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Taxing mobile money hampers financial inclusion in Africa
Mobile money services have been instrumental in driving financial inclusion across Africa. However, taxation policies imposed by governments could have unintended consequences on the continent’s most vulnerable populations.
Vodacom Group’s recently released policy paper on mobile money taxation unpacks some of the effects of changes in mobile money taxation on financial inclusion in Africa. According to the paper, accessibility and affordability are two of the primary reasons for the success of mobile money in Africa.
The popularity of M-PESA, the first mobile money payment service on the continent, has grown to 52 million subscribers across six countries. The service is a crucial driver of financial inclusion, enabling access to essential financial services for millions of previously unbanked people.
The paper outlines that mobile money taxation can have unintended consequences for the people who stand to benefit significantly from these platforms.
Higher transaction taxes may make services unaffordable, and some users may return to cash-based transactions. The policy paper suggests that increased taxes could also hamper mobile money providers’ ability to make the investments necessary to provide services to the underserved.
“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,” notes Stephen Chege, group chief officer for regulatory and external affairs at Vodacom Group. “We need to remember that higher transaction taxes may even compel some users to return to cash-based transactions.”
While taxation plays a critical role in helping governments across the continent meet their revenue targets, the policy paper outlines that this could potentially come at the expense of society’s most vulnerable if not appropriately implemented.
The paper recommends that mobile money taxation strategies can be developed in line with long-standing tax principles based on equity. 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 telecommunications companies on the unintended consequences of mobile money taxation to find a middle ground that is favourable 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),” notes Chege.
“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.”
Mobile money services have become a key component of the African financial system, enabling millions of people to access financial services for the first time. However, if taxation policies are not carefully implemented, they could reverse the gains made in financial inclusion. It is, therefore, essential that governments work with mobile money operators and telcos to develop taxation policies that are equitable, proportionate, and broad-based in their application, ensuring that the financial inclusion gains made on the continent are not lost.
- To read more about this topic, download the Mobile Money Taxation Report here.
