Taxes will discourage investment in fintech sector - Fintech and Payment Association

The Ghana Fintech and Payment Association is warning against any attempt to tax the sector, saying such a move will stifle growth of the nascent sector.

With the International Monetary Fund (IMF) justifying the adoption of three tax mobilisation measures including Income Tax, Excise Duty and Growth and Sustainability – which together are projected to generate GH¢4billion for the country each year, along with the need to raise additional funds to meet rising expenditure – there are expectations that government may introduce additional taxes in the coming months.

However, the Ghana Fintech and Payment Association has warned that any move by government to tax the financial technology space will be disastrous for growth and efforts to deepen financial inclusion.

Giving the warning in an article titled ‘Ghana’s E-Levy Debate and Rising Fintech Scene’, the association’s president, Martin Kwame Awagah, cautioned that taxing the sector will discourage investment and growth.

“Fintech companies are often startups with limited resources. Therefore, taxing them will make it more difficult for them to raise capital and expand their operations,” he said.

Mr. Awagah also advised that taxing the space will make it more difficult for these companies to innovate and could stifle the sector’s growth.

“Fintech companies are already subject to several taxes – including corporate income tax, value-added tax and withholding tax. Adding an additional tax on electronic transactions would increase the cost of financial services for consumers and businesses,” he stated.

Government, in the wake of the country’s economic turmoil and high inflation issues, introduced an Electronic Transaction Levy – now commonly known as E-levy – at 1.5 percent, which was later reviewed to one percent on all electronic transactions including mobile money transfers, bank transfers, and credit card payments.

The E-levy, government said, was necessary to raise revenue to fund development projects and help reduce the country’s budget deficit. Initially expected to generate GH¢6.9billion of revenue in its first year, the levy as of May 2023 however only generated GH¢860million – a shortfall of about 80 percent.

Against this backdrop, Mr. Awagah said further taxing the industry “will make it more difficult for these companies to operate and could reduce access to financial services for people in the informal sector”.

“Government should instead focus on working with industry stakeholders to create an environment that is conducive to growth of the fintech space. This would include providing tax breaks for fintech companies and investing in financial education. By doing this, government can help to ensure that everyone in Ghana has access to financial services, regardless of their income or social status,” he argued.

Beyond this, he said government can also create what he termed a ‘fintech fund’ to drive the development of innovative products and services.

“Overall, government’s purpose should be to grow the fintech space and harness the potential of technology-driven financial services for economic growth, financial inclusion and consumer protection, while ensuring a stable and regulated environment,” said Mr. Awagah.

Recent research on fintech in Africa by McKinsey and Company (2022) revealed that growth in the fintech space of sub-Saharan Africa is expected to witness a 10 percent compound annual growth rate (CAGR) on average. Meanwhile, Ghana’s market is expected to witness a 15 percent CAGR – higher than any other country on the continent.