannot be free riders anymore.  Struggling to rope in the ever-growing informal sector into the tax net, successive governments have largely burdened the same category of tax-payers over the years.  This time round, it says it is thinking out of the box. A broader-based approach is required so we all share the burden of helping balance the budget. But is this tax incidence tangential to one of the principles of a desirable tax system – fairness? On the other hand, key features of any tax are low collection costs and administrative ease. The e-levy fits the bill perfectly.

The government’s critics say this is pretty much a regressive tax – notwithstanding the daily GHS100 exemption threshold – and that it flies in the face of the gains made from their digitization and digitalization agenda. But Government will surely dig their heels in – maybe together with all their digits too – to get this tax off the ground. There is a huge shortfall in revenue that needs shoring up to help meet the Government’s programmes for next year. The e-levy is Agyenkwa’s silver bullet. And the gunslinger fired with precision on Budget Day.

Government built the interoperability infrastructure that supports e-transactions. We have also heard the e-Government mantra being bellowed unfailingly from Jubilee House. In effect, they can argue that it will be counterintuitive, on their part, to do anything inimical to lowering business transaction costs. Abolition of the road tolls will be another pointer. The economic benefits created by the plethora of e-money products and services on the market are incalculable and they accrue directly to the larger populace. The financial inclusion vision can’t then be said, arguably, to have been sacrificed just for one tax policy.

But some are crying foul and threatening to boycott usage of mobile money (MoMo) and e-commerce services, going forward.  The pervasiveness and sheer value of MoMo transactions (GHS500 billion in 2020) makes one think that there was always some inevitability around the e-levy’s introduction. It seemed more a case of when than if – and at what rate. Government believes there is inelastic demand for these services. And for current users, it is seemingly obvious that backing out from this ecosystem would be more deleterious than helpful. The telcos and fintechs must be sitting nervously as this may impact their bottom line.

While the e-levy may prove unpopular from the start, it is hoped that this will not become another extensively-milked cow – as has been done with petroleum products. Actual revenue realised from such levies are normally not wide off the mark from what is targeted. Thus, the ability to see through the channeling of expected revenues to the targeted areas of deployment (i.e. entrepreneurship, youth employment, road infrastructure etc.) may win some doubters over with time.

But, as a start, can we have a maximum amount that each of the applicable transactions attracts as a levy? Specific caps on the levy surcharged could lessen the financial impact as we come to terms with the implementation.  Did I hear someone say, tongue-in-cheek, that we must ask all parliamentarians who vote in favour of the new tax to have their levy doubled to 3.5%?

Running a Government is never easy. It’s truly a taxing task.

By: Benjamin Bright-Davies

The writer is the CEO of CashBack Capital

Source: citinewsroom