Electronic transfer taxes and the stock market: empirical evidence from Ghana’s E-levy

This paper aims to highlight the correlation between Ghana’s Electronic Transfer Levy (E-levy) and the stock market performance of the target firms. Initially, the E-levy aimed to raise GH₵7 billion by taxing electronic transfers exceeding GH₵100 daily at a rate of 1.75%. Following a rate reduction to 1.5%, the revenue target was revised to GH₵4.5 billion. Using a difference-in-differences approach, we find a negative effect on target firm stock prices, persisting around the implementation period. We also find that reducing the levy influences stock prices positively. Our channel test reveals that the levy affects the stock market through transaction volume, with a stronger result for firms with below-average trading volumes. The policy recommendation is to reduce the rate below 0.5%.This study provides critical empirical insights into the correlation between Ghana's Electronic Transfer Levy (E-Levy) and the stock market performance of targeted firms, notably fintech companies and banks. Employing a robust difference-in-differences analytical approach, it reveals that the introduction of the levy negatively correlated with stock prices, primarily through reduced trading volumes, particularly affecting firms with lower-than-average trading activities. The research underscores significant market sensitivity to fiscal policy adjustments, highlighting the importance of carefully designing tax frameworks. The findings advocate for policy reconsideration, notably suggesting either cancellation or further reductions in the E-Levy rate to mitigate adverse market responses and enhance financial market stability and investor confidence in Ghana.