Everything changed for Ghanaian storekeeper Isaac Siaw when his telecoms provider launched mobile payments for business in 2017.
Sales boomed at his 20-year-old store, as customers no longer had to pay cash for household goods that include mosquito repellent, batteries, razors, soap and superglue.
But as parliament considers a new 1.75% tax on electronic payments, known as the ‘e-levy’, Siaw said he may return to cash full-time.
Finance Minister Ken Ofori-Atta proposed the e-levy in November to widen the tax net, but opposition was so fierce that it caused a brawl in parliament a month later, and it failed to pass.
The government plans to resubmit the bill next week and try to fast-track it. Lawmakers will recess on April 15, closing the window for its passage if it is not voted on before then.
The tax, which would cover mobile money payments, bank transfers, merchant payments, and inward remittances, could raise up to 6.9 billion Ghanaian cedi ($926 million) in 2022, according to official estimates.
But Ghana’s $50.8 billion public debt is unlikely to drop significantly.
“We have prices of goods going up each and every day,” Siaw said. “If a customer must pay a higher price for a commodity, then after paying that high price he also must pay for the e-levy, it won’t be good for business.”
Just as Ghana’s small business owners begin to drift from cash-based sales, many believe the e-levy will price them out of the digital economy. But officials see it as the panacea for a raft of financial woes that could spark an economic crisis.
Consumer inflation reached 15.7% year-on-year in February, the highest since 2016. The cedi depreciated some 20% against the dollar this year, second only to the Russian rouble, and public debt hovers around 80% of gross domestic product.
“The unyielding stance of the minority in parliament against the e-levy … gravely affect(ed) investor confidence in our capacity to implement programs and settle our debts,” Ofori-Atta said at a press conference last week.
Even if the e-levy overcomes Ghana’s hung parliament, around 73% of Ghanaians oppose it, as a February survey by Global Info Analytics shows.
But analysts said it could reassure investors and lenders of Ghana’s ability to make tough choices to generate revenue, helping to narrow bond spreads.
“It’s taken on a psychological importance for many investors,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered. “If there are no big revenue measures … it’s not clear where the revenue upside is going to come from.”
Ghana’s sovereign Eurobond yields have spiked in the last year, effectively shutting it out of international markets, as investors consider the debt too risky.
Ghana’s $1 billion 2026 Eurobond is trading below par at 79.25 cents, with a yield of more than 18%, according to Refinitiv data.
That lack of access factored into ratings agency Fitch’s decision to slash Ghana’s credit rating to B- from B in January. Moody’s downgrade followed a month later, causing Ghana’s sovereign dollar bonds to tumble further.
In a note last week, JP Morgan analysts estimated a 30% probability of the e-levy passing in parliament.
Without it, they wrote, Ghana may have to pursue a debt relief program through the International Monetary Fund, which the government has so far resisted.
“We’ve got a critical 14 or maybe 15 days to make it happen,” Ofori-Atta said. “I’m sure if you pray with me, we can pass the e-levy.”