The E-Levy is Counter-Productive to Government’s Digitisation Drive

In most developing countries where infrastructure is a major challenge, traditional banking services have often been restricted to people located in urban areas, semi-urban areas and cities.

This often put those in rural communities in a disadvantaged position and often cut them off from the processes of traditional banking services resulting in the huge financial inclusion gap.

However, in recent times innovative ways have been introduced in the financial sector to financially include the rural communities in banking activities. One of such innovations is digital financial technologies (FinTech) such as Mobile Money Services (MMS). In developing countries, where access to banking services is a challenge, particularly for those in the rural communities, FinTech plays a crucial role by providing mobile solutions and delivery platforms, as well as payment solutions.

Recognising the role of technology in delivering banking services for financial inclusion, many banking institutions across the globe have adopted FinTech as a channel for delivering banking and financial services.

The growth in usage of FinTech is dependent on users cost-benefit analysis. Despite tremendous increase in the number of mobile SIM card subscribers, actual usage of online financial transactions remains a challenge and does not commensurate with the number of subscribers. It is, therefore, imperative to develop strategies that will enable more people to adopt digital financial technologies and services.

Perceived cost by users has, therefore, become one of the biggest challenges confronting users’ behavioural intention to adopt online and digital services. Perceived cost is users’ cognitive trade-off between the perceived benefits of technology and the monetary cost of using technology.

Where users perceive the cost of using a technology to be high, they will become distrustful of the technology and stick to the traditional methods. This presupposes that cost is an important factor in accelerating growth of FinTech.

So many theories have explained why users will stick to traditional methods of transactions when cost of adopting technology is high. The integrated theory of Planned Behaviour and Technology Acceptance Model (TPB-TAM), Theory of Perceived Risk (TPR) and the classical Extended Unified Theory of Acceptance and Use of Technology (UTAUT2), have all supported the claim that high cost discourages technology adoption. Empirical studies conducted on financial technologies such as MMS both in Ghana and elsewhere (Venkatesh et al, 2012; Finau et al, 2016; Apau & Koranteng, 2019; Merhi et al., 2021) have all identified perceived cost as an antecedent of intention to adopt and use technology service.

Consequently, adoption of digital financial technologies could be promoted through the reduction or complete annulment of its cost, thereby effectively positively affecting consumers’ behavioural intention and subsequently encouraging potential users to adopt this technology.

Consistent with the evidence and the express knowledge on technology adoption, it is fair to describe the E-Levy (Electronic Transactions Levy) or what I refer to as Digitization Tax as nuisance to financial inclusion and counterproductive to government’s digitization drive. Any government which is serious about achieving a cash lite economy will not tax electronic payment. It is completely unthinkable. The concept is a lazy man’s approach to generating revenue.

Digital Financial Technologies are major enablers of achieving financial inclusion. But where cost of adoption of fintech is high as already explained, users will stick to the traditional means of transacting business. And if this happens, the gains that have been made with respect to digitising the economy will be eroded, as people will shine away from using such platforms and the government revenue projections will be in shambles. Rather than seeking to increase cost of MMS transactions, lowering the fees and charges on MMS have the potential of increasing government’s revenue projection.

One would have expected a government that has decided to use digital policy to achieve economic policy to focus on addressing the many barriers and challenges confronting digital technology adoption, rather than using taxes to discourage consumers of electronic services. To achieve financial inclusion and cash lite economy, the Telecommunication industry has a key role to play.

There is the need to expand technological infrastructure in rural communities to hook on many of rural dwellers that have been cut off technological and banking services. However, rather than provide incentives to the telecommunication sector, it appears the sector is the most taxed sector within the technology ecosystem.

In July 2019, the government mid-year budget review proposed to increase Communication Service Tax (CST) from 6% to 9%. Then, we were told government needed the revenue to create a safer technology ecosystem by investing in Cybersecurity, a move I personally supported. I supported that because, Ghana is presently confronted with multiple threats on issues of cybercrime, cybersecurity, data protection and data privacy, making cyberspace resilience an urgent national security priority.

The recent digitization drive has further broadened Ghana’s Cyber Attack Vector Surface, and exacerbated the cybersecurity vulnerabilities for which a number of digital platforms have been attacked in recent times. The efforts of the digitization could be counterproductive and become a mirage if attention is not concurrently paid to cyberspace resilience.

Most of us experts in the Cybersecurity arena know for a fact, that the risk assessment of Ghana provides an indication to the fact that the nation is currently confronted with existing and potential substantial cyberspace threats and challenges for which prevention and mitigation capacities must be reinforced and reshaped by government in order to build adequate resilience to the cybersecurity vulnerabilities.

Therefore, supporting the increment of CST from 6% to 9% was a bitter pill needed to be swallowed to make all of us safe. However, what informed the government decision to reverse the 9% CST to 5% in the 2020 Mid-Year budget review? Were we safe then? No? So why? Now in 2021 we are told we need 1.75% E-Levy to support Cyber Security. Have we been told of the investment made with the 3% CST collected between July 2019 and July 2020?

Yes, the financial technology industry is doing well, and so there is the temptation to tax, but it is catastrophic to tax this sector at this infant stage. You don’t widen the tax net by burdening those that are already in the net. The appropriate strategic thinking, policy formulation and implementation is required to achieve the broadening of the tax net.

Government cannot always take the easy and lazy approach to revenue generation. Examine this scenario: A plumber comes to my house to do a routine maintenance. He charges 420 cedis and I pay. If this plumber does five of this in a month, he gets 2,100 cedis. He pays no income tax on that amount. But a formal worker who takes 1500 cedis a month will pay close to 150 cedis IRS tax. The thinking government must do, is to find ways by which the plumber will pay 210 cedis to it as income tax. (I used 10% IRS tax). This is what I believe widening the tax net should look like, not overburdening the already small percentage of the population who keep paying more.

What is even bizarre, as a formal sector worker, who has already paid 150 cedis on my monthly 1500 cedis salary to government as income tax, if I decide to pay the plumber 420 cedis through mobile money, I will be charged. Instead of paying 4 cedis 20 pesewas as service charge to the Telcos, for which government already has a share, I will now pay 11 cedis 55 pesewas due to the new 1.75% E-Levy. Eventually, the plumber has still escaped the income tax and gone away with his 420 cedis untaxed. Has government widened any net here?

The writer, Richard Apau, is a Lecturer, Cybersecurity Analyst and Digital Innovation Consultant.

  1. Sympathy Launce says

    Well done Richard


    Well written opinion based on facts. We have human capital like Richard to bring his expertise input into governments policy on digital economy but seriously such brains are tapped for the general good.
    I personally will like to associate myself with Richard.
    I like his approach to setting example.

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