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Opinions of Wednesday, 23 February 2022

Columnist: Dapuri M Cephas

Is the Ghanaian E-levy a good tax policy?

Some Ghanaians have protested against the controversial E-levy Some Ghanaians have protested against the controversial E-levy

Taxes are compulsory levies imposed by the government on citizens. This offers the state an opportunity to accrue revenue from the contributions of its citizens.

In Ghana, taxes are creations of the legislature, thus until parliament approves a particular tax policy in accordance with Article 174 of the 1992 Constitution, such tax cannot be imposed on the citizens.

For a tax policy such as the E-levy to be approved by parliament, such tax policy must meet the threshold of a good tax system.

Briefly, a good tax system has general acceptability because of the following:
First, a tax system must be fair, the concept of fairness of a tax system denotes that the tax imposed on the citizenry must be equitable. There are varied views on achieving a fair tax system. For that matter, three broad tax regimes exist and they are, the regressive tax regime, the progressive tax regime and the proportional tax regime.

With a regressive tax regime, the taxpayer pays less when he earns more. It is normally used to encourage the production and industrialization sectors. With the progressive tax regime, the taxpayer pays more as he earns more. In very few instances, it is used to discourage importation or sales of certain goods in the country. For example, exorbitant taxes are imposed on alcohol and cigarettes to discourage their consumption, and progressively the taxpayer pays taxes.

The Ghanaian E-levy tax policy was modeled after the progressive tax regime. With the E-levy, the higher one earns and wishes to transact it electronically through the informal sector, the higher he or she pays as tax. Each tax regime has its own advantages and disadvantages.

Advocates of the progressive tax regime believe the richest can afford to pay more into a system that has benefitted them more. A few advantages of a progressive tax regime such as the Ghanaian E-levy includes the fact that it will shift more burden of the tax to the well-to-do. The rich who earn and transfer thousands of cedis within a day will contribute more to national revenue to enable the government to provide social amenities both for the poor and the rich.

However, caution must be taken when implementing a tax policy to ensure its fairness. A progressive tax regime most often than not discourages economic activities within the sector it seeks to implement the tax. Apparently, if an e-levy is imposed on the electronic transactions such that the more you transact, the higher the taxes, the tax barer may resort to other modes of transaction such as the cash system. In the long run, businesses within the sector of the electronic transactions will have lesser patronage.

Other important features of a good tax system are adequacy, transparency and administrative ease. The government of the day has enumerated lots of benefits the state will accrue from the E-levy. That shows the adequacy level of the E-levy. The administrative cost of E-levy is very minimal.

However, an important aspect of taxation is transparency. Will the government be able to account for the revenue accrued and how solely the E-levy has transformed the economy after its implementation as promised?

The acceptability of a tax system as good lingers with the tax burden on the taxpayer. Where the cost of living is low and the standard of living is high, taxpayers tend not to be affected by tax burdens which is relatively high.

However, where there is a high cost of living and low earnings, a new tax burden will be rejected by the taxpayers. Considerably, prices of goods and services within Ghanaian society are high and will inadvertently cause the taxpayers to resist extra tax burdens.

In conclusion, the Ghanaian e-levy is tainted unpopular not because it is not a good tax system or its inability to help the state. Invariably, the cost of living is high and citizens are naturally reacting to extra tax burdens that will directly affect businesses and livelihood.

The Ghanaian governments must seek to ameliorate the sufferings of Ghanaians by putting proper measures to ensure that existing tax contributions are accounted for and used for obvious nation development.