Certain taxes on mobile money transactions in Sub-Saharan Africa have had a distortionary impact on the demand for-and growth of mobile money services in the region.

This is according to a recent GSMA report, The Causes and Consequences of Mobile Money Taxation, an examination of Mobile Transactions Taxes in Sub-Saharan Africa, which claims that the prominence of mobile money has been a target of revenue, ignoring the fact that mobile money is a method of payment and not an income for the sector.

The report discusses the negative impact of mobile money tax in Uganda, Malawi, Republic of Congo and Ivory Coast.

According to the report, in July 2018 the Ugandan government introduced a 1% tax levy on the value of all mobile money transactions, including cash in, transfers and cash out.

Following public outcry, the legislation was amended to apply a 0.5% on the value of withdraws only, but the tax still impacted negatively on the country’s mobile money sector.

It (the report) claims that by August 2018, overall industry transaction values dropped 24% while P2P values fell by more than 50% as users chose to exit the mobile money system.

The market analysis suggests in Malawi taxes have had a negative impact on the growth of the sector resulting in a small concentration of mobile money services in urban areas only, depriving about 80% of the rural population.

According to the report, taxes on mobile money services in Malawi include 16.5% VAT payable on transaction fees and a withholding tax charged on interest paid from the trust account as well as agent commissions that are subject to a 20% withholding tax.

“Among recent measures recommended by International Monetary Fund and adopted by Malawian government was the introduction of withholding tax on commission earned by mobile money agents. In addition to these external influences, Malawi has created its own domestic pressure to increase tax base,” reads an excerpt from the report.

Consumer Association of Malawi (CAMA) executive director John Kapito is quoted by Malawi’s local Nation newspaper as saying: “Instead of taxes, there is need to introduce incentives for those willing to operate in rural areas as most of the clients in rural areas are basically recipients of cash than senders.”

Telecommunications analyst at the Computer Association of Zambia Andrew Makanya said: “Taxing mobile money transactions will defeat the financial inclusion agenda that most African governments are pushing as poor users will likely stop transacting.”