it’s not a bad idea, but it needs to be designed properly

The revenue collection of the Ghanaian government has been impoverished for several years. The average growth rate total government revenue and subsidies fell sharply from 32.6% (2009-2012) to 19.9% ​​(2013-2016) and 14.6% (2017-2020). Total revenue as a ratio of GDP currently it is 16%. This value is lower than average for sub-Saharan countries of 25% of GDP.

This needs to be corrected. There is no substitute for domestic resource mobilization. Even if a government borrows money to finance projects and programs, it will still have to mobilize domestic revenue to service and repay the debt.

The Ghanaian government needs to step up domestic revenue mobilization. It needs to be very strategic and raise funds from all sectors of the economy. One of the measures proposed by the government to escalate revenue collection is a 1.5% tax on electronic transactions. This proposal has been rejected by the main opposition party, the National Democratic Congress, and some Ghanaians. Many analysts have also criticized the policy, and some have not proposed any alternatives.

The reason for the government to introduce the tax is to tax the income from the huge informal sector in Ghana. According to Population and Housing Census 2021There are about 10 million workers in Ghana. Of this number, 2.3 million Ghanaians work in the formal sector and automatically pay personal income tax. The government finds it tough to tax the income of the remaining 7.7 million workers in the informal sector.

This tax is also aimed at a sector of the economy – the services sector – which has seen an escalate in economic activity and is rightly seen as having a high potential for generating revenue. The services sector accounts for the lion’s share of GDP and employment. According to the Ghana Statistical Service, it accounts for about 53.3% of employment and 49.2% of GDP. It is appropriate that the economic activity of this sector be properly surveyed and taxed.

In addition, the information and telecommunications subsector is one of the fastest growing subsectors in the country. Mobile Money (MOMO) transactions are growing very rapid. According to the Minister of Finance MOMo transactions increased from GHS78.5 billion in 2016 to GHS953.2 billion ($150 billion) in 2021.

I agree in principle with imposing a tax on electronic transaction (e-levy) but it must be designed to achieve the objective of increasing revenue from the informal sector. I hope that the different views and suggestions that have been put forward will be taken into consideration and it will be designed properly to raise the needed revenue.

How to fix a project

Taxes facilitate raise revenue. The basic principle of determining national income is that the multiplier effect of taxes on gross domestic product (GDP) is negative, but the multiplier effect of government spending on GDP is positive. So why should the government collect taxes?

Governments must collect taxes to raise revenues and spend them wisely, hoping that the positive multiplier effect of government spending on Gross Domestic Product will outweigh the negative multiplier effect of the tax on GDP, with an overall positive impact on GDP. Based on this principle, e-tax will reduce disposable income, but when properly applied, it will facilitate the government finance its development just as any other tax revenue would.

The economic principle is to tax income, not the means of payment. If one of the purposes of e-levy is to tax the income of informal sector workers, then only the recipient should bear the burden of e-levy. Asking the sender to pay e-levy will not amount to taxing the income of informal sector workers. If the recipient has to bear the entire burden of e-levy, it will have the following two benefits: income will be taxed – not the means of payment, and secondly, informal sector workers in Ghana will now pay income tax.

To ensure that informal sector workers pay personal income tax, there must be a policy that the only way to pay informal sector workers should be electronic (so that their income can be taxed). Secondly, to avoid multiple taxes, certain transactions must be exempt from e-tax. For example, using mobile transactions to pay taxes, school fees, bills, etc.

I also believe that many of the anomalies associated with e-tax can be fixed through filing. By digitizing and synchronizing the national identity card, known as the Ghana Card, with mobile phone numbers and tax identification numbers, it will be easier to identify all taxpayers. Even non-Ghanaians who do not have a card but still do business in Ghana cannot escape due to digitization.

E-levy could take a different form. Instead of taxing the transaction itself, the government could levy a tax on the fees charged by telecom companies. Some charge 1% of each mobile money transaction. After the government tax is factored in, the fee for mobile money transactions could be increased from 1% to, say, 2% or 3%. Depending on the price elasticity of demand for the good, telecom companies could decide whether to share the tax burden with their customers or take on the entire tax burden.

It is also critical that the government clearly explains its decision to introduce e-collection. Taxes must be productive and the tax rate must be optimal.

To facilitate the government optimize tax revenue generation, a cost-benefit analysis of the e-tax should be conducted before determining the optimal tax rate. I assume that the proposed tax rate of 1.5% is the optimal tax rate based on the government’s calculations. The cost-benefit analysis of the e-tax must be available for public scrutiny. If a cost-benefit analysis has not been conducted, the government must hire a consultant to do it on its behalf.

Finally, the government must ensure transparency and accountability in the apply of e-tax. If people saw that their money was being put to good apply, they would pay, and even pay more.