The E-Levy in Ghana: Measuring the Impacts on Financial Inclusion and the Digital Economy

After several years of sustained growth, since the Covid crisis Ghana has experienced high macroeconomic instability and worsened debt dynamics. Digital and mobile technologies have the potential to sustain the recovery of the Ghanaian economy, building on the advances that have delivered far-reaching economic and social benefits in the country in recent years. Today, Ghana has over 18 million unique mobile subscribers and 10 million mobile internet subscribers. The latter is equivalent to almost 30% of the population, above the average of 25% in Sub-Saharan Africa. Moreover, the development of the mobile money market has been instrumental in improving financial inclusion in the country, which has seen the proportion of unbanked population fall from almost 60% in 2014 to 32% in 2021.

However, to address the recent fiscal pressures, in May 2022 the Government of Ghana introduced a levy of 1.5% on the value of all electronic transfers – including mobile money – above 100 GHS (approximately 7 USD). The E-levy risks stifling progress of the digital economy, producing a move back to cash, and ultimately, it might prove counter-productive as a revenue raising policy. The extent to which this is the case largely depends on the responsiveness of demand for mobile money to the changes in price introduced by the levy.

A new GSMA report shows that in the nine months following the introduction of the E-levy, consumers in Ghana have in fact turned away from using mobile money, with significant demand elasticities of up to 2.5 in absolute value. The E-levy had an immediate impact on consumers and businesses who rely heavily on digital transactions for payments and financial services. As a result of higher transaction charges, Ghanaians have shown to be highly sensitive to this price change reducing their use of mobile money services by 25% on average immediately after the implementation of the levy. Transaction values and mobile money revenues fell by up to 35% year-on-year (YoY), with revenues remaining 20% lower than the pre-tax level after nine months. Meanwhile, cash-out transactions (which are exempted from the levy) increased by 61% YoY in value and by 25% YoY in volume following the introduction of the levy. This may signal that consumers are returning to cash-based transactions and thus point to a reversal in financial inclusion gains.

As a result of reduced demand in response to the E-levy, the government’s planned tax intake was much lower than expected. When taking into account not only the direct revenue from the levy, but also the loss from lower taxes collected on mobile money revenues and the indirect loss in GDP growth from foregoing the benefits of access to mobile money, the net tax revenue for the government would be negative – by almost 1.4 billion GHS per year.

This analysis highlights the importance of assessing the potential impacts of policy reforms on mobile services, including specific considerations of the characteristics of the mobile money market and demand. The telecoms sector is committed to working with Ghanaian Authorities to continue to build such evidence and contribute to increased transparency and certainty in the tax policy process.  To balance fiscal policy and digital development objectives while promoting fair and effective domestic revenue mobilisation, the Government of Ghana could consider reducing the E-levy and other sector-specific taxes. In the medium term, this could achieve higher domestic revenues, encourage the formalisation of the economy and sustain the successes of increasing internet and mobile money penetration and financial inclusion in line with regional leaders in Africa.

To find out more, download the full report here.