Even as Kweku Kwarteng, Deputy Minister of Finance stated last week that government had not taken a definite decision to tax mobile money transactions, it is leaning towards a compromise between opponents of a mobile money tax and government’s own financial realities of continued revenue shortfalls.
To be sure, the minister was correct in asserting that no decision has been made yet; however when it is made it will most likely contain a limited, specifically targeted tax on mobile money, under which people who wish to “cash out” money by converting funds on their electronic wallets to cash will pay a tax while those who execute transactions in which their funds remain in electronic form will not.
Last week various stakeholders who attended an engagement event in Accra organized by MTN Ghana were unanimous in their opposition to the imposition of a tax on mobile money transactions arguing that it would severely inhibit efforts at achieving financial inclusion, especially in the informal sector and the rural hinterlands and would also curtail the efficiency of the payments system and economic activity in general.
Government agrees with their arguments but also has to consider its urgent and pressing need to increase its tax revenues in the face of revenue shortages that are necessitating commensurate expenditure cuts so as to keep its fiscal consolidation programme on target.
For the first half of 2018, it incurred a fiscal deficit of 2.6% of GDP, against a target for the period of 2.4% thus putting the achievement of its 4.5% of GDP full year target in question.
Potentially, government could reap more than GHS1 billion, simply by imposing a 1% tax on all mobile money transactions.
However, government, in agreement with the position of stakeholders, would prefer to use mobile money to maximise its tax revenues from traditional types of taxes by extending the tax net to segments not yet captured by the tax net.
Thus, for instance, government wants to devise systems through which it can identify and tax incomes received by individuals and enterprises through mobile money, rather than tax the payment transaction itself.
But it is also considering imposing a tax on “cash out” transactions in which the taxable funds are being converted from electronic to physical form.
This would exclude purely electronic mobile money transactions from tax and would aim at encouraging people to keep their funds in electronic form, which supports government’s objective of establishing a cash-lite economy.
While limitation of tax imposition to cash out transactions could more than halve government’s tax take, it would nevertheless enhance the opportunity to identify and tax incomes derived through mobile money payments.
This represents a retreat from the earlier thinking within government that a blanket tax on mobile money transactions, even at a very low tax rate, should be applied since this would greatly solve its fiscal problems.
This position was supported by the belief that recently introduced inter-operability of mobile money platforms and the resultant battle for market share would persuade service providers to absorb part of the tax incidence themselves.
However, the emergent situations in several central and east African countries, whose recent introduction of taxes on mobile money transactions have led to significant reduction in transactions by both value and volume, coupled with strong opposition by stakeholders, have forced a rethink.
But the situation remains fluid and could change yet again before the 2019 budget is finalized around the end of October, depending on tax revenue outcomes over the coming months.