The Minister of Finance, Ken Ofori-Atta, could be toying with the Ghanaian economy by hanging his hopes towards addressing the economic hardships that people are complaining of on the introduction of 1.75 percent on MoMo and other electronic transactions levy.
It has been argued in many countries across the African continent where MOMO have been taxed with the hope of reviving the economies, the countries did not get the anticipated revenues, rather customers refused to use the platforms and resorted to normal cash transactions to swerve the electronic taxes. This impacted negatively on both MOMO consumers and the economies.
Bitter lessons were said to have been learnt in Kenya, Tanzania and Uganda, because although mobile money was seen as key to Africa’s growth, it was ruined by “bad tax policies”.
Indeed, some research carried out on the subject proved that taxing MOMO was counterproductive. It was seen as a lazy approach to raise revenue by targeting a low hanging fruit to pluck.
One of such research carried out by GSMA on Mobile Money said, “While there is no doubt that African governments have to raise taxes and broaden their tax bases, they must also approach tax policy with a discerning eye. Despite the diverse methods proposed to tax mobile money, in most cases the results – especially on mobile money transactions – are controversial, proving the structural weaknesses of taxation in the region and putting Africa’s financial inclusion at risk”.
The GSMA notes: “State authorities are unable to fully understand the nuances of emerging sectors, such as mobile-money services or even the wider digital economy.” The result has been “badly designed taxes which, although they may seem attractive at first sight, fail to consider the impact on the broader economy and society.”
It added that “a poorly designed tax policy, leads to deficient outcomes. Independent research and reports from prestigious organisations, such as the above-mentioned GSMA, reveal aspects of the problematic way in which mobile money services are treated. This includes specifics of the population that uses these services or the negative impact on financial inclusion those taxes bring about”.
The GSMA Mobile Money report noted that “there is a lack of capacity within research units at the policy level and a lack of national policy frameworks to guide them. As a result, the full impact of mobile money taxes is not adequately assessed.
“Political economy factors are ever-present too, which leads to these taxes being implemented without established processes being followed,” the GSMA report argues. It also adds that where these taxes have been implemented, mobile money transaction values have contracted, and “their growth trajectory reduced with negative implications for wider CIT and VAT tax takes.”
“Another point of note is many mobile money users belong “to marginalised societal groups and the negative impact on financial inclusion and broader development goals is significant.” On the other hand, these taxes do not extend to the banking sector, suggesting that they are regressive, undermining tax equity’s fundamental concept.
“According to another report of GSMA, 77% of mobile money providers reported paying sector-specific taxes in 2019, whether on fees, transaction values, or total revenue. Additionally, 23% of those affected said taxation was harming the uptake of mobile money services and their business, revealing the regressive effect of poorly designed taxes.
“Channel VAS’ mobile financial services provide access to over $12m daily to a pool base of more than 750 million subscribers globally, a significant amount of which are in the sub-Saharan region. We have experienced first-hand these services’ growth, their beneficial effects on underserved populations, as well as how they can be hindered by poorly designed taxation.
“Mobile money has enabled sub-Saharan Africa to achieve unprecedented financial inclusion levels and will continue to contribute to broader development goals. When contemplating mobile money taxation, authorities should consider the longer-term negative impacts of such policies and work on a more flexible, far-sighted and understanding framework that will lead to more growth and, in turn, more earnings for the states in the long run.
In another report titled “Taxing mobile phone transactions in Africa: Lessons from Kenya”, it was said that “the data so far available shows that the contribution of mobile money-related taxes is less than 1 percent of total tax revenue, a negligible contribution to Kenya’s total tax income, at high economic costs”, adding “these lessons are not just relevant for Kenya but also for other countries in Africa with such tax propositions.
Introducing and increasing taxes on mobile phone transactions may risk stalling progress on digitization and fiscal policy design as well as revenue administration”.
The report done by the Executive Director – African Economic Research Consortium, NjugunaNdung’u who was once a Governor of the Central Bank of Kenya noted that “the increasing tax burden on the subsector and the consumers, though, has raised concerns that the massive gains made in financial inclusion in developing countries made possible by retail electronic payments platform via mobile phone transactions may be reversed-resulting in a return to cash transactions”.
Taxation on mobile phone-based transactions and on airtime has been introduced in Kenya and is spreading to other African countries. Some countries in sub-Saharan Africa view mobile phones as a booming subsector easy to tax due to the increasing turnover of transactions and the formal nature of such transactions by both formal and informal enterprises.
The increasing tax burden on the subsector and the consumers, though, has raised concerns that the massive gains made in financial inclusion in developing countries made possible by retail electronic payments platforms via mobile phone transactions may be reversed-resulting in a return to cash transactions. In addition to a 2003 excise tax on airtime, since 2013, Kenya has introduced and reworked taxes on goods such as mobile phones, computer hardware, software, and, more recently, retail financial transactions.
The most recent adjustments in taxation in the Finance Act 2018 increased the excise tax on money transfer services by banks from 10 percent to 20 percent, on telephone services (airtime) from 10 percent to 15 percent, on mobile phone-based financial transactions from 10 percent to 12 percent, and introduced a 15 percent excise tax on internet data services and fixed-line telephone services.
This paper shows that taxation on mobile phone airtime and financial transactions may not expand the tax base significantly but, rather, may reverse the gains on retail electronic payments and financial inclusion.
A higher tax rate on low-level retail electronic transactions mostly levied on low-income earners that are sensitive to transaction costs may discourage the use of mobile phone-based transactions, incentivizing them to revert to cash transactions to evade taxes and so less tax revenue. This trend will deal a big blow to the financial inclusion success witnessed so far.
