Accra, Ghana//-Today, the trend of mobile money taxation/levies are spreading across Africa. Two out of seven Vodacom/ Vodafone markets in sub-Saharan Africa (Kenya and Tanzania) impose excise taxes and/or levies on mobile money transactions.
Most recently, Ghana has imposed an electronic transactions levy (e-levy) directly impacting mobile money transactions.
As noted above, this trend is not limited to Vodacom markets as there are countries outside Vodacom markets that apply similar taxes on mobile money transactions.
This indicates that mobile money taxation is likely to spread to other sub-Saharan African countries and harm financial inclusion gains.
It is important to note that on top of these excise taxes and other levies on mobile money, the same users may also apply to other mobile-related taxes such as the Over the Top (social media) tax in Uganda. This creates a disproportionate burden on users subject to multiple tax obligations for using mobile devices.
Governments also collect corporate taxes on the net profits of mobile money companies. The following section highlights some countries where mobile money taxation has been implemented or is being considered.
Tanzania
The growth of mobile money services in Tanzania is a remarkable success story that facilitated the financial inclusion of approximately 16 million citizens, most of whom were previously unbanked, between 2015 and 2021.
In July 2021, Tanzania introduced a new levy on mobile money transfer and withdrawal transactions, excluding merchant, business, and government payment transactions effective 15 July 2021. This levy, additionally, applies to existing VAT (18%) and excise duty on mobile money transfer and withdrawal fees (10%).
Implementing these levies had a severe and immediate impact on mobile money transaction volumes and the growth of mobile money subscribers before and after the introduction of the fees.
Between March and September 2021, a 21% reduction was observed in total volumes and 29% in the total value of transactions. When the tax came into force in July 2021, transaction volumes and values decreased by 8% and 12%, respectively, and in August, the reduction in transaction volumes and values was more significant.
Between July and August, it was noted that transaction volumes and values decreased by 17% and 28% respectively, while these percentages are estimated at 23% and 37% from July (when the tax announcement was first made) to August 2021.
From the data, we see a clear reduction in transaction values and volumes becomes progressively acute as the value of transactions increases. The decrease in volume was more significant for high-value transactions, which decreased by an average of 42% in September compared to June.
Medium-value transactions declined by an average of 30%, whereas lower value transactions decreased by 21%.
Comparing this data to the growth of the industry before the introduction of the levies, it is clear that the growth of transaction volume and value have been declining since the introduction of the levy, and if the trend continues unabated, one can conclude that the continued viability of mobile money services is under threat.
Additionally, it was noted that merchant payment volumes were not affected by the introduction of the tax as these transactions are not subject to it. This leads to a disproportionate application of tax and disrupts the necessary competition and growth in the market.
In July 2021, the President of Tanzania tasked the Minister of Finance and Planning with reviewing the mobile money levy following the public outcry regarding the cost of mobile money transactions.
This led to an immediate slump in transaction volumes and values as consumers reacted to the new levy. In August 2021, the government announced the reduction of the new mobile money transfer and withdrawal transaction levy by 30%, effective from 1 September 2021.
Simultaneously, the application base was extended to include bank and financial institution transactions performed via mobile phone.
However, other types of bank and financial institution transactions, such as over-the-counter (OTC), ATM transactions and transactions conducted through devices other than mobile phones (e.g. personal computers) remain excluded from the levy which further penalises poorer users who only have access to mobile money services.
After the 30% reduction in levies and other measures introduced, a slight improvement in customer activity was noted, but the industry did not fully recover.
The authorities contended that the losses incurred would eventually stabilise. However, the number of mobile money transactions and users continued to decline.
In July 2022, the government of Tanzania, through the Finance Act 2022, introduced a further 43% reduction to the mobile money levy in Tanzania, establishing a combined reduction of 40% since the introduction of the levies.
The regulation also expanded the scope of the levy to apply to bank transfers. This was contested based on double taxation for users sending money to their own accounts, and in September 2022, a new regulation was issued which eliminates levy charges on transfers from users’ bank account to same user bank account, as well as transfers from a user’s bank account to the same user’s mobile money account, and vice versa.
