A Daring Tussle with E-Levy: A Backward Outlook for Youths with Informal Businesses

It has been a great and intense discourse on the introduction of the new tax on electronic transactions in Ghana. The 2022 budget statement of Ghana saw the introduction of E-Levy on page 74 which outlined the payment of a 1.75% levy on electronic transactions covering mobile money payments, bank transfers, merchant payments, and inward remittances.

The E-Levy sought to include what the government termed as a ‘shadow economy’ in the tax bracket. However, this new development was met with huge tussle from citizens, civil society organizations, and YAFO Institute was no different, contributing to policy alternatives and providing evidence-based education to the Ghanaian populace.

For instance, when the Finance Minister, Ken Ofori-Attah, asserted that E-levy would ensure the creation of 11 million for the youth as a way to gain public support for the new tax policy. It was argued in the article titled ‘E-Levy and the Myth of State Sponsored Job Creation Programs’that government programs focused on job creation are unable to create jobs and that government job creation programs including Youth Enterprise Support, National Entrepreneurship and Innovation Plan (NEIP), and Nation Builder Corps (NABCO) have all failed to create jobs for the youths. Therefore, the new YouStart which part of the E-Levy is intended to fund would not tell a different story.

Also, our presser added a fresh voice by seeking to create an exemption for students and parents during school fees payment. This sought to broaden section 2 of the E-Levy bill which had already created a few exceptions. The presser drew the attention of many media houses who called for further interviews and published the same on their websites. The presser had a massive impact and an impressive regional cover as well. We had interviews on FM stations in Ashanti (Glory FM), Greater Accra (Star FM, Accra FM, Class FM, Top FM), Ahafo (Rejoice FM, Yankey FM, Ahoto FM), Western (Ahoto FM), and Eastern regions (Delight FM) with the least interview time averaging 10 minutes. In all, we had a total of 10 radio interviews and 6 media publications on online media portals including Modern GhanaClass FM onlineGhana WebMy News GhanaRainbow Radio Online, and Igo Ghana.

Our Gains

The projection to pass E-Levy into law by February 2022 was delayed. The E-Levy could not be passed into law at the expected projection following the intense opposition it faced. The education on the new tax policy was easily understood and its impact was directly affecting informal businesses. Therefore, public outcry made support for E-Levy unattractive to the government.

The government could not by its whims do just anything but for the first time saw the need for broader stakeholder engagements. There were a series of town hall meetings organized by the government to discuss, explain, and gain the support of the populace for E-Levy. It is observed that though the series of town hall meetings were done with most being grassroots faithful of the ruling government, the positive aspect was that at least the government saw the need to further engage and explain the new tax policies to taxpayers.

In addition, E-Levy was reduced from the initial 1.75% levy to 1.5%. The imposition of E-Levy was aimed to tax electronic transactions to a percentage of 1.75. However, this was reduced to 1.5%. Amidst the public outcry, the reduction is enough to confirm that the efforts of everyone against the imposition of E-Levy at least made some progress however little.

The contribution of every individual to the discourse against imposing E-levy brought some gains. This may seem little but hopeful ground to build on for the future. Despite the gains, E-levy was passed in March 2022 and would commence implementation in May 2022. This development as predicted would change the face of business, especially businesses in the informal sector.

E-Levy and The Expected Reaction

The Deputy Minister of finance, John Kumah, revealed that the government is expecting a 24% drop in mobile money transactions after E-Levy is introduced within the first three to six months. However, the reduction seems to have come sooner than anticipated and there has been a reduction in transactions even before its implementation. People are not waiting for E-levy to commence implementation but have already taken their decision.

Many informal businesses have stopped accepting mobile money payment and feature which was predominately used by the informal businesses in Ghana. Most of these businesses are returning to the traditional cash economy whereas others are finding ways to avoid the E-Levy. Others are contemplating how E-Levy would not affect salaries paid through mobile money.

According to the Economic and Financial data, mobile money transaction has declined by GHS10 billion as of March 2022. This reduction is not a new phenomenon because closer attention to the data reveals that the reduction commenced sharply after the announcement of the E-Levy. After the 2022 budget reading in November 2021, mobile money transactions reduced from GHS86.1 billion to GHS82.9 billion representing a 3.8% decline in December 2021. This further reduced to GHS76.2 billion in January 2021.

Additionally, from November 2021 to January 2022, the total number of transactions has reduced by 24 million, the number of active agents has reduced by 7,000 and the active mobile money account has also reduced by 600,000. This certainly is a reaction to E-Levy prior to its commencement on 1 May 2022. It may not be surprising if the estimated GHS6 billion revenue target to be generated from E-Levy is not met.

The government has done little to develop the informal sector. However, anytime it considers the sector in policy discussion, the conversation is always about how to tax them. Unfortunately, the E-levy presents a backward outlook for informal business and the sector may be heading deeper into the shadow economy. The emergence of mobile money as least offered some financial inclusiveness to the informal sector which brought informal businesses into the lamplight. The less documentation involved in using mobile money made it attractive to the informal sector. In fact, the financial inclusiveness added quick loan services on mobile money which was really helpful to the informal sector, since ordinarily, the sector finds it difficult to secure loans from traditional banks. However, E-Levy can erode such gains and further push the informal sector out of the economy making them difficult to find.

A Backward Outlook for Youths with Informal Businesses

We are barely two weeks away from the implementation of E-Levy to commence. The effect of this new tax component cannot be under emphasis. The informal sector is significant in sustaining livelihoods in Africa. The sector employs the majority of youths whether educated or not. According to the Ghana Living Standard Survey (GLSS6), the private informal sector employs over 90% of people in the economy. In fact, youths are dominant in the informal sector, undertaking their own initiatives in small ventures or adding up to the value chain for further production. With rising unemployment among the youth, most find engagement within the informal sector to sustain themselves.

Students are also not left out. Many students run small businesses on campus. These businesses mostly do not have a physical business location but rely online on to interact with customers and deliver goods to their doorsteps. This is boosting retailing businesses for students and entrepreneurs. It’s the start-up stage for students to learn practical business management to drive entrepreneurship. The use of electronic transactions saves time and helps students to engage in business without losing focus on a successful academic pursuit.

Also, young professionals engage in some side business within the informal sector to increase income flows and to sustain their increasing livelihoods as well. These professionals may retail to their co-workers and other individuals along the chain of work.

These activities are undertaken by youths and heavily rely on electronic transactions. For instance, retailers do not travel for goods from their suppliers but only pay for the goods of interest using mobile money and have the goods delivered to them by suppliers to sell. This has eased business operations in the informal sector and enabled youths to save time and engage in several other ventures. The implementation of taxes on electronic transactions (E-Levy) would disrupt these activities. The government has proven that it neither creates value nor employs the youth but also erodes the value created by the youths in the informal sector.

The E-Levy is going to be met with the declining use of electronic transactions by customers, retailers, and suppliers. This is because the E-Levy creates a tax burden on the usage of electronic transactions and does not give choice for businesses to bear the tax burden for their customers even if they wish to do so. This would affect the youths with informal businesses and may force them into the traditional cash economy.

The cash economy also comes with its own risk ranging from robbery attacks and loss of business capital just because people might want to take direct cash to evade the burden of E-Levy. Cash on delivery can put courier service on the dual function of delivering goods and taking direct cash from customers to retailers. This practice may put lives and entire business ventures at risk.

Photo Credit: AB2020

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