Washington DC, USA (GS) In spite of its current high inflation rate and the rapid decline in the value of the Cedi, Ghana is still the brightest spot among the economies of the 15-nation ECOWAS bloc.
Many developing countries have witnessed their economies decimated due to the global hardship resulting from the pandemic, supply chain challenges, skyrocketing cost of energy, and food prices. Countries such as Liberia, Sierra Leone, Mali, Burkina Faso, Niger, and Guinea have suffered a catastrophic collapse of their economies.
Ghana, under the leadership of Vice President Bawumia, who heads the country’s Economic Management Team (EMT), has been able to adopt clever and innovative policies aimed at preventing the country from spiraling into the untenable economic conditions prevalent in the EDOWAS sub-region.
Many Ghanaians have recently been grumbling about the steep decline in their purchasing power due to the high rate of inflation and the rapid depreciation of the Cedi which affects imports and exports, especially in the lead-up to this year’s yuletide. However, thousands of youth in West Africa and from all across the continent, who are suffering under the weight of unstable governments and abject poverty still, regard Ghana as a great destination for better economic opportunities.
Three distinguished financial and development writers of the IMF; Analisa R. Bala, Adam Behsudi, and Nicholas Owen did an analysis of the country’s determination to maximize local revenue generation mechanisms and the integration of Ghana’s economy into the global business protocols. Read their analysis below.
How do you tax a person you have no record of? Or a property you never knew existed? In Ghana, the government is using digitalization to overcome these challenges and grow its revenue and economy.
The West African country is working to consolidate a database of taxpayers, establish a digital address system, and harness a burgeoning mobile money system. The goal: increase tax revenue, improve transparency, and ensure compliance.
“It is possible to be born in Ghana, to live a full life, to die and be buried, and there will be no trace of you on any documentation,” Vice President Mahamudu Bawumia said in a recent speech.
One of the main pillars of Ghana’s initiative is simple—establish a reliable record of its population of roughly 31 million. Through its Ghana Card initiative, the government has so far been able to enroll 15.5 million people with the goal of covering most of its adult population by the end of this year.
Behind every card is a unique national identification number, biometrically enabled through fingerprints, that will be the entry point for everything, including filing taxes, opening a bank account, registering a SIM card, obtaining a driver’s license, or renewing a passport.
Most importantly, the identification number doubles as a tax ID, allowing the government to widen the tax net among economically active adults. This is critical in a country where the revenue-to-GDP ratio has lagged behind others in the region.
The more numbers that are issued, the wider the tax net grows. Under the old system of tax identification numbers, only 3 million had been registered, said Maxwell Opoku-Afari, first deputy governor of the Bank of Ghana, the country’s central bank.
The same effort has gone into documenting properties in a new national digital address database. Using GPS, Ghana’s Land Use and Special Planning Authority have identified 7.5 million properties that can now be added to tax rolls.
The Ghana Revenue Authority is bolstering the collection of taxes and fees by conditioning renewal of driver’s licenses and professional licenses on tax payment. A new government portal, Ghana.gov.gh, provides a one-stop shop for a range of government services that can be handled online and can prevent losses to corruption. Ghana’s Revenue Assurance and Compliance Unit is also stepping up audits of large companies, especially those involved in the country’s sizable mining and resource extraction industry.
The electronic collection of fees and taxes and other tax measures introduced in the 2022 budget should help the country significantly increase its tax-to-GDP ratio, which is currently 12 percent, to about 16 percent at the end of 2022, said Opoku-Afari, who also sits on the board of the Ghana Revenue Authority.
“We are coming at it from all fronts—digitalization, compliance, enforcement, and cleaning up loopholes—to be able to raise our tax-to-GDP ratio over the medium term to a 20 percent target,” he said.
This comprehensive digitalization initiative is bringing progress, albeit gradual, in revenue collection. Any future success, however, could get a boost from the country’s robust and unique mobile money system.
Ghana has one of the most active and fastest-growing mobile money markets on the continent. It was also the first country to create a system that is completely interoperable between the country’s three mobile networks and with bank accounts. For example, a person using a mobile money account provided by mobile phone service MTN can make a payment to someone who uses Vodafone. Funds can also be transferred from a mobile wallet to a traditional bank account.
Unlike in other mobile money systems, the Bank of Ghana oversees all transactions through its subsidiary, Ghana Interbank Payment and Settlement Systems. There are roughly 19 million active mobile money accounts.
This system forms another pillar of the government’s digitalization agenda. It has also introduced a powerful tool of financial inclusion the government is seeking to leverage.
As part of the 2022 budget, Ghanaian legislators considering an e-levy on electronic transactions, which would apply to mobile money payments, bank transfers, and merchant payments. The 1.75 percent tax would apply to transactions beyond the first 100 Ghanaian cedis ($16) a day and provide a new source of revenue.
Ghana has one of the most active and fastest-growing mobile money markets on the continent.
The government sees the e-levy as an opportunity to bring a growing portion of economic activity, much of it covering the informal economy, into the tax net. However, some argue that taxing mobile money transactions could send people back to cash and reverse a positive trend.
“The e-levy is a way of extending these services in terms of a social contract and everyone participating in the payment of tax,” said Opoku-Afari. “The question is more about creating a careful balance between financial inclusion and revenue generation.”
The Bank of Ghana is also working to launch a pilot of a new central bank digital currency, the e-cedi, later this year that could further widen the availability of financial services.
“The next challenge is to equip the tax administrator with the capacity and technology to leverage big data. That’s where there’s still some work to do,” said Albert Touna-Mama, the IMF’s resident representative in Ghana.
The private sector, which has already been involved in several initiatives, is looking to harness government data to add value for users.
“The government’s work is putting the foundation and making it easy for the private sector to put the building blocks on top,” said Patrick Quantson, chief transformational officer for DreamOval Limited, a Ghanaian fintech company. “I think, fundamentally, the work the government needs to do for this digital investment is to open it up from day one.”
(credit: Bala, Behsudi, Owen)
