Is The Ghanaian E-Levy A Good Tax Policy?

Taxes are compulsory levies imposed by the government on the citizens. This offers the state an opportunity to accrue revenue from the contributions of her citizens. In Ghana, taxes are creations of the legislature, thus until parliament makes approval of 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 of by parliament, such tax policy must meet the threshold of a good tax system.

The below analysis is a non-partisan but an analytical perspective of measuring the E-Levy against the standard of a good tax system.

Briefly, a good tax system has a 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 the citizenry must be equitable. There are varied views on achieving a fair tax system. For that matter, three broad tax regimes exists and they are; the regressive tax regime, the progressive tax regime and lastly the proportional tax regime.

With 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 cigarette such that the more the consumption or importation of it, the progressively the taxpayer pays taxes.

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

Advocates of a progressive tax regime believe the richest can afford to pay more into a system that has benefitted them more. 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 provide social amenities both for the poor and the rich.

However, caution must be taken when implementing a tax policy to ensure there is 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 electronic transaction such that the more you transact, the high 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 electronic transaction will have lesser patronization of their services.

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. The question which baffles is whether the E-levy will be able to achieve the plethora of promises it comes with. Will the government be able to account for the revenue accrued and how solely the E-levy has transformed the economy after its implementation?

The acceptability of a tax system as good lingers with the tax burden on the taxpayer. Where the cost of living is low and standard of living is high, taxpayers tend not to be affected by tax burden which are relatively high. However, where there is a high cost of living and low earnings, a new tax burdens will be rejected by the taxpayers. Considerably, prices of goods and services within the 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 be 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.

Author: Dapuri M. Cephas