Election 2024: E-Levy Repeal Politics
When the Akufo-Addo government announced in November 2021, during the presentation of the Fiscal Year 2022 budget, that it planned to introduce an Electronic Transaction Levy (E-Levy) on all electronic transfers of money, there was strong opposition from the minority in parliament and considerable concern among Ghanaians.
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With a closely divided parliament (137-137-1), the original implementation date of January 1, 2022, and announced rate of 1.75 per cent were delayed.
The levy was finally passed into law and became effective in May 2022, at a reduced rate of 1.5 per cent. The rate was further reduced to one per cent in 2023.
The presidential candidates of our two main political parties, National Democratic Congress (NDC) and New Patriotic Party (NPP), have both promised to abolish the E-Levy if elected. Granted, the NDC candidate made this promise on May 2nd, 2022, during a “Ghana At A Crossroads” speech. The NPP’s candidate made his intentions known on February 7, 2024, in a major economic policy speech after clinching the NPP presidential nomination.
The case made for E-Levy
This government, as per answers to the E-Levy’s Frequently Asked Questions (FAQs) in a Ministry of Finance document, provided a twin policy rationale for the levy– a) enhance domestic tax mobilisation and expand the tax base; and b) provide an opportunity for everyone to contribute towards national development.
When government announced plans to impose an E-Levy, FY 2022 budget projection showed an anticipated deficit of thirty-seven billion cedis (GH₵37b). This included almost seven billion cedis (GH₵6,963,386,254) in expected revenue from the E-Levy. Also, the expected revenue, if realised, was going to significantly reduce the budget deficit by 19 per cent between FY 2022 and FY 2025. Besides, the E-Levy was going to account for about nine per cent (9%) of domestic tax revenue. (This analysis and calculations are based on information contained in Appendix 3A: Summary of Central Government Operations from the FY 2022 budget).
The government’s sense of fiscal and economic urgency which made sense was further exacerbated by the decision to seek a bailout from the International Monetary Fund (IMF) in July 2022. Not moving ahead with this E-Levy was not an option. The Ministry of Finance made it clear in another FAQ Document explaining why government had to seek a bailout that the E-Levy was not going to be terminated because of any expected fiscal inflows from the IMF.
E-Levy politics and the 2024 elections
The public sentiment created a difficult political environment for the levy. Findings from Afrobarometer Round 9 (conducted in 2022), there was strong Ghanaian opposition to the E-Levy - a)overall seven out of ten (74%) disapproved/strongly disapproved; b) 72 per cent of rural dwellers and 76 per cent of urban dwellers disapproved; c) across the sixteen regions, disapproval ranged between 53 per cent and 90 per cent; d) eight out of ten (76%) strongly agreed/agreed the levy was a bad idea and burdensome for poor and ordinary citizens; and c) only nine per cent (9%) said “they were very confident that government will fulfil its pledge to use the revenue generated to fund development”.
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It has been two years since the Afrobarometer which means these sentiments have possibly changed. What we do not know is whether Ghanaians have softened their opposition to the levy. However, assuming these sentiments are still true in 2024 I can see why repeal politics is appealing.
With both NDC and NPP promising repeal, there is no political advantage to be gained by either side. This is a rare case of bipartisan agreement on an issue characterised by intense partisanship when the idea was first introduced.
Beyond the politics, here are some potential fiscal consequences of the repeal based on my analysis of information contained in Appendix 3A: Summary of Central Government Operations from the FY 2024 budget.
This is what will happen over the next three fiscal years (FY 2025, FY 2026, FY 2027) combined if the assumptions used to build the budget remain unchanged – a) total revenue loss of approximately GH₵ 8.3billion; b) total budget deficit of approximately GH₵ 184billion; and c) forgoing a twenty-seven per cent (27%) growth in a key source of domestic revenue.
Keep in mind also, all the promises being made by the two parties and the potential costs.
Let me reiterate a point recently made – all this can change based on a multitude of factors such as a) robust economic growth; b) improvement in domestic revenue mobilisation; c) dealing with revenue leakages; d) addressing wasteful government spending; etc.
Repealing the E-Levy will require certain trade-offs and the potential revenue loss must be offset. The question on my mind is, how do our two leading candidates plan to do that?
Maybe in the estimation of the NDC and NPP, any anticipated fiscal impact is negligible. If so, it will be interesting to see their analysis.
The writer is the Project Director, Democracy Project