“I contend that a country that tries to tax itself into prosperity is like a man standing in a bucket trying to lift himself up by the handle.” (Sir Winston Churchill, 1904)
One of the basic principles of taxation is fairness and neutrality. This principle demands that taxes should not favour any one group over another and should not be designed to influence individual decision making. To understand this principle, imagine two (2) primary school teachers, earning the same salary would be paying different levels of taxes provided one uses their mobile money account or bank account. This is only because one of them decided to use mobile money rather than the known traditional means.
All over the world, particularly developing countries are faced with the audacious task and desire to widen the tax base to include all persons earning from all economic activities particularly the informal economy. With up to 40% of economic activity and more than 85% of employment in Sub-Saharan Africa taking place in the informal sector according to the IMF, there is a perception within policy circles that anything that smells like revenue, behaves like revenue and acts like revenue needs taxing.
The re-introduction of the Value Added Tax Act (870) of 2013 and its implementation in 2015, disrupted largely service offerings, usage patterns and charges within the banking environment as the cost of banking transactions (no matter how minimal) increased.
For a country like Ghana, the importance of predictability, stability and simplicity in its tax system cannot be underscored. When these are ignored, we have a tax system that is reactive, resulting in tax changes that are unexpected and have not been thoroughly thought through and analyzed. This is why recent comments of policymakers need to be carefully looked into and further clarification provided to the ecosystem.
These comments are not new to industry watchers, and they follow a pattern of analyzing transaction volumes and values largely upon which these proposals to tax mobile money are reached. For emphasis, one policymaker has said that the revenue from transaction fees that Electronic Money Issuers (EMIs) or mobile money operators make is what she believes must be taxed, in another submission, it is the transaction charge that needs to be taxed One might be wondering, do these service providers pay any tax at all?
Corporation Taxes and Withholding Taxes readily come to mind as taxes that mobile money operators pay to the Ghana Revenue Authority. Their profits and/or net incomes are subject to corporate income taxes as well as withholding taxes applied on the commission incomes, they pay to their over 300,000 agents and merchants across the country. The Ghana Chamber of Telecommunications put the 2019 figure on taxes earned from mobile money operations alone at a little over ₵30million cedis ($5million).
If the policy intent, or proposal as shared by the Minister was to target revenues directly or transaction charges, experience shows that this attempt will lead to a pass-through cost back to the consumer and this will be inimical to our financial inclusion drive on the back of our growing digital economy.
A tax on Mobile Financial Services (MFS), is simply a tax on the movement of money. Borrowing the words of the present government when it abolished the VAT on financial services in 2017; this tax will be a huge “NUISANCE” to every sector of the economy that leverages digital financial services too. This tax policy will discourage trade and commerce and retard the formalization of our economy. We need to always note if the tax interferes with financial intermediation, it will undermine our progress and strides chalked as a country in respect of financial inclusion.
Equally, beyond increasing the cost of doing business in Ghana, it will hurt the marginalized citizens and discourage usage of mobile money services. For any sector or straight end service that employs over 400,000 direct and indirect individuals, one may need to relook the business model carefully before attempting to target it with a sector specific tax. The point here is there is no tax value that can account for or provide new livelihoods for the loss of employment to be occasioned should the tax on mobile money kick in today.
For Ghana to create a competitive and effective tax system, the principle must be hinged on the quality of its tax laws and the way in which tax policy is made largely. The questions is, how a tax on traditional banking as we know it to be the preserve of the middle and upper class be abolished and then be re-engineered back unto the laps of the lower class and informal economy.
In our study of Operationalizing Mobile Money, and experience working with all the mobile money operators in Ghana, what is clear is that, only about 40% of the large transaction volumes recorded and announced attract revenue to the service providers. A greater portion of these free transactions include cash in, transactions between distributors and agents for the purposes of liquidity management and let’s not forget the ongoing promotions like that of Vodafone Cash which are all free transactions.
It seems quite unfair that while service providers are providing free transactions to grow their base and ignite usage within their networks, policymakers would be fixated on what they can get from what largely appears to be a free service for some. Let’s critique values and volumes in a sentence; if I send you 100 cedis and you send it back to me and we do that 5 times each, this is recorded as volume being 10 times of transactions and the value of the (10) transactions being 1000gh cedis. Lest we forget! this is the same 100gh we kept moving on the platform.
Last year, government launched three key policy documents namely, The National Financial Inclusion and Development Strategy, The Digital Financial Services Policy and The Cash-Lite Roadmap to drive financial inclusion as well as support growth within the digital financial services ecosystem. Government’s revenue growth efforts should be done in a manner that is supportive of economic growth, employment and investment. It is always counterproductive to witness revenue growth policies competing with the greater objectives of economic growth.
The President’s 2021, state of the nation address signaled governments intention to switch the National ID into TIN numbers and equally link these IDs to SIM cards which will support identification within the digital financial services space. In a country where roughly 19 million adults have 15 million active mobile money accounts, these are the positive signals that can ultimately widen the tax base without taxing directly the enabling bridge that gives the state access to persons within the informal economy.
In the second part of this article, we will explore the confusion related to taxing mobile money and lessons from four African countries to support our argument that, Mobile Money is the bridge that gives any State access to its informal economy and this bridge needs protection and upgrade to keep the linkage active. On the back of any digital economy, e-payments is the backbone to support trade and commerce and over here that platform remains largely Mobile Financial Services.
The writers, Derek B. Laryea, a Certified Digital Finance Practitioner and Kojo Dougan, Digital Finance Professional are both executives of the Digital Finance Practitioners Association (Ghana).