After years of sustained growth, the mobile money sector in Africa is changing.
Up until recently, mobile money has been seen as a substitute for cash and a convenient way to transfer money without the need for a bank account. But mobile money networks are increasingly integrated into a greater range of commercial activities.
From online shopping to accessing loans, mobile money is no longer just for peer-to-peer transactions. It is now the medium of choice for many Africans looking to send or receive money for a variety of reasons.
As more and more economic activity falls within the scope of mobile money payments, in recent years African governments looking to cash in on the booming sector have made attempts to tax USSD transactions with varying degrees of success, most recently in Ghana.
First proposed by the government in late 2021, Ghana’s eLevy is a sweeping tax that covers nearly all electronic transactions including mobile money payments.
After strong resistance from opposition MPs that infamously culminated in a brawl in parliament, the initially proposed 1.75% levy was reduced to 1.5%.
Payments at the point of sale, person-to-person transfers and inward remittances are all covered by the new tax but transfers between accounts owned by the same person are not. Each person may also transact up to 100 GH₵ ($12.44) per day before the eLevy applies.
The eLevy is not charged on payments made to commercial establishments that are registered to pay VAT and income tax.
Overall, the government’s justification for the eLevy was that it would widen the tax net to cover informal economies that remain un- or under-taxed. It claims that the levy will raise an estimated $1.15 billion per year.
Ghana is not alone in introducing a levy on mobile money transactions. To varying degrees, Cameroon, Kenya, Nigeria, Tanzania, Uganda and Zimbabwe have all introduced taxes that target mobile money payments.
In January, Ghana’s finance minister stated that the government was expecting to see an initial decline in mobile money transactions of 24% following the introduction of the eLevy. Already, that prediction seems to be bearing out.
In June, Ghanaian think tank the Imani Center for Policy and Education published the first report investigating the effect the eLevy is having on spending and transacting habits in the country. The data suggests that 47% of Ghanaians have reduced the number of mobile money payments they make following the introduction of the eLevy.
It’s a picture that is repeated elsewhere on the continent too. In order to avoid the new tax, informal economies revert to cash.
In Tanzania, which imposed a mobile money tax last July, peer-to-peer transactions dropped by 38% from 30 million to 18 million per month, a GSMA study found.
Governments argue that the decline is temporary and that the increased tax revenue is worth the temporary setback in digital transformation.
Critics argue that the taxes disproportionately affect the poor and risk shutting out the very people that mobile money has been so successful at bringing into the financial system.
In response to the steep decline in mobile money usage that follows the imposition of a blanket levy, some tax authorities have been forced to backtrack.
in Uganda, a 1% levy on all mobile money transactions was introduced in July 2018, but within months it was cut to 0.5% following public outcry and a 24% drop in transaction values.
It’s a similar story in Tanzania, where fierce opposition from the public and legal challenges from human rights groups forced the government to slash its own mobile money levy by 43% last month.
Ghana’s eLevy has to be considered in light of the country’s efforts to digitize its payments infrastructure. From the recently launched GhanaPay mobile money wallet to the Bank of Ghana’s interest in Central Bank Digital Currency (CBDC), digitization is often framed in terms of financial inclusion and expanding services to the underbanked.
But while digital technologies like mobile money can certainly increase the banking possibilities for Africans, increasing financial inclusion runs corollary to the fact that digital money is just easier to track and tax than cash.
Striking a balance between increasing tax revenue without hurting financial inclusion is key.
After all, financial inclusion does include paying taxes, but it also needs policies that support the digital economy. And if taxes cause people to withdraw their cash from the system is that not a step backward?
In the end, only time will tell what the ultimate impact of Africa’s experiment with taxation on mobile money transactions will be.
Other nations considering their own taxes will no doubt be watching how the situation in Ghana unfolds.
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