The Bank of Ghana (BoG) has admitted that levying a value added tax (VAT) on non-cash payment transactions is a setback for efforts to reduce the use of cash in the economy.
The bank however added that it is, like everybody else, subject to the dictates of Parliament and the fiscal authorities — and it is thus unable to help the situation despite the valid criticisms of the tax.
From next month fee-based financial services and transactions will attract a 17.5 percent VAT, in line with the revised VAT law which has expanded the coverage of the tax to include financial transactions and a host of new, previously unaffected sectors.
Financial transactions on which VAT will be levied include debit and credit card usage, and banking services which are delivered or accessed via a mobile phone or the Internet.
Reacting to concerns that the tax could derail the central bank’s strong efforts to promote a society in which less cash is used as compared to electronic payment tools, Head of the BoG’s Financial Stability Department Dr. Benjamin Amoah said: “While we admit it may not help in our pursuit of [a] cash-lite [society], once it is approved by Parliament changes can only come from Parliament”.
He also said the tax is part of measures to reduce the government’s hefty budget deficit, which has been the major cause of the cedi’s steep depreciation and general economic instability.
Dr. Amoah was speaking in Accra during a press conference by the central bank to announce a relaxation of its heavily-criticised foreign exchange restrictions that were launched in February.
The central bank introduced the restrictions “to provide clarity, transparency and streamline operations in the foreign exchange markets,” he said.
While the restrictions were “reasonably successful”, certain aspects were constraining the businesses of exporters and importers, and the Bank of Ghana aims to streamline those aspects to limit the adverse consequences of the measures, he told reporters.
A previous rule that holders of foreign exchange accounts cannot withdraw over-the-counter from those accounts in foreign currency has now been relaxed to allow withdrawals of up to US$1,000 per transaction.
Hotels, schools and other service providers previously barred from accepting payments in foreign currency can now do so if the payer is a non-resident.
In addition, the requirement that exporters repatriate their earnings to Ghana within 60 days of shipment, together with the rule that those earnings be converted to cedis within five days, has been reversed.
Exporters now will repatriate their income when it is actually received by them, and they can retain a maximum of 60 percent in foreign currency in their local foreign exchange accounts, while the remaining 40 percent should be converted by their banks to cedis within 15 working days.
Where foreign exchange is transferred from an account in Ghana without documentary proof of the transaction, the amount will be limited to US$50,000 instead of a previous limit of US$25,000, Dr. Amoah said.
Other restrictions were left unchanged, including the prohibition of foreign currency loans to non-foreign currency earners and the ban on use of foreign currency cheques.
The BoG launched the restrictions in February on the back of an alarming decline in the cedi. It also increased its policy rate by 200 basis points to 18 percent, and in April it raised banks’ cash reserve requirements from 9 percent to 11 percent of deposits.
Since its key intervention in February, the cedi has lost 19.6 percent to the dollar with a year-to-date depreciation of 26 percent.
Dr. Amoah however said that despite its persistent fall, the rate of depreciation of the currency has slowed — from a high of 7.8 percent monthly depreciation in January to 2.7 percent in May — which suggests the central bank’s measures have achieved some positive results.