Ghana Fintech and Payment Association warns against taxation, citing potential stifling of sector growth
The Ghana Fintech and Payment Association, a prominent industry body representing the fintech sector in the country, has issued a strong warning against any attempts to impose taxes on the burgeoning industry. In an article titled “Ghana’s E-Levy Debate and Rising Fintech Scene,” the association’s president, Martin Kwame Awagah, highlighted the potential disastrous consequences of taxing the fintech sector, emphasizing the negative impact on investment, growth, and efforts to deepen financial inclusion.
The debate surrounding taxation in Ghana has gained traction with the International Monetary Fund (IMF) advocating for the adoption of three tax mobilization measures, including Income Tax, Excise Duty, and Growth and Sustainability. These measures are projected to generate approximately GH¢4 billion annually for the country, contributing to the need for additional funds to meet rising expenditure. As a result, expectations have grown that the government may introduce additional taxes in the coming months.
However, the Ghana Fintech and Payment Association has firmly warned that imposing taxes on the fintech sector could have dire consequences, stifling its growth potential and impeding efforts to enhance financial inclusion. Martin Kwame Awagah stressed that fintech companies are often startups with limited resources, and subjecting them to additional taxes would create challenges in raising capital and expanding operations.
Moreover, Awagah cautioned that taxing the fintech space would hinder innovation and hamper the sector’s overall growth. He pointed out that fintech companies already face various taxes, including corporate income tax, value-added tax, and withholding tax. Introducing an additional tax on electronic transactions would further increase the cost of financial services for both consumers and businesses, potentially deterring their usage.
It is important to note that the government had previously introduced an Electronic Transaction Levy, commonly known as the E-levy, which initially stood at 1.5 percent. The levy encompassed all electronic transactions, including mobile money transfers, bank transfers, and credit card payments. The aim was to generate revenue to fund development projects and reduce the country’s budget deficit. However, the E-levy has faced challenges, with its revenue falling significantly short of initial expectations. As of May 2023, the levy had only generated GH¢860 million, representing a shortfall of about 80 percent from the projected GH¢6.9 billion.
In light of these circumstances, Awagah argued that further taxing the fintech industry would make it even more challenging for companies to operate, potentially reducing access to financial services for individuals in the informal sector. Instead, he urged the government to collaborate with industry stakeholders to create an environment conducive to fintech growth. This could involve providing tax breaks for fintech companies and investing in financial education. Awagah also proposed the establishment of a “fintech fund” to drive the development of innovative products and services.
The potential of the fintech sector in Ghana is undeniable. Recent research conducted by McKinsey and Company in 2022 revealed that the fintech space in sub-Saharan Africa is expected to witness an average compound annual growth rate (CAGR) of 10 percent. Notably, Ghana’s market is projected to experience an even higher CAGR of 15 percent, surpassing other countries on the continent.
The Ghana Fintech and Payment Association’s cautionary stance against taxing the fintech sector reflects concerns about the potential detrimental effects on investment, growth, and financial inclusion. As Ghana strives to harness the potential of technology-driven financial services, it is crucial for the government to carefully consider the implications of taxation and work towards creating a stable and regulated environment that fosters fintech development, economic growth, and financial inclusion.
