African-imposed taxes on Fintech services – and the message people using micro and nano loans have sent.

African-imposed taxes on Fintech services – and the message people using micro and nano loans have sent.

Fintech services like micro loans and nano loans have a positive impact on the financial inclusion of more and more people, especially in underserved areas of emerging countries. And while governments may believe they have found another source of income by taxing those services, it looks like people using them feel otherwise – and they are not afraid to speak up. Like the very recent example of Zimbabwe has shown.

For background, Zimbabwe recently joined the club of several African countries, such as Uganda or Kenya, implementing new higher taxes on fintech services of mobile money through micro and nano loans. Τhe original plan was to implement a 2-cent tax per dollar, starting from the first dollar, a plan that would seriously impact people benefiting from micro and nano loans, especially since the existing tax was 5 cents total per transaction regardless of the amount. The tax hike on mobile money in Zimbabwe follows Uganda, which introduced a controversial mobile money and social media tax earlier this year. A few days before it was also Kenya which also has raised mobile money taxes in June. And if we go back we can also find the examples of Tanzania, Zambia, Benin and Rwanda, which turned to the same solution: raising taxes on mobile transfers or digital services, ostensibly to fix perennial revenue shortfalls and fiscal deficits.

But the issue is, all taxes discourage something. In the case of mobile money, overtaxing a young new industry such as Fintech, you discourage not only the people who use such services but also companies, innovation, employment, things that are vital to every economy. In the end, such measures could backfire and prove counterproductive. For example, we have already seen that the new tax had contributed to a decline in mobile money transactions (Airtel reported that the decline at the volume of their mobile money transactions reached 33%) and to a drop of 20% in subscribers using data. In the case of Uganda, following pressure, the government responded by reducing mobile money tax from 1 per cent on all mobile money transactions to 0.5 per cent.

So, something similar just happened in Zimbabwe, where the government had to revise the originally proposed tax of 2 cents per dollar on mobile money and electronic transactions, following increasing and intense criticism from labour and civil rights organizations. As a result, the proposed law has been revised and the new tax will eventually apply to transactions of US$10 and above only, leaving nano loans below that threshold to be more affordable for everyday people. Both Uganda and Zimbabwe cases are evident examples that mobile money is a matter that now concerns a vast number of people in these countries, who have the power to change things.

For African governments its crucial to find the right balance between taxes and growing the industry to its full potential. Especially in markets/countries where mobile money service is still in its infancy. Overtaxing those markets, it will reduce the uptake of the service and undo its positive contribution. Before implementing a new tax its vital for governments to have a constructive dialogue with the society and the companies which are offering those services. A similar approach is also needed for the regulatory framework of mobile money market. Legislative and regulatory processes in the region are slow and cumbersome, and are arguably not well suited for a market which, by its very nature, is agile and developing rapidly.

A stable tax environment and a uniform policy framework are the essential ingredients for a market to flourish. By doing that, African governments will also create a healthy and strong revenue channel for the state.

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ChannelVAS is the premium developer of Mobile Value Added Services for Mobile Operators. We are an affiliate of Channel IT, Africa’s largest independent distributor of Mobile Network Infrastructure. With presence in more than 15 countries and a continuous expansion to new markets globally, ChannelVAS can cover a wide range of services, from Airtime Credit, and Mobile Financial Services to Advertising, Content and Marketing solutions.