Double taxation, a scenario where a taxpayer is taxed twice on the same source of income, either by the same jurisdiction or different jurisdictions, is a complex issue that poses significant challenges for businesses and individuals operating in Ghana. With its implications on investment, trade, and economic growth, understanding and addressing double taxation is crucial for fostering a conducive business environment in the country. In the case of Ghana’s Electronic Transfer Levy (Amendment) Act 2022 (ACT 1089) (E-Levy), the concern arises from the possibility of subjecting digital transactions to multiple layers of taxation, thereby exacerbating the tax burden on businesses and consumers alike. Like many other nations, Ghana has entered into various tax treaties with other countries to mitigate the adverse effects of double taxation. These treaties, also known as double taxation agreements (DTAs), aim to eliminate or reduce instances of double taxation by allocating taxing rights between the contracting states.
E-Levy: A Case of Digital Double Taxation?
The evolving nature of business models, especially in the digital economy, has exacerbated the challenges associated with double taxation. With the rise of e-commerce and digital services, determining the appropriate jurisdiction for taxing income generated from online activities has become increasingly complex.
The E-Levy imposes a 1.0% tax on electronic transactions, including mobile money transfers, e-commerce transactions, and other digital financial activities. While the government frames this levy as a means to mobilize revenue and foster digital transformation, critics argue that it represents a form of double taxation, particularly when considered alongside existing taxes and levies.
For instance, businesses and individuals engaged in e-commerce activities are already subject to Value Added Tax (VAT) on certain goods and services. By introducing the E-Levy on top of existing taxes, the government is burdening digital transactions with multiple layers of taxation, stifling innovation and hindering the growth of the digital economy.
Impact on Businesses and Consumers
The imposition of the E-Levy, without adequate safeguards against double taxation, has had far-reaching consequences for businesses and consumers. Small and medium-sized enterprises (SMEs), already grappling with the economic fallout from the COVID-19 pandemic, find it increasingly challenging to navigate the complex tax landscape and remain competitive.
Consumers, too, bear the brunt of the E-Levy, as businesses pass on the additional tax burden through higher prices for goods and services. This regressive tax mechanism disproportionately affects low-income individuals relying heavily on digital financial services for everyday transactions.
To further muddy the waters, there has been the introduction of the practice of imposing taxes on both the transfer of funds from bank accounts to mobile money accounts and on withdrawals from mobile money accounts in Ghana, which has drawn significant criticism from various quarters, because it then raises the bar from a double taxation menace to a quadruple one
Here are some key criticisms of this practice:
- 1. Double Taxation: The imposition of taxes at both stages of the transaction constitutes double taxation, as individuals are effectively taxed twice for the same transaction. This practice burdens taxpayers with additional costs and undermines the principle of fairness in taxation.
- 2. Regressive Nature: The taxation of both transfers and withdrawals disproportionately affects low-income individuals and small businesses, who rely heavily on mobile money services for everyday transactions. These individuals are more likely to feel the impact of double taxation, as the additional costs eat into their limited financial resources.
- 3. Inhibiting Financial Inclusion: Ghana has made significant strides in promoting financial inclusion and digitalization, with mobile money playing a crucial role in promoting financial inclusion in Ghana by extending financial services to everyone with the impact felt, especially in rural and underserved areas where traditional banking infrastructure is limited. However, the E-Levy raises concerns about its potential to undermine these efforts by discouraging the use of digital financial services. The imposition of taxes on transfers and withdrawals could deter individuals, particularly those with lower incomes, from using mobile money services, thereby hindering financial inclusion efforts.
- 4. Disincentive to Digital Payments: Taxing transfers and withdrawals from mobile money accounts could discourage individuals and businesses from using digital payment platforms, leading to a resurgence in cash-based transactions. This goes against efforts to promote a cashless economy and undermines Ghana’s broader digitalization agenda.
- 5. Impact on Economic Growth: Double taxation on mobile money transactions could have adverse effects on economic growth and entrepreneurship. Small businesses, which often rely on mobile money for payments and transactions, may find the additional tax burden prohibitive, potentially stifling business growth and innovation.
- 6. Lack of Transparency and Consultation: The imposition of taxes on mobile money transactions without adequate consultation with stakeholders and the public has raised concerns about transparency and accountability in tax policy formulation. The lack of transparency in decision-making processes undermines public trust in government institutions and fosters discontent among taxpayers.
Addressing Double Taxation in the E-Levy
Critics of the E-Levy have called for a more nuanced approach that addresses the issue of double taxation while still achieving the government’s revenue objectives. One possible solution is to harmonize the E-Levy with existing tax regimes to ensure that digital transactions are not unfairly targeted or subjected to multiple layers of taxation. Moreover, there is a need for greater transparency and consultation in the formulation and implementation of tax policies, particularly those affecting the digital economy. Stakeholder engagement, including input from businesses, civil society organizations, and tax experts, can help identify potential pitfalls and design more equitable tax frameworks.
In conclusion, the implementation of the E-Levy in Ghana has reignited debates surrounding the issue of double taxation and its implications for businesses and consumers. The practice of imposing taxes on both transfers to and withdrawals from mobile money accounts in Ghana has elicited widespread criticism due to its regressive nature, impact on financial inclusion, and potential to hinder economic growth. Critics argue that double taxation on mobile money transactions is unjust, undermines digitalization efforts, and calls for a more equitable and transparent approach to taxation in the digital economy.
While the government seeks to leverage digital taxation as a means to boost revenue and promote digital transformation, the specter of double taxation looms large, threatening to undermine these objectives.
As Ghana charts its course toward a digital future, it is imperative that policymakers strike a delicate balance between revenue mobilization and the prevention of undue tax burdens. By addressing concerns related to double taxation and adopting a more inclusive approach to tax policy formulation, Ghana can foster a conducive environment for digital innovation and economic growth, while ensuring fairness and equity for all stakeholders.
Article by
Charles Fiifi Hagan
He has background and experience in Financial Accounting and an Adjunct Fellow at YAFO Institute. He is also the President of Chayil Institute, a tax advocacy organization and CEO of CHEMS Consult, a publishing firm in Ghana.
