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 on the continent. 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
changes in mobile money taxation has on financial inclusion on the continent.
In the paper, Vodacom Group outlines that accessibility and
affordability are two of the major drawcards of mobile money on the continent,
giving people access to the most basic financial services. M-PESA, the first
and most successful mobile money payment service on the continent with 52
million subscribers, is currently available in Kenya, Tanzania, Lesotho, the
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. “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 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.
“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
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, that 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, the tax policies can be structured in such a way that
they are proportionate and broad-based in their application, rather than
sector-specific, and 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 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.