Ghana's E-Levy: Hit or miss?

Ghana's proposed 1.75% E-Levy has sparked a heated debate in the country, with analysts and experts weighing in on the potential impact of this tax measure. The E-Levy, if approved, is expected to generate approximately six billion cedis in tax revenue for Ghana. Fred Awuttey, a Lecturer at Ghana Tax College, recently joined CNBC Africa to discuss the challenges faced by the government in widening the tax base and the controversies surrounding the E-Levy. Awuttey highlighted the difficulty in raising tax revenue in Ghana, citing the predominance of the informal sector in the economy as a major obstacle. Despite efforts to introduce various tax measures, including the E-Levy, the government has struggled to collect taxes from the informal sector, leading to a need for innovative solutions. The E-Levy, which aims to broaden the tax net, has faced criticism and scrutiny from various stakeholders. Critics argue that reducing the levy rate from 1.75% to 1.5% may not significantly impact revenue collection, as the fundamental issue lies in income tax compliance rather than consumption taxes. Awuttey emphasized the importance of targeting income tax reforms to enhance revenue mobilization, suggesting that modifications to existing tax laws could yield better results. While the government seeks to address budget deficits and boost revenues through the E-Levy, concerns have been raised about the potential negative implications of this tax measure. Questions have been raised about the legality and constitutionality of the E-Levy, with debates over potential court challenges. However, Awuttey noted that the government has the constitutional authority to enact tax laws and raise revenue through parliamentary approval. Despite the attention on the E-Levy, Awuttey proposed alternative revenue sources that could be explored by the government. He highlighted the possibility of adjusting VAT rates, reviewing COVID-19 levies, reintroducing financial service taxes, and implementing modified taxation for the informal sector as viable options for revenue generation. By diversifying revenue sources and consulting with tax experts, the government could identify more sustainable and effective measures to boost revenue without solely relying on the controversial E-Levy. Overall, the E-Levy remains a contentious issue in Ghana, prompting calls for thorough consultations and consideration of alternative revenue strategies to ensure long-term financial stability and economic growth.