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Channel VAS at The Africa Report: Beneficial effects of mobile money are hindered by poorly designed taxation

27 September 2022

The short-sighted perspective of Sub-Saharan Africa’s state authorities at the taxation of mobile money services are the focus of the latest opinion piece by our founder and CEO, Bassim Haidar at The Africa Report. Through a series of examples, it is showcased that the fiscal policy of many sub-Saharan states towards mobile money services does not take into account the specifics of this market or the wider digital economy, treating it solely as a source of revenue.

The result, as also noted by the GSMA in a recent report, 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”.

Mr Haidar recognizes the need of African governments to raise taxes and broaden their tax bases but he underlines that “they 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 region and putting Africa’s financial inclusion at risk” he argues. “A poorly designed tax policy leads to deficient outcomes” he continues, noting that various independent research and reports from prestigious organisations 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”.

According to this piece, the problem lies in the lack of capacity within research units at the policy level and a lack of national policy frameworks to guide them. “As a result, the full impact of mobile money taxes is not adequately assessed”, adding that “where these taxes have been implemented, mobile money transaction values have contracted”.

This view is in line with the findings of another GSMA report, according to which almost ¼ of mobile money providers said taxation was harming the uptake of mobile money services and their business, revealing the regressive effect of poorly designed taxes. “We have experienced first-hand these services’ growth, their beneficial effects on underserved populations, as well as how they can be hindered by poorly designed taxation” Mr Haidar notes, adding Channel VAS‘ significant experience in the field.

Sub-Saharan Africa has become the epicenter of mobile money activity, as those services bridge gaps for unbanked people that the existing banking sector cannot. “When contemplating mobile money taxation, 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” the piece concludes.