Is e-money tax a solution for African countries looking to expand their tax range?
Several countries in sub-Saharan Africa have tried to do this Introducing taxes on electronic transactions, in response to the ongoing adoption caused by the pandemic. While these moves have been criticized, they represent an opportunity to dramatically increase tax revenue.
COVID-19 and its side effects have led to the emergence of a Sharp rise in electronic payments across the African continenta trend that will continue.
Parallel to this, Public finances in the region took a big blowTax and export revenues have been eroded by the global economic crisis in the past two years.
in devotion, Many governments are considering the emergence of electronic finance To help close their respective tax gaps, as well as to expand taxation in the informal economy.
The evolution of digital tax
A good example of this is Ghana, which was due to levy a 1.75% tax on electronic transactions above 100 GHS ($14.25) in February, although its official implementation has yet to take place. If it is enacted, then the tax will be applied to everything, From mobile money transfer to incoming transfers.
Finance Minister Ken Ofori Atta announced the planned move It would help expand net taxation and increase the tax-to-GDP ratio of the country From 11 to 16%.
Last year, the World Bank announced that Ghana’s mobile money sector has been the fastest growing in AfricaThe Bank of Ghana recorded a 143% YoY (YoY) increase in transaction value in the first quarter of 2021, along with a 64% YoY increase in transaction volume.
These numbers indicate that there are Lots of untapped financial potential in space. However, the new rate caused great controversy, to the point that scuffles broke out in Parliament during the vote on the bill.
Critics have raised concerns that it will hinder the development of e-commerce in Ghana, particularly by returning people to cash transactions.
In addition, it is believed that the tax can disproportionately affects the rural poor, which has limited payment options and often depends on remittances. On a similar note, many argue that the tax will limit financial inclusion.
These fears resonate Recommendations made by the World Bank to Malawi, which in 2019 continued to levy a similar tax, which the bank says will have a negative impact on the country’s digitalization and financial inclusion agenda. In the end, the Malawi government decided not to levy the tax.
If the tax goes ahead, Ghana will join a growing list of African countries that have imposed similar taxes in the wake of the pandemic, often drawing similar criticism.
January 1, Cameroon unveils new 0.2% tax on mobile money transactionswhich was met with an opposition campaign. Meanwhile, Tanzania imposed a 0.1% minimum tax in July 2021, only for the government to cut it by 30% after protests and a significant drop in use.
Precursors before the pandemic
Even before the epidemic, Several countries have implemented taxes on digital transactionswith mixed results.
For example, Uganda introduced a 1% tax on all mobile money transactions in July 2018, but it was quickly reduced to 0.5% after public opposition and a 24% drop in transaction values.
A recent study by the United Nations Capital Development Fund found that the tax caused More wealthier urban Ugandans will turn to banking agent services. In other words, the tax disproportionately affected those on low incomes, as well as having a regressive effect on the formalization of the Ugandan economy.
in the meantime, Ivory Coast tried to impose a 0.5% tax on mobile money transactions in 2018, but was soon withdrawn and replaced in 2019 with a tax on the total revenue of service providers, rather than the transactions themselves.
The government insisted that service providers do not pass on this extra cost to their users, prompting companies to do so Reducing operating and infrastructure costs. This finding seems to confirm the concerns of critics of such taxes, which is that they may limit the growth of the sector itself.
Finally, Zimbabwe introduced a 2% money transfer tax via mediation in 2019. While this tax has proven equally unpopular, it has had the desired effect of increasing government tax revenue.
At the end of 2021, the tax accounted for nearly half of the corporate tax contribution, which is second only to value-added tax in Zimbabwe’s tax mix.
As such, while the government promised to review the tax, it also said it is Very profitable for short or medium term review.
The Zimbabwe example shows how, despite the potentially negative side effects of these taxes, The income they generate makes them attractive to many governments.
In this sense, it seems reasonable to expect that Additional taxes of this kind will be imposed in Sub-Saharan Africa in the future. It is up to governments to ensure that it does not represent a step backwards in digitization and financial inclusion.
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