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Will Ghana’s new e-levy help the economy recover from the pandemic?

Ghana isn’t the only country to try to tax mobile money transactions

Head porters march in the streets on the second day of protests over recent economic hardships in Accra, Ghana, on June 29. Many protesters are not happy about the country's new e-levy on mobile money transactions. (Francis Kokoroko/Reuters)

With a tweet in May, Ghana’s president, Nana Akufo-Addo, enthusiastically announced the start of a government e-levy — a 1.5 percent charge on mobile money transactions above 100 Ghanaian cedis ($12). Some merchant, bank and individual money transfers are now subject to the new tax.

Ghana’s parliament passed the measure in March amid contentious debate. In May, the Supreme Court dismissed an injunction filed by the opposition party to stop the implementation of the electronic levy because of a perceived irregularity in its parliamentary passage.

Like many developing countries, Ghana’s economy is challenged both by the effects of the pandemic and by disruptions due to the ongoing Russia-Ukraine conflict. Ghana has achieved rapid economic growth in recent years, but the economy struggles with double-digit inflation, a weak currency, rising public debt and a high cost of living. To aid the recovery and continue development without abandoning Akufo-Addo’s signature vision of “Ghana Beyond Aid,” his administration introduced the e-levy to help expand domestic revenue net. Initially, the administration hoped to avoid the need for an International Monetary Fund (IMF) bailout but made an about-face for IMF support. A government projection in July, meanwhile, cut projected e-levy revenue to around $70 million, a sharp drop from earlier estimates of about $800 million.

A World Bank report from April attributed the country’s disappointing economic performance to poor public finance management, and Ghanaians have protested the controversial e-levy. These developments raise questions about viable solutions to post-pandemic economic recovery in Africa. Here’s why.

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Ghanaians want to know where their taxes go

Ghanaians pay high prices for goods and services — and many see reasons to protest the added tax. IMF economists revised growth projections for the region to 3.8 percent in 2022, and predicted that higher food prices resulting from the Russia-Ukraine conflict will hurt consumer purchasing power in sub-Saharan Africa. In Ghana, some politicians argue that the e-levy adds further economic pressures, as two-thirds of households indicate that incomes have yet to recover to pre-coronavirus pandemic levels, according to the Ghana Statistical Service.

A 2021 Afrobarometer survey suggests that Ghanaians are willing to contribute to their own economic progress but want increased transparency about how tax revenue is used. They also want solutions to counter widespread corruption among public officials. The survey shows that 72 percent of respondents in Ghana are willing to pay more taxes to support development with domestic resources rather than external loans. But 70 percent aren’t sure of how their government uses taxes.

This sentiment was clear in a recent Afrobarometer survey, conducted after the introduction of the e-levy: 76 percent of respondents think the e-levy is a bad idea and will increase the burden on poor and ordinary citizens, while 51 percent are not at all confident that government will use revenue for development programs. The popular disapproval of the e-levy may thus stem not only from ordinary Ghanaians’ present plight, but also from a deeper distrust in government promises to deliver social services.

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The heated rhetoric — including the threat of a coup — that followed the introduction of the e-levy with Ghana’s 2022 budget statement is quite familiar to many citizens. In 1994, the government introduced an unpopular value added tax (VAT). This led to deadly protests, particularly in Accra. The government subsequently withdrew the VAT, then reintroduced it in 1998. The VAT has become part of the Ghanaian tax system, with several amendments through the years.

Much of the political wrangling and ugly protestations about the e-levy parallel what followed after Ghana’s initial 1994 VAT Act. Some scholars argue that, among other lessons from that experience, the government failed to adequately prepare citizens ahead of a major public policy. In Ghana’s case, for example, much of the population is employed in informal sectors of the economy, and just 42 percent of the current population have bank accounts.

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As in other parts of Africa, informal workers and the unbanked are likely to heavily rely on “mobile money” to easily transact business — they can simply transfer money with mobile phones and conduct business without a bank account.

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Criticisms of the e-levy claim that the tax is insensitive and poorly timed. Former president and opposition leader John Mahama argues against the e-levy, claiming that the current administration lacks political vision and leadership — and engages in economic mismanagement. He promised to repeal the tax if his political party is voted into power after the 2024 election.

In any event, the adoption of this e-levy is yet another validation of the exponential growth of the mobile money transaction industry across Africa. The use of mobile money has increased tremendously in recent years, and the pandemic further accelerated this preferred payment method. Ghana’s total digital transactions for 2020 were estimated around $81 billion, up from $12.5 billion in 2016.

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It’s not just Ghana — Uganda and Kenya have also begun taxing mobile transactions. Critics in Ghana, similarly, worry that the introduction of such a levy won’t necessarily expand the tax base. Instead, the new tax could reverse gains made in electronic payments and financial inclusion, particularly among the informal sectors of the economy. Intriguingly, the Afrobarometer survey reveals an almost 50-50 split between Ghanaians who would continue to use — or avoid using — electronic financial transactions after the e-levy. Other experts argue, conversely, that with the exponential increase in registered active mobile money users — an estimated 61 percent of Ghanaians by November 2021 — this industry will undoubtedly remain a crucial part of the post-pandemic recovery.

The effects of the covid-19 global economic slump, and ongoing supply disruptions, add further incentives for developing economies like Ghana to enact resilient domestic economic policies based on sound public expenditures and inclusive revenue mobilization. Ghana’s recent e-levy launch and the public reaction suggests that broad-based public consensus-building and effective public education alongside government accountability will be a critical part of these policy moves. Though public education campaigns may not eliminate anxieties about a new tax, they may lessen setbacks and frustrations.

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Richard Aidoo is a professor of political science at the Spadoni College of Education and Social Sciences at Coastal Carolina University.