Accra, Ghana//-The introduction of mobile money (MoMo) popularly known in Ghana has led to an exponential rise in access to financial services among the unbanked across Africa.
Before the advent of mobile money, most economies relied on cash with limited access to formal financial accounts.
From 2017 to 2021, the average rate of account ownership for adults in developing economies increased from 63% to 71%. In sub-Saharan Africa, this expansion largely stems from the adoption of mobile money.
Today, mobile money, fuelled by the entry of mobile phones into the African ecosystem, acts as an entry point for the unbanked and has grown into the most prominent financial transactions platform for mobile phones and e-money.
Mobile money is now prominent in adjacent markets, providing mobile insurance, savings, and credit services, thus improving consumers’ wellbeing, and living conditions.
According to the 2021 GSMA State of the Industry Report, mobile money accounts grew to 1.35 billion worldwide — a tenfold increase from 134 million in 2012.
Today, the mobile money industry has over 518 million active 90-day accounts, which is a testament to the significance of mobile money in addressing financial inclusion gaps.
Additionally, with Covid-19, mobile money has proven to be fundamental to crisis response. It has been vital in keeping people connected, providing safe, no-contact ways to pay for utilities, and delivering financial support. The prevalence and success of mobile money have also created positive externalities for other industries, aiding in transactions related to water and sanitation products, energy, agriculture, and school fees.
The accessible and revolutionary nature of mobile money is unparalleled, transforming the role of financial services worldwide, particularly in sub-Saharan Africa.
The success of mobile money has plausibly attracted the attention of governments and tax authorities who seek to raise taxes and broaden their tax base.
This has led to increased taxation on mobile money transactions, indiscriminately applied to low-level retail electronic transactions, directly impacting low-income earners sensitive to transaction costs.
This disproportionate effect on cost raises concern about possible adverse effects. The challenge lies in the potential hasty return to cash transactions in developing countries when faced with additional taxes and a reversal of gains made in financial inclusion.
With 1.4 billion4 still unbanked and without access to basic financial services, we need to advocate for tax policies and regimes that enable the reach of these individuals, including women and persons with disabilities (PWD).
It is also important to note that the mobile industry is already one of the highest taxed in sub-Saharan Africa. Thus, those that offer mobile money services face three layers of taxation: general taxation, such as value added tax, mobile sector-specific taxation such as excise duties of 17% on airtime usage and mobile money taxation.
While this has a material impact on the investment incentives of the provider, it also does little to support the fiscal objectives of governments.
In this paper, we explore the mobile money taxation trend spreading across African countries, the rationale behind this, the adverse impact on financial inclusion objectives and consider other, more appropriate alternative policy considerations when developing these mechanisms. The paper delves into the Vodacom market scenarios and assesses how mobile money taxation/levies impact the uptake of services.
Some of the positive impacts of mobile money services can be found in Text Box 1 below. These, in turn, contribute to growth in several other economic sectors, including agriculture, healthcare and education, which boost economic development and raise the overall quality of life for users.
Arguably, mobile money services, coupled with e-government services and digital transformation initiatives, are more prominent today than any other technology, at the core of economic development and empowerment of individuals and communities.
The low barriers to access enabled through mobile money services allows for the inclusion of marginalised groups and small businesses that are typically excluded.
Below, we highlight some of the benefits of mobile money as we set the foundation for why narrowly targeted and specific mobile money taxation practices could, in the long term, be detrimental to the economy.
Text Box 1: Positive effects of mobile money services: • Expanding financial inclusion and access to services;
- Driving economic growth, contributing to economic development, and boosting productivity ;
- Promoting transfers, savings, withdrawals, and access to credit;
- Enhancing tax collection, thus improving domestic revenue mobilisation by improving tax administration efficiency, reduction in corruption, improved compliance, and thus broadening the tax base; • Promoting formalisation by allowing access to formal financing and services for the informal economy;
- Improving the effectiveness of public service delivery;
- Poverty reduction; and
- Reducing the cost of international remittances, and solidifying monetary policy.
Source – Industry 4.0 in Financial Services: Mobile Money Taxes, Revenue Mobilisation, Financial Inclusion, and the Realisation of Sustainable Development Goals (SDGs) in Africa (2022)
Economic growth and poverty reduction
Mobile money has contributed to economic growth by providing an effective, transparent, safe alternative to cash during crises, while bridging the financial inclusion gap.
In many countries, mobile money has been the key driving force behind the financial technology (fintech) revolution, which has allowed all members of society increased access to various financial services.
The overall impact of mobile money has increased productivity and gross domestic product (GDP) per capita. Access to financial services for the previously unbanked has also led to several benefits for individuals, households, and communities across Africa.
According to Suri and Jack (2016), access to M-Pesa in Kenya increased per capita consumption. It lifted 194 000 households, or 2% of Kenyan households, out of poverty.
