OPED: Mobile Money Taxation Could Hamper Financial Inclusion Gains in Africa

In an increasingly digital economy, accelerated by the Covid-19 pandemic, there has been greater collaboration between the private sector and governments in Africa to further the continent’s digital and financial inclusion agenda.

Financial inclusion, in particular, is both a pre-condition and a key enabler for meeting many of the UN’s Sustainable Development Goals (SDGs), including reducing poverty, boosting economic growth, and promoting market access.

To this end, various governments, including Kenya and Tanzania, have not only embraced digital transformation but also provided sound and enabling policy frameworks over the years to allow for innovative solutions that empower citizens. For instance, mobile money platforms such as M-PESA have been vital drivers of financial inclusion in Africa.

However, government tax policies pose a significant challenge to the sustainability of mobile money services and the financial inclusion gains made by these innovations. Vodacom Group’s policy paper on Mobile Money Taxation unpacks some of the impacts that change in mobile money taxation have on financial inclusion in Africa

In the paper, Vodacom Group outlines that accessibility and affordability are two of the major drawcards of mobile money in Africa, giving people access to the most basic financial services.

M-Pesa, the first and most successful mobile money payment service in Africa with 52 million subscribers, is currently available in Kenya, Tanzania, Lesotho, the Democratic Republic of the Congo (DRC), Ghana, and Mozambique with plans to make it 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.

Chege further adds “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.”

While taxation plays a critical role in helping governments across Africa meet their revenue targets and make up for the economic losses experienced during the pandemic, the policy paper outlines that this could potentially come at the expense of society’s most vulnerable if not appropriately implemented.

Emphasizing the importance of considering how taxation could also affect service providers, the paper also suggests that increased taxes could hamper mobile money providers’ ability to make the investments necessary to provide services to the underserved.

Chege remarks that 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,” he says.

Where the tax burden is too high, there is a chance that providers will limit their investments, reducing mobile money penetration, and leading to lower customer usage on the continent and consequently, the socio-economic benefits derived from these platforms.

Given these realities, the policy paper on Mobile Money Taxation 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 social divides and that the financial inclusion gains made on the continent are not lost.
• Tax policies can be structured in such a way that they are proportionate and broad-based in their application, rather than sector-specific.
• Governments and regulators can engage more robustly with mobile money operators and telcos on the unintended consequences of mobile money taxation to find a middle ground that is favorable for customers.

“It is common knowledge that the Covid-19 pandemic, the war in Ukraine, and climate change have all hampered Africa’s progress towards meeting the Sustainable Development Goals (SDGs),” Chege notes. “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.”

Chege says without sound and carefully implemented policies around mobile money taxation, we risk reversing the many financial inclusion gains already made on the continent.

ALSO READ: WHY CAN’T WE HAVE A UNIFIED PAYMENT AGGREGATION SERVICE