The National Payments System (Electronic Money Transaction Levy) (Amendment) Regulations, promulgated in September of 2022, effectively reduced the levy charges to between 10% and 50%, depending on the value of the transfer.
This came into force on 1 October 202225 and led to a slight improvement in transaction volumes and values which had reduced upon implementation of the levy.
Ghana
The Minister of Finance in Ghana noted that the total value of transactions for 2020 was estimated to be over GHS500 billion (GHS78 billion in 2016) while total mobile money subscribers and active mobile money users have grown by an average rate of 18% and 16% respectively between 2016 and 2019.
This was primarily attributed to Covid-19, during which the reliance on mobile money services increased enormously.
As a result of the perceived simple source of additional revenue, the government proposed the introduction of the electronic transaction levy (e-levy) on all electronic transactions to widen the tax net to rope in the informal sector.
The government projected tax revenue of about GHS6.96 billion (US$1.1 billion) in 2022 and about GHS26.90 billion (US$4.5 billion) from 2023 to 2025 after implementing the electronic transaction levy.
In May 2022, the electronic transactions levy came into force, covering mobile money payments, bank transfers, merchant payments and inward remittances to be charged at an applicable rate of 1.5%, borne by the sender (except for inward remittances, whose cost is borne by the recipient).
The Minister of Finance had previously indicated that the levy would support entrepreneurship, youth employment, cybersecurity, and digital and road infrastructure.
As expected, there was heavy public outcry in response to the levies due to their disproportionate impact on the poor members of society.
The Electronics Transactions Levy Act took a phased approach to implementation and commenced phase two in July 2022. Stakeholders strongly believed that the e-levy would reverse the gains made with digital financial services leading customers to revert to cash.
In its analysis of the impact of the e-levy, the government predicted that 24% of users will drop off within the first couple of months but will eventually go back to using digital services as the benefits outweigh the negatives.
This analysis proved to be wrong. Leading up to the implementation date of the e-levy, massive cash withdrawals were noted, leading to a marked decrease in cash availability through these channels.
This demonstrates that mobile money taxation will cause the recently banked to revert to cash and it is unclear if this will stabilise sustainably.
Moreover, in addition to reversing financial inclusion gains, wrongly implemented tax policies will likely frustrate the government’s revenue generating objectives as mobile money users resort to informal means of money transfer.
In his 2023 budget speech, while proposing a further reduction of the levy to 1% of the transaction value, the Minister of Finance acknowledged that the levy “has not yielded the resources as expected.”
The government’s initial projection was to raise GHS7 billion, but by July, it had raised GHS611 million, less than 10% of the projected revenue.
On 11 January 2023, the reduced levy took effect at 1% of the transaction value. The government, however, dispensed the GHS100 daily threshold meant to cushion vulnerable people.
While the reduction to 1% of transaction value is welcomed, it remains a significant barrier to mobile money services by low-income and poorer segments of society who already bear the brunt of high inflation.
Uganda
In May 2018, the government of Uganda proposed legislation that placed a 1% tax levy on all mobile money transactions, including cash-in, transfer and cash-out.
Introduced in July 2018, the tax was controversial as it did not apply to the banking sector nor its associated agency banking service.
Subsequent public outcry saw the tax law adjusted in November 2018 to 0.5% which was restricted to withdrawals. The 1% mobile money transaction tax imposition sparked an immediate reaction.
According to a study by the UNCDF, the lowest income groups in Uganda were disproportionately affected by the withdrawal tax compared to higher income groups who could access alternative means of payments where a similar tax was not applied.
The results in this analysis report reflect a drastic decrease in average transaction value after the tax was introduced.
Additionally, high-income users, who were more likely to engage in higher-value transactions and have other options for transacting, seem to have migrated away from mobile money.
The report further argued that the tax harmed the formalisation of the economy as the increased tax burden led to a discontinuation of specific payment digitisation initiatives.