Mobile money has enabled users to save, access credit and empower themselves toward a higher standard of living. Additionally, during Covid-19, mobile money was essential as societies employed a no-touch approach to payments.
Recognising this, regulators and mobile money providers worked together to eliminate transaction costs at the pandemic’s peak.
Regulators played a key role in promoting the use of digital financial services by introducing a range of regulatory interventions to mitigate the impacts of Covid-19.
In several markets, this led to a rise in mobile money usage and accurately indicates the potential and significance of mobile money today.
Strengthening the formal economy
The International Monetary Fund’s (IMF) report on macro-financial issues in Tanzania found that mobile money had contributed to fostering economic growth by increasing economic activity previously limited by a lack of funding.
Countries with a large informal sector are typically characterised by high levels of cash transactions and improper recordkeeping, which leads to a higher tax burden for those already within the formal sector.
Strengthening the formal economy through mobile money leads to increased job security for those typically paid in cash and improves overall security by reducing the chance of robbery or loss.
Additionally, mobile money provides a platform for users to track expenses and budget their earnings, thus alleviating poverty, increasing their financial health, and boosting their capabilities as effective contributors to the economy.
Mobile money has also helped increase access to government support in other areas through e-government platforms and optimises tax collection within the sector by including more players from the informal economy.
However, beyond taxation, there is a need to encourage mobile money services to improve users’ financial capabilities and give them access to a broader range of financial services.
We believe that increasing the taxation on mobile money services will limit this ability and perpetuate the increasing problem of visibility and traceability of undisclosed transactions.
By promoting and encouraging mobile money services, government authorities are also more likely to see a bolstering of anti-money laundering and countering financing of terrorism (AML/CFT) regimes by policymakers and mobile money providers.
Increasing access to essential utility services
Mobile money has increased efficiency in government payments and improved access to essential utility services while generating more revenue and reducing costs.
The abundance of mobile phone users across many developing countries, as well as the prevalence of mobile money agents means that mobile money is an effective tool to help rural and remote populations gain access to government transfer programmes without travelling long distances, waiting in lines, or even having a bank account — a critical advantage in a world where 1.4 billion people still do not have access to formal financial institutions.
This is attributable to reduced administrative costs and reduced government revenue leakage. Mobile money payments also reduce instances of fraud and increase the overall efficiency of payments.
Better financial position visibility can also improve citizens’ services, allowing them to make quick payments to suppliers and service providers.
These improvements have led to an expanded revenue collection base linked to wider accessibility for the unbanked. In Kenya, the government made compliance savings of approximately US$290 million through digitising services over four years.
In Cambodia, the introduction of mobile money as a mode of payment by the Ministry of Public Works and Transport (MPWT) led to a growth in revenue from 60 billion riels (US$14.8 million) in 2017 to 150 billion riels (US$37 million) in 2019.
Other benefits include improved government financial planning as well as increased transparency, accountability and traceability of funds collected.
According to a 2020 GSMA report, mobile money payments to government (P2G) are an untapped, global opportunity.
They can be applied to a wide range of government services, covering payments such as monthly utility bills, annual education fees or one-off payments for a business registration tax.
An array of public entities could benefit from digitalising P2G payments — from local schools and municipalities to regional utility companies and national ministries.
The introduction of mobile money taxation and the looming threat of a cash return will curb the ability to actualise this opportunity and send government payments and access to essential services several years back.
The rapid growth of mobile money has played an important role in strengthening women’s financial inclusion by enabling them to access financial services independently.
Enhancing women’s access to financial services
Increasingly, governments and regulatory authorities are recognising that enhancing women’s financial inclusion and economic empowerment through encouraging their active participation in entrepreneurial activities drives an increase in the size of the active formal economy.
To help achieve this, we are seeing an increase in gender-focused policies and frameworks that help address gender-specific challenges and increase women’s access to formal finance.
The rapid growth of mobile money has played an essential role in strengthening women’s financial inclusion by enabling them to access financial services independently.
Recently, the Findex 2021 report found that the gender gap in account ownership across developing economies has fallen from 9% to 6% after remaining stagnant for many years.
This is mainly attributable to mobile money as an essential enabler in driving account ownership usage through mobile payments, savings, and borrowings.
In certain countries, cultural and societal norms would ordinarily not permit women access to financial services without a male family member’s approval.
However, mobile money allows women to conduct financial transactions with greater autonomy.
Additionally, since Covid-19, mobile money has provided women the necessary support to send funds to families in need and pay essential bills and services. Mobile money has therefore been critical in helping bridge the gender gap in the lack of financial inclusion.
It addresses several barriers that tend to be felt more strongly by women in specific contexts such as access, affordability, education, and security.
