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Taxation of Mobile Money Services Could Inhibit Financial Inclusion

taxation financial-inclusion africa
April 5, 2023

Taxation of Mobile Money Services Could Inhibit Financial Inclusion

Vodacom Group has published a new policy paper focused on ‘mobile money’; looking at the impact that changes in mobile money taxation have on financial inclusion across Africa. 

In recent years, Africa has seen an increasing amount of collaboration between the private sector and governments across the continent to enhance the region’s digital and financial inclusion agenda. Vodacom Group’s paper highlights how financial inclusion, in particular, is a key enabler in meeting many of the UN’s Sustainable Development Goals (SDGs). These goals include reducing poverty, boosting economic growth and promoting market access.

As a result, a number of African governments have embraced digital transformation by providing enabling policy frameworks in recent history to help drive innovative solutions that empower its citizens.

One major example of this is how the mobile money platform M-PESA has become a key driver of financial inclusion. Despite mobile money services offering obvious positives for enhancing financial inclusion, government tax policies are posing a series threat to the sustainability of these services, and therefore the growth of financial inclusion.

Vodacom Group’s policy paper ‘Unpacking the Implications of Mobile Money Taxation in Africa‘ looks into the key impacts caused by changes in mobile money taxation.

Mobile money services supporting financial inclusion 

Accessibility and affordability are two of the major positives provided by mobile money services in Africa. They have had a significant impact already and are giving people access to the most basic financial services.

M-PESA, the first and most successful mobile money payment service on the continent with around 52 million subscribers, is currently available in Kenya, Tanzania, Lesotho, the DRC, Ghana, and Mozambique with plans to make it available in Ethiopia.

But as governments across Africa look to recoup losses made during the pandemic, taxation of these services is often seen as a necessity. However, Vodacom Group explains that this could negatively impact Africa’s most vulnerable.

Stephen Chege, group chief officer for regulatory and external affairs at Vodacom Group, explained: “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.

“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 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.”

Recommendations

Because of the dangers of improper taxation of these services, Vodacom’s paper sets out a number of recommendations:

  • Developing mobile money taxation strategies in line with long-standing tax principles based on equity. This is essential in ensuring that taxation does not exacerbate social divides and that the financial inclusion gains made on the continent are not lost.
  • Governments could structure tax policies to ensure 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 favourable for customers.

Chege concluded: “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.”

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