Ghana 2022 budget critical tax mobilisation plans hinge on digital levy

The 2022 budget has been presented by the finance minister, Ken Ofori-Atta. It is a crucial bill for Ghana’s immediate and structural risk outlook, given the salient public financial management pressures currently at work. And Ghana’s need to restore confidence in the financial plan. As such, there is a three-fold bar for success, (a) revenue generation and expenditure restraint measures, (b) establishing a narrative that assuages investor concerns, and (c) judicious use of domestic political capital. Ghana is three years away from general elections.

In his speech, Ofori-Atta presented a coherent origin story for Ghana’s current 15% of GDP fiscal deficit, highlighting imbalances in sources of revenue, COVID-19’s impact, and outlining planned reforms to revenue mobilisation and expenditure programmes. The most significant is a new 1.75% levy on all digital transactions, which will likely be the subject of significant popular backlash despite having been anticipated. See: View from the Ground: Ghana’s Upcoming 2022 Budget. There is also large planned expenditure on growing an enabling environment for entrepreneurship and job creation.

Significance – Skewed balance

Key figures were highlighted in the speech showing the acute need to widen the tax base in the country. Of 30.8 million residents[1], only 2.3 million or 8.2% are regular taxpayers. Over the past three and a half years, 88.8% of tax contributions have come from the Greater Accra region. Despite having a population of 5.43 million people (compared to Greater Accra’s 5.45 million)[2], Ashanti Region contributes only 1.22%. Against this backdrop, the minister has set ambitious targets for revenue generation in 2022. Domestic revenue is projected to grow to GHS 99.5 billion (USD 16.2 billion), a 44% increase on 2021 and 20% of GDP. Expenditure will increase to GHS 137.5 billion (USD 22.4 billion), up 23% on 2021 and representing 25.3% of GDP. Major pillars include taxes on electronic transactions and efforts to fashion an ‘entrepreneurial state’.

Major Entrepreneurship Spend: Ofori-Atta recently told the country’s youth that government payroll is full and that they should focus on entrepreneurship. The 2022 budget is entitled ‘building a sustainable entrepreneurial nation. The minister has now outlined how government plans to help them via the establishment of the GHS 10 billion (USD 1.6 billion), three-year YouStart program. Government will contribute GHS 1 billion (USD162 million) per year alongside GHS 2 billion (USD327 million) from development partners and a commitment of GHS 5 billion (USD817.5 million) from domestic banks. According to Ofori-Atta, this will go towards building an ecosystem that will allow for the creation of 1 million jobs in the three-year period. Main elements of the program will include training, access to finance and enterprise promotion. The program is expected to be operational by March 2022. Clarity will be needed in two key areas. Firstly, in the qualification criteria for individuals and businesses – similar support schemes have previously been accused of relying on party affiliation in selecting participants. Secondly, there should be specification on whether this will work in conjunction with or replace existing entrepreneurship support schemes. A frequent criticism of policy in this areas is that there is a plethora of existing support mechanisms run by different agencies (often duplicating efforts) with little signposting for SMEs and limited efficiency.

Levy on digital transactions: One of the most contentious announcements is that of a 1.75% Electronic Transaction Levy or ‘E-Levy’. This will be applied on electronic transactions including mobile money transactions, bank transfers, merchant payments and remittances – effectively every transaction in the country aside from cash and cheque payments. Mobile money transactions alone were worth USD 92.6 billion (GHS 569 billion) in 2020[3] implying that had this tax been applied then, it would have netted around USD 1.6 billion (GHS 9.95 billion) in addition to the total realised revenues of USD 8.9 billion (GHS 55.1 billion) last year – roughly an extra 18% for just that payment method. However, the proposed measure will come with significant outcry across broad sectors of society. Mobile money vendors have already raised concerns about taxes imposed on them this year; there were just over 17 million active mobile money accounts in Ghana by the end of 2020[4]; merchants will also likely pass this extra transactional cost on to consumers, adding to inflationary pressures. Headline inflation currently sits above the single digit target range.

Outlook – Difficult decisions

The emphasis on entrepreneurship, rather than government employ, as the path to gainful and sufficient income for Ghanaian youth may be popular. The digital tax levy will not. However, significant structural increase in tax revenues is required to bring Ghana in line with its ambitions.  Further, at this stage in the electoral cycle, it only gets riskier and more expensive (politically) for this New Patriotic Party (NPP) administration to either fail to restore confidence and/or introduce remedial tax measures from now until December 2024. Against this, some significant areas received scant attention. The Tax Exemptions Bill for example received only a passing mention (that it should be passed in 2022). But exemptions are estimated to account for up to 5% of GDP annually. The bill has been in front of parliament since 2019. At the same time, the announcement of the YouStart programme’s impact on development and political capital will be subject to the efficacy of its implementation.

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[1] The World Bank put the labour force at 12.9 million people in 2020.

[2] Ghana Statistical Service. 2021 Population and Housing Census (September 2021).

[3] Remittances were USD 3.6 billion

[4] 38.5 billion in total

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