SIMCEL ONLINE

Among all the new taxes introduced by Government in the 2021 budget, the worst of them all is the Banking Sector Reform Tax, which seeks to charge the banks atleast 5% on their revenue.

We believe this is not only a nuisance tax but also not so much thinking went into this particular tax.

The Banking sector crisis according to reports reduced public confidence in banking sector greatly.
Within a year after the so called clean up, Deposits in the banks were growing at about -8%.
This means that a lot of people were rather holding their savings by themselves.

In Ghana, the non-banked population is about 70% of the entire working population.
With an adult population of about 15million and total of 4.5million bank accounts, only 30% of the population uses financial services.

This 30% declined to about 26% at the end of 2020 due to the excesses of the so-called clean up.

Now the introduction of the 5% banking sector reform tax would increase the cost of operation of the banks by 5%.
A cost they would ultimately transfer to the consumer.
So the cost of banking services is expected to go up by about 5% if all other cost remains the same.

High cost of banking services would not only derail the efforts aimed at increasing our banked population, it would also reduce the usage of banking services a great deal.

Now the household would be inclined to save their excess liquidity at home instead of the banks due to high banking charges, bank deposits is expected to reduce further by about 10-15%.

A reduction in deposits for the banks means a reduction in monies available for SMEs and other businesses as loans to expand their businesses or create new employment.

This is what we call the circular flow model.
The businesses employs the household and pays them income, they spend what they need and save the surplus at the bank, the banks mobilizes the surpluses and give them back to businesses as loans, the businesses grow, employ more people pay them more salaries and the banks get more surpluses as savings to be given to the businesses.

This is a cycle and when any part of the cycle is truncated or interfered with unnecessary taxes, it rocks the entire boat.

The circular flow model effect of this 5% banking sector clean up tax,can contract the entire economy by about 15%, and create loss of new jobs by about 20-30% assuming all other economic factors remains the same.

At a time when the financial sector is still struggling to recover its past glory, public confidence in the sector still remains low and the banks are struggling to retain deposits, it is almost unwise to burden the sector with additional taxes that would ultimately become a liability to the sector.

We therefore urge Government to consider the rippling effect of this new tax on the sector and withdraw this tax immediately.
We would rather recommend an improvement in our data collection system to rope in the huge non-taxed informal sector into the tax bracket to shore up Government’s revenue.

Proper investments into the systems that would help revenue collection from the huge non-taxed informal sector is what is needed at this moment, the more people are paying the taxes the better for Government and not to compound the heavy tax burden unto the few formal sector workers without the necessary raise in wages and salaries, that is a killer blow!!

Government can also spread this 5% its charging the banks across several sectors as compromise alternative, the banks can absorb 1 or 2% which will have just a little impact on them, and the remaining 3 of 4% spread among the telcos,mining companies etc just to reduce the burden of the banks.

Mensah Thompson
Executive Director,ASEPA