Poorly designed tax policy will have poor outcomes on tax revenue and market distortions will drive consumption behavior on an undesired path, so any future review of excise tax rates on airtime and financial services should be preceded with a thorough analysis of optimal taxation excise taxes, the likely change in behavior around financial services, and, above all, the marginal contribution to the tax effort that policy aims to raise.
The data so far available shows that the contribution of mobile money-related taxes is less than 1 percent of total tax revenue, a negligible contribution to Kenya’s total tax income, at high economic costs. These lessons are not just relevant for Kenya but also for other countries in Africa with such tax propositions. Introducing and increasing taxes on mobile phone transactions may risk stalling progress on digitization and fiscal policy design as well as revenue administration.
In the case of Tanzania, its Prof. Benno Ndulu, a former Governor of the Central Bank of Tanzania, described Mobile Money tax as retrogressive.
In September this year, after six weeks during which its government faced increased criticism, the Tanzanian reduced the amount of its controversial mobile money transaction levy – by 30 percent.
The move was originally justified by a need to raise revenue for the Sh36.68 trillion (just over $15.8 billion) budget for the 2021/22 financial year. It was calculated that a levy on mobile money transactions would haul in some Sh1.254 trillion (about $541 million).
As the Citizen newspaper explains, the government amended the Electronic and Postal Communication Act in June by imposing a levy of between Sh10 ($0.0043) and Sh10,000 ($4.31) on mobile money transactions, depending on the amount sent and withdrawn. The levy became effective on 15 July.
As a guide, the newspaper calculates that, bringing all charges into play, sending mobile money to the value of Sh1 million ($431) to someone and having the money withdrawn would cost a total of Sh31,000 ($13.37) – a little under three percent of the total.
This was seen as far too high for many Tanzanians. It didn’t help much that it also seemed to undermine the aims of the second 2018-2022 National Financial Inclusion Framework (NFIF), whose vision is that “financial products and services meet the needs of individuals and businesses consistent with supporting livelihood, household resilience and creation of jobs”.
A review was mandated in July. The Ministry of Finance and Planning then issued a statement on 31 August that amendments had been made to the Regulations for Electronic Transactions Levy for 2021 with a view to reducing the rates by 30 percent.
In addition, the statement said, the government has also held talks with mobile service providers, who have agreed to reduce the rates they charge on mobile financial transactions by 10 percent.
In the case of Ghana, A Professor of Finance at the University of Ghana, GodfredBokpin, has asked the government to rescind its decision to implement taxes on mobile money and other electronic transactions.
Speaking on Joy FM yesterday the Professor described the move as unproductive, adding that the tax will further marginalise the poor.
“E-levy is the wrong way to go. Government should just abolish it before they even start implementing it. It is counterproductive, it’s a lazy way of raising revenue.
“Because the existing tax handles that require work, coupled with integrity and ethical values, have failed, we are adopting this indirect way that imposes a greater cost on the poor and marginalised and the socially excluded to fill up the revenue gap,” he said.
This follows the government’s decision to impose a 1.75% tax on all electronic transactions including mobile money and bank transactions which shall be borne by the sender except inward remittances, which will be borne by the recipient. The decision has been greeted with great resistance by the Minority in Parliament who insists it will be inimical to the pursuit of the digital economy agenda.
According to Ranking Member on Parliament’s Finance Committee, CasielAtoForson the move is counterproductive to plans aimed at making the Ghanaian economy cashless, adding that Ghanaians would be compelled to carry out transactions using physical cash.
Adding his voice to the conversation, Prof. Bopkin shared a similar view. According to the Professor, the decision defeats the purpose of the government’s digitisation agenda.
“In Ghana, we have embraced digitisation, a bit late though, but it’s good. So if you’re imposing a tax along that line what’s the motive; to promote it in line with the general trend or to hold it back? You don’t do this at this stage of your digitalisation.
“We are saying that we want to use Momo in paying taxes and all of that, then you slump this tax on it. Will it drive people underground? How will this inure to the financial inclusion agenda of the government? How will this lend support to the government’s own digitilisation agenda? So you don’t impose some kind of inhibitions that will cause people to explore other alternatives,” he said.
He further noted that considering the impact of Covid-19 and the fact that the pandemic has fast-tracked the 4th industrial revolution, it is important to put in measures that will promote the digitisation drive, rather than those that will impede it.
“The future is digitisation and digitilisation. It is expected that that is the channel through which greater jobs will be created going forward. In fact, studies have shown that by 2022, 50% of the global GDP would have been digitised. Studies have shown that the digitised economy is expected to grow faster than the traditional economy. So you don’t impose some kind of inhibitions that will cause people to explore other alternatives,” he added.
Meanwhile, the government still stands by its decision. Deputy Finance Minister, John AmpontuahKumah, who was also on the show justified the decision, insisting that the government needs to explore alternatives to raise funds for development.
The Telecommunications Chamber has stated that it will now engage the government on the newly introduced electronic transaction levy to ensure all-inclusive digital transactions at all levels.
According to Chief Executive Officer of the Telecommunications Chamber, Kenneth Ashigbey, the government did not engage the telecommunications industry before introducing the new levy.
“So far as this particular levy is concerned, there was no engagement with the industry before this imposition was done but in the same statement that the Finance Minister made, he talked about the fact that is going to be some engagements now that the announcement has been made,” MrAshigbey said.
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