In the coming weeks, it is likely that mobile money transactions will only attract Value Added Tax (VAT) on the fees charged by service providers, while the controversial e-levy would be scrapped. This information comes from government sources as the budget presentation approaches.
The government has repeatedly expressed its intention to remove the e-levy, Covid-19 levy, and betting taxes, which were part of its campaign promises. In place of these levies, the government plans to rationalize the tax structure by reintroducing VAT on financial service transactions, which had been scrapped in 2017 by the previous administration.
Under the current system, transferring an amount of GH¢1,000 via mobile money (MoMo) incurs a fee of GH¢20, which includes 1% e-levy and the fee charged by the MoMo platform provider. With the proposed changes, there will be no e-levy, and VAT will only be charged on the fee imposed by the MoMo company. For example, if the MoMo company charges GH¢10 in fees, the customer would pay an additional GH¢2 in VAT, based on a 20% VAT rate. This means that a GH¢1,000 MoMo transaction would cost the customer GH¢12 in total, compared to the current GH¢20. If the MoMo platform charges no fee, such as GhanaPay, the customer will not pay any tax, making mobile money transactions free in such cases.
Similarly, betting taxes will also be removed, but VAT will be applied to any fees charged by betting companies.
This change in tax policy aims to reduce the tax burden on customers while enabling businesses to reclaim VAT as input tax. This would be a significant shift from the previous system, where businesses bore the full tax cost for using mobile money for payments.
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Some critics have raised concerns that scrapping these taxes could reduce government revenue. However, since these levies account for less than 5% of domestic tax revenue and have been seen as burdensome for both businesses and consumers, many believe they should be abolished.
The government argues that both the e-levy and Covid-19 levies contradict fundamental taxation principles and should be removed. By reintroducing VAT on financial services, which allows businesses to claim input tax deductions, the government believes the new system will be more progressive and less burdensome for taxpayers.
The previous government had shifted from its original stance of “From Taxation to Production” by introducing new taxes and increasing existing ones. However, this did not lead to a significant increase in revenue collection, and experts believe it may have encouraged tax evasion. The current government believes that by reducing the tax burden, compliance will increase, ultimately leading to higher tax revenue.
The effectiveness of this new tax strategy, if implemented, will become clearer in the coming years as the government monitors revenue collection.
