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, which boasts 52 million subscribers in Africa, 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 financial inclusion gains made by these innovations.
According to Stephen Chege, chief officer for regulatory and external affairs at Vodacom Group, 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,” said Chege. “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.”
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 – this could potentially come at the expense of society’s most vulnerable if not appropriately implemented.
Where the tax burden is too high, there are chances that providers will limit their investments, reducing mobile money penetration, leading to lower customer usage on the continent and consequently, the socio-economic benefits derived from these platforms. It is at the back of this that Vodacom suggests that mobile money taxation strategies 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 and governments as well as regulators can engage more robustly with mobile money operators and telcos.
“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. 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,” said Chege.