Since its emergence, mobile money has evolved as the formal financial service of choice for many underserved groups in Tanzania.
The rapid adoption and widespread use in these areas aren’t due to its convenience (as it is in many developed markets) but on its necessity, since it bridges gaps for unbanked people that the existing banking sector cannot.
As a result, emerging market has become the epicentre of mobile money activity, with Tanzania experiencing the most growth. Transaction volume and value in the country have seen growth during the last decade, and mobile money market in the East African country is expected to reach $216.4 billion by 2024.
As expected, the success of such services attracted the attention of the government seeking to expand its revenue tax base.
The growth of the population is putting extra pressure on the government to seek new sources of revenue. Mobile money services have been such an opportunity.
Poorly designed tax policy
Whilst there is no doubt that the government has to raise taxes and broaden its tax base. It must also approach tax policy with a discerning eye.
Despite the diverse methods proposed to tax mobile money, in most cases the results – especially on mobile money transaction – are controversial, proving the structural weaknesses of taxation in the country and putting its financial inclusion at risk.
A recent report by GSMA notes: “The government is unable to fully understand the nuances of emerging sectors, such as mobile-money services or even the wider digital economy.” The outcome has been “badly designed taxes which, although they may seem attractive at first sight, fail to consider the impact on the broader economy and society.”
Currently, mobile money customers using Tigo-Pesa to transfer Tsh50,000 she/he will be deducted Tsh2,770. Transferring fee is Tsh720 and the government fee Tsh2,050.
Transferring Tsh200,000, you will be ducted Tsh4,140. Service provider fee is Tsh1,200 and the government fee is Tsh2,940
Sending Tsh300,000, you will deducted Tsh5,000. Service provider fee is Tsh1,500 and the government fee is Tsh3,500.
Transferring Tsh500,000, you will be deducted Tsh7,400. Service provider fee is Tsh2,200 and the government fee is Tsh5,200.
Independent research and reports from prestigious organisations, such as the above mentioned GSMA, reveal aspects of the problematic way in which mobile money services are treated. This includes specifics of the population that uses these services or the negative impact on financial inclusion those taxes bring about.
Therefore, authorities should consider the longer-term negative impacts of such policies and work on a more flexible, far-sighted and understanding framework that will lead to more growth and, in turn, more earnings for the states in the long run.