In an increasingly digital economy, accelerated by the Covid 19 pandemic, collaboration between the private sector and governments in Africa has intensified to drive digital and financial inclusion on the continent. Financial inclusion in particular is both a prerequisite and a key enabler for achieving many of the UN’s Sustainable Development Goals (SDGs), including reducing poverty, boosting economic growth and promoting market access.
To this end, several governments, including Kenya and Tanzania, have not only embraced digital transformation, but over the years have also put in place sound and enabling policy frameworks to enable innovative solutions that empower citizens. For example, mobile money platforms such as M- PESA have been instrumental in driving financial inclusion on the continent. However, government tax policies pose a major challenge to the sustainability of mobile money services and the financial inclusion achieved through these innovations. Vodacom Group’s mobile money taxation policy paper highlights some of the implications that changes in mobile money taxation have on financial inclusion on the continent.
In the paper, Vodacom Group highlights that accessibility and affordability are two of the key assets of mobile money on the continent, as they give people access to the most basic financial services. M- PESA, the first and most successful mobile payment service on the continent with 52 million subscribers, is currently available in Kenya, Tanzania, Lesotho, the Democratic Republic of Congo, Ghana and Mozambique, and will soon be available in Ethiopia.
“While many countries have embraced mobile money services, mobile money taxation can have unintended consequences for the people who stand to benefit significantly from these platforms”, says Stephen Chege, Group Chief Officer for Regulatory & External Affairs at Vodacom Group. “We need to remember that many of the people who use mobile money are highly sensitive to transaction costs, therefore even a marginal increase in the fees associated with using these services could make them unaffordable. Higher transaction taxes may even compel some users to return to cash-based transactions,” notes Chege.
While taxation plays a critical role in helping governments across the continent meet their revenue targets and offset economic losses during the pandemic, the policy paper points out that this may come at the expense of the most vulnerable in society if not implemented appropriately. It stresses the importance of considering how taxation could also affect service providers. The paper also points out that higher taxes could hinder the ability of mobile money providers to make the necessary investments to deliver services to underserved populations.
“While these taxes are targeting mobile transactions because of their high volume, it is important to remember that the value per transaction is typically quite low. This means that taxation on mobile money transactions is unlikely to significantly expand the tax base and could instead, result in the reduction of tax revenue in the future”, adds Chege.
Where the tax burden is too high, there is a possibility that providers will limit their investments and reduce the penetration of mobile money, leading to lower usage by customers on the continent and consequently lower socio-economic benefits from these platforms.
In light of these facts, the mobile money taxation policy paper makes the following recommendations:
- Mobile money taxation strategies can be developed in line with long-standing tax principles based on equity. This is essential to ensure that taxation does not exacerbate the social divide and that the progress made on financial inclusion on the continent is not lost.
- Tax policy can be designed to be proportionate and broad-based rather than sector-specific.
- Governments and regulators can engage more with mobile operators and telecom companies on the unintended consequences of mobile money taxation to find a middle ground that is favourable to customers.
“It is common knowledge that the pandemic, the war in Ukraine and climate change have all hampered Africa’s progress towards meeting the Sustainable Development Goals (SDGs). Mobile money plays a critical role in meeting some of these goals by driving financial inclusion and reducing poverty among the unbanked by empowering them to access credit, loans, savings and other essential financial services. Without sound and carefully implemented policies around mobile money taxation, we risk reversing the many financial inclusion gains already made on the continent”, concludes Chege.
