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The Impact of Taxes on the Growth of Mobile Money in Africa

07 May, 2014

Source: ICT Africa

 
Kihara Kimachia

Mobile money has taken Africa and much of world by storm. According to recent data from Juniper Research, almost 400 million people globally are expected to use mobile phone money payment services by 2018. A 2013 GSMA study on the African mobile money market also found that the mobile economy contributes 6% to the GDP of sub-Saharan Africa.

Additional highlights from the GSMA report include:
•The mobile economy contribution to GDP in sub-Saharan Africa is higher than any other region globally. This contribution is forecast to rise to more than eight percent by 2020.
•In 2012, the mobile economy directly created 3.3 million jobs and contributed over $20 billion in public funding to sub-Saharan Africa.
•The mobile economy is expected to employ close to 7 million people in the region and contribute over $40 billion to public funding by 2020.
•Over the last five years the subscriber base has grown by eighteen percent making it the fastest growing region in the world. By mid-2013, there were over 500 million subscribers and more than 250 million unique subscribers in the region.

This phenomenal growth of the mobile economy serves to further accelerate the growth of mobile money. As expected with all high growth industries, governments in Africa have taken a keen interest and see it as an important source of new tax revenue.

In Kenya, the government's budget is rising as a result of increased demand for public infrastructure and services as well as a ballooning public wage bill. Oil revenues are yet to start flowing and donor aid is falling. To dealing with this pressure, the Kenyan government in 2012 decided to squeeze the telecoms industry for more tax revenue. Kenya was the first country to impose a ten percent excise tax on mobile money transfer fees charged by carriers. Uganda followed suit almost immediately.

The leading mobile operator in Kenya, Safaricom, immediately passed on the tax to consumers by increasing the fees charged by ten percent. In Uganda, MTN followed suit and also hiked money transfer fees by ten percent. In the past, telecoms companies in East Africa have been 'raided' for tax revenue anytime the respective governments are faced with a cash crunch. In Kenya, for example, mobile phone calls were first hit with a 16% VAT bill, quickly followed by ten percent excise duty. The corporate income tax in Kenya is 30%, which the telecoms still end up paying.

In early 2014, Zimbabwe also started taxing mobile money services. If the trend continues, and if the history of taxation on other mobile services is anything to go by, then appears that the rest of Africa will follow suit and start taxing mobile money.

The real question, however, is whether taxation has a negative impact on mobile money services. Bob Collymore, the CEO of Safaricom Kenya says that African governments risk "stifling what is still a nascent sector." Other experts have voiced similar concerns. According to the Juniper report, author Dr Windsor Holden states that, “While the impact on the Kenyan market appears to have been limited thus far, we should point out that this is the most mature mobile money market. The introduction of a similar tax in a market in the early stages of service adoption could serve as a severe brake on growth or make potential service providers reconsider planned deployments."

Data from the Central Bank of Kenya appears to reinforce Holden's position. Despite the imposition of tax on mobile money services, mobile payments in Kenya continued to grow throughout 2013. The scenario is the same in Uganda. Based on experience from these two countries, one can safely conclude that in mature markets, a modest amount of tax is unlikely to affect the growth of mobile money in Africa. However, authorities in budding markets should tread carefully.


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