Belling E-Levy cat
The most significant highlight of the 2022 budget was the proposal to impose an E-Levy of 1.75 per cent on all electronic fund transfers.
This proposal has since set both sides of Parliament against each other.
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Whilst the majority side is determined to pass the levy as proposed by government without any amendments, the minority has also vowed to shoot it down at all costs because it is too harsh and insensitive.
This is my take on the levy and my proposed pathway out of the puzzle.
I support the Levy in principle because we do need additional revenue lines to fix the country. The way it is packaged has, however, given it killer attributes that cannot be camouflaged by the Agyenkwa name given to it.
Financial Services Tax
Let us start with the 1.75 per cent rate proposed to be charged on transferred amounts. In 2015 thereabout, the previous government introduced a Financial Services Tax which imposed a 17.5 per cent VAT on Financial Services. The 17.5 per cent VAT affected bank transfers in the same way the E-Levy will affect transfers on all money transfer platforms and payment terminals. The VAT was, however, levied on the charges imposed by the bank for making the transfers for its customers but not on the amounts transferred.
The banks normally charge a one per cent fee for such transfers. Although the charges for their prime customers who actually do the biggest transfers can be as low as 0.25 per cent, I will use the one per cent, which is the high end of the charges, for my illustration. A GHS1.0m transfer under the old tax resulted in a tax charge of GHS1,750. This was 17.5 per cent of one per cent of the GHS1m transferred.
The NPP then in opposition, led a campaign against it on the grounds that it was a nuisance and punitive tax. When the party took over the reins of government in 2017, it scrapped the tax as a practical demonstration of its conviction that it was indeed a nuisance one. Fast forward to December 2021, the same government laid an E-Levy Bill at parliament, which seeks to charge 1.75 per cent on the amounts transferred.
If passed, a transfer of the same GHS1.0m will attract a tax of GHS17,500, which is 1,000 per cent of what prevailed under the repealed tax.
If the levy has to be imposed on transferred amounts as proposed in the Bill, then the best parliament can do is to amend the rate to 0.175 per cent, which will constitute a disguised restoration of the scrapped nuisance tax. It will just be a case of the current government getting converted and we have no quals with that.
The second area of concern is the claim about expanding the tax net. An expanded tax net should bring in new taxpayers without increasing the burden of those who are already in the narrow net. The E-Levy as proposed, will be suffered by both those who are already paying their taxes diligently and those who are not paying anything at all. It thus makes the tax-obedient man suffer because of the disobedience of others. It is like lumping the innocent and the guilty together and sentencing both to prison.
Modify
Parliament should therefore modify the structure to exempt existing tax payers from the levy in the same way as diligent corporate taxpayers are granted exemptions from suffering withholding taxes. Tax Identification Numbers (TINs) of diligent taxpayers should be prequalified for exemption from the tax. TINs will then become an optional field in the documentation for carrying out money transfer transactions. If you don’t have a TIN or your TIN is not pre-qualified for exemption, then your transfer will automatically suffer the tax.
The returns filed by taxpayers should be used for pre-qualifying future exempted TINs. This will even encourage taxpayers to file their returns. Doing it this way brings additional people into the tax net without imposing additional burden on existing taxpayers.
Another thing to look at is the exemption threshold for the vulnerable. Is the exemption GHS100 a day or GHS3,000 a month? The two are not the same. For example, a peasant farmer who sends GHS200 to her daughter in school will suffer the tax on the day of the transfer even if that ends up to be her only transfer of the month.
The operation of the daily limit therefore renders the GHS3,000 monthly limit redundant. Parliament should therefore remove the daily limit from the Bill for us to work with only the monthly limit.
Monitoring proceeds
The last thing I think Parliament should look at is the use of the proceeds from the Levy. We have to avoid a situation where the government uses one thing to justify the imposition of the Levy and then turns around to use the proceeds for something else. The Bill should therefore clearly state the intended uses. Fortunately, the levy will have a reliable electronic trail that lends itself to easy and effective tracking.
The Bill should therefore impose an obligation on the Minister of Finance to appear before Parliament quarterly to account for the use of the realsed proceed. We cannot be made to bear the brunt of additional taxes only for the derived revenue to be lost to corruption and other profligate expenditures.
I am sure if both sides of Parliament could get serious and move away from their entrenched positions and focus on making these proposed adjustments to the E-Levy Bill, they would be addressing the need to expand the tax net in an equitable way. They would also be addressing almost all the legitimate concerns of taxpayers in a way that preserves the integrity of the government.
If the levy is passed without the necessary amendments, it may just become the operation table on which the NPP’s ambitions of breaking the eight will be aborted. I will be surprised if the NDC does not milk it to the full.
The writer is a General Management Practitioner. E-mail: [email protected]