Why mobile transaction levies need review

Dar es Salaam. The government hinted on a possible U-turn on its newly-introduced mobile money levy yesterday in a move that analysts say was inevitable.

Finance and Planning minister Mwigulu Nchemba said on Monday that President Samia Suluhu Hassan has heard the people’s complaints against the new mobile money levies - and that she had instructed the ministry to work on the matter.

In an effort to raise its revenue collections by Sh1.254 trillion to finance the Sh36.68 trillion budget for the 2021/22 financial year, the government last month amended the Electronic and Postal Communication Act (CAP 306) by imposing a ‘patriotic levy’ on all mobile money transactions, depending on the amount sent and withdrawn.

For example, sending Sh1 million to someone nowadays, and having the money withdrawn at the other end, will cost a total of Sh31,000 at the in all. The levy, which became effective on July 15 this year, has since been roundly criticised as people believe the amount being deducted was too high for Tanzanians to bear - and that it was going against the country’s financial inclusion agenda.

But in what signals that the government could backtrack on the new levy, Dr Nchemba said on Monday that President Hassan has been personally concerned by the people’s complaints.

“I urge Tanzanians to remain calm as the government works on the matter… Their complaints have reached the President and she is concerned about people’s complaints. She has instructed that we should work on the complaints,” he said.

Analysts commended the government for coming in to swiftly rectify the ‘error’.

“You cannot have sustainable development without financial inclusion penetration… This levy is a regressive tax which could lower transactions and hence hinder financial inclusion,” an economist from the University of Dar es Salaam (UDSM), Dr Abel Kinyondo, told The Citizen over the phone yesterday.

He added that high costs of mobile money transactions could lower velocity of money and thus leaving people’s pockets even emptier.

A city-based economist-cum-business expert, Dr Donath Olomi, said it was encouraging that the government had swiftly realised that the levy was taking the country towards a wrong trajectory.

He said high costs of mobile money transactions could cut people’s appetite in using it and thus reducing its contribution to the economy and prosperity of the society.

Higher taxes on mobile phone transactions may force low-income earners to revert to cash.

“While tax revenues from digital transactions may rise in the short term, further increases in the taxes past this optimal tax rate will result in less revenue,” noted Dr Olomi, who is also the chief executive officer of the Institute of Management and Entrepreneurship Development (Imed).

Available information shows that attempts to raise government revenues through levies on mobile money transactions have also proved futile other countries including, Cote d’Ivoire, Malawi and Uganda, among others.

In 2019, after proposing a one percent tax on mobile money transactions, the Malawi ministry of Finance officially dropped its plan after it faced criticism from mobile network operators (MNO) and consumer rights organisations.

In Uganda, the cabinet was compelled to revise the controversial mobile money taxes in 2018, after massive complaints from the public. It decided to reduce the levy from one percent to 0.5 percent as earlier proposed and that the levy would then be levied on withdrawals only and not on ‘sending, receiving and depositing’ money as it had been passed by the country’s parliament.

And, Dr Nchemba said yesterday that since the levy was now legally-binding after the Parliament approved the 2021 Finance Act and Appropriation Act, the ministry of Finance and Planning and that of Information and Communication Technology (ICT) will have to work on the regulations and see the way forward.

He said work on the grievances was on full gear and that even the Prime Minister had called for a meeting where the government will deliberate on the subject matter.

He said the government will also keep on clarifying the issues that need mere clarification and rectify those [areas] that need rectification.

Experts from the ministry of Finance were currently looking at the National Payment System while their counterparts from the ICT ministry were also looking at the Electronic and Postal Communication Act with a view to identifying issues that need to be clarified and/or rectified.

ICT Minister Faustine Ndugulile assured Tanzanians that the issue will be solved once and for all.

Apart from ordinary Tanzanians, mobile operators are also on record as having been quoted saying that business had dropped significantly since the levy became operational on July 15. The chairman of the Tanzania Mobile Network Operators Association (Tamnoa), Mr Hisham Hendi - who doubles as Vodacom Tanzania’s chief executive officer - is quoted by the July 19, 2021 edition of Mwananchi newspaper as saying that millions of customers – especially those in rural areas - had stopped using mobile money services due to the rise in costs.

This, he said, was also threatening the survival of telecommunication companies in the country.

“Our revenues are dropping drastically because consumers are no longer using the services… The situation is not good at all,” he said.