The incoming government’s commitment to abolish the controversial COVID-19 Levy and the E-Levy has ignited significant debate across the nation, with many Ghanaians questioning the potential consequences on government revenue and fiscal stability. While these levies have been a primary source of income for the state, their removal raises crucial concerns about how the government plans to replace these funds, particularly in an economy that continues to face fiscal pressures.
The decision to eliminate these taxes was a major aspect of the manifesto for the National Democratic Congress (NDC), which promised to scrap several taxes, including the E-Levy, COVID-19 Levy, and others such as the 10% tax on bet winnings, the emissions levy, and import duties on vehicles and equipment for industrial and agricultural use. This pledge was made to alleviate the financial burden on citizens and to ease the high cost of doing business in the country, with the NDC vowing to implement these changes within their first 100 days in office.
The NDC's promise to abolish these taxes was seen as a populist move to win the trust of voters, especially in the wake of the economic hardships exacerbated by the pandemic. However, this commitment is now drawing attention to the significant fiscal implications of such a move. According to projections, the removal of these levies could result in a revenue shortfall of about GHS 6.4 billion in 2025 alone, and the gap could widen in subsequent years. This raises the important question of how the government intends to fill this void and ensure continued funding for public services and infrastructure development.
In light of the revenue loss expected from the abolition of these taxes, the NDC has hinted at addressing the gap by focusing on reducing tax exemptions, particularly in the area of port concessions. This strategy aims to optimize the existing tax policies, streamline exemptions, and ensure that the country can still generate revenue without relying on unpopular taxes.
The Role of the E-Levy and COVID-19 Levy
To fully understand the impact of the proposed tax cuts, it is important to delve into the purpose and background of both the E-Levy and the COVID-19 Levy, as well as their effects on the economy.
The COVID-19 Health Recovery Levy was introduced in March 2021 as part of the government’s response to the pandemic. It imposed a 1% charge on goods and services within Ghana, as well as on imports, excluding exempt items. The purpose of the levy was to raise funds to support the country’s health response to the pandemic and manage the economic fallout. As the immediate health crisis began to subside, however, the necessity of the levy became increasingly questioned.
Many Ghanaians, including prominent organizations such as the Ghana Union of Traders Association (GUTA), argued that the levy had outlived its original purpose. GUTA, in particular, called for its removal in the 2024 budget, reflecting a broader sentiment that the levy was no longer justified. While the levy was initially accepted as a necessary measure to combat the COVID-19 crisis, its continued existence has been a point of contention, especially as the country works to recover economically.
Some experts, however, have defended the levy, arguing that the funds collected could continue to serve a valuable purpose. Professor Justice Nonvignon from the University of Ghana and the African Centre for Tax Policy Research (ACTOR) have suggested that the funds generated from the COVID-19 Levy could be repurposed to address other pressing health issues, such as the treatment of kidney disease, and to bolster Ghana's preparedness for future health emergencies. These experts contend that although the COVID-19 pandemic may have subsided, the levy could still play a role in ensuring that the country remains resilient in the face of potential future crises.
On the other hand, the Electronic Transfer Levy (E-Levy) has been a more contentious tax since its introduction in May 2022. The E-Levy imposed a 1.5% tax on mobile money transfers and bank transactions exceeding certain thresholds, specifically GHS 100 for mobile money transfers and GHS 20,000 for bank transfers. The government’s intention was to enhance domestic revenue mobilization by targeting the informal sector and broadening the tax base.
However, from its inception, the E-Levy faced strong opposition from the public. Many argued that the tax disproportionately impacted low-income individuals, particularly those who rely on mobile money for daily transactions. The levy also raised concerns about hindering financial inclusion and the transition to a cashless economy. The backlash led to a reduction in the rate from 1.5% to 1%, but the measure remained deeply unpopular.
In response to this discontent, Vice President Dr. Mahamudu Bawumia, a key proponent of digitalization in Ghana, had previously pledged to abolish the E-Levy, citing its negative effects on the country’s digital economy. The NDC, which had been opposed to the tax from the outset, also reiterated its promise to scrap the E-Levy upon taking office in 2025. The political push to abolish the E-Levy is seen as part of the broader effort to promote a digital and cashless economy, aligning with Ghana's long-term vision of enhancing financial inclusion and improving the ease of doing business.
Fiscal Implications of Abolishing the Taxes
The removal of both the E-Levy and COVID-19 Levy presents a significant challenge for the government in terms of revenue generation. The loss of approximately GHS 6.4 billion in 2025, based on the current projections, would exacerbate the country's already strained fiscal situation. This revenue shortfall comes at a time when the government is grappling with rising debt levels, inflation, and the need for continued investment in infrastructure and social services.
To address this gap, one potential solution that has been suggested is to focus on reducing tax exemptions and concessions at the ports. These exemptions, which have been granted to various industries, particularly in the mining and manufacturing sectors, represent a significant loss of potential revenue. By reviewing and rationalizing these exemptions, the government could recover a substantial portion of the revenue lost from abolishing the E-Levy and COVID-19 Levy.
In 2023, total imports into Ghana increased by 21.5%, from GHS 73.4 billion in 2022 to GHS 89.0 billion. This growth suggests a thriving trade environment, which could be leveraged to boost tax collection. The value of exempted and zero-rated imports decreased slightly from GHS 22.3 billion in 2022 to GHS 20.2 billion in 2023, reflecting some progress in reducing tax exemptions. Additionally, taxable imports grew significantly, from GHS 51.1 billion in 2022 to GHS 69.0 billion in 2023, a 35% increase. This suggests that the potential for higher tax revenue from imports is significant, provided that enforcement mechanisms are strengthened.
Moreover, taxes collected from imports rose sharply from GHS 22.2 billion in 2022 to GHS 30.7 billion in 2023, a 39% increase. This indicates that efforts to improve compliance and monitoring mechanisms at the ports are paying off, and further improvements in these areas could help offset the revenue loss from abolishing the taxes.
Reviewing the concessionary rates granted to industries such as mining and manufacturing could also provide a source of additional revenue. Concessions on imports of plant, machinery, and equipment for mining operations, as well as for raw materials and capital goods for manufacturing, are designed to stimulate investment and industrial growth. However, these concessions could be revisited to ensure that they are not overly generous, and that they align with the country’s long-term fiscal objectives.
Conclusion
The decision to abolish the E-Levy and COVID-19 Levy will undoubtedly have significant fiscal implications for Ghana. The projected revenue loss from these measures poses a challenge for the incoming government, which must find alternative ways to generate income without overburdening citizens with new taxes. Focusing on reducing tax exemptions, particularly at the ports, and reviewing concessionary rates for industries like mining and manufacturing, could be key strategies for bridging the revenue gap.
As the government prepares to implement these changes, it will be essential to balance the need for fiscal sustainability with the desire to ease the tax burden on citizens and businesses. Ultimately, the success of these efforts will depend on the government’s ability to make strategic decisions that promote long-term economic growth while ensuring that essential services and infrastructure are adequately funded.
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