Why is the use of mobile money in Tanzania declining?

Governments across sub-Saharan Africa impose stiff and high taxes on mobile money services. In Tanzania and even Kenya, these taxes reverse past gains in financial services.

Tanzanians have been using mobile phone services for less than two years, when the government imposed new taxes on mobile money transactions. In July 2021, Tanzania introduced a tax ranging from TZS10 ($0.004) to TZS10,000 ($4) on mobile money transactions to finance development projects. This tax was in addition to the existing 18% value added tax and 10% indirect taxes on mobile phone money transfer and withdrawal fees. After public opposition, the government cut the tax by 30% in September 2021, and another 43% cut, from TZS10 to TZS4,000 (US$1.6), was implemented in July 2022.

Despite these declines, mobile money revenues fell from TZS 736 billion ($295.1 million) to $6.154 billion, or $2.5 million (down 1,628 percent) between June and August, stabilizing at around TZS 6.555 billion ($2.6 million) in September 2021. became. This price sensitivity in mobile money usage patterns was discussed during the Mobile World Congress (MWC) 2023 event, which concluded this week in Kigali, Rwanda.

Mobile money is not affordable in Tanzania

By 2023, 72 percent of Tanzanians will use mobile money services, up from 60 percent in 2017, while 22 percent will use commercial banks. Meanwhile, the Tanzanian government has recognized mobile money as a driver for financial inclusion that contributes to economic growth and social development, especially among women and rural populations.

However, the number of peer-to-peer (P2P) and cash transactions declined by 38% and 25% respectively from June to September 2021. The impact of this tax is equivalent to a 30% reduction in P2P and 60% in cash transactions in March 2023 if it had not been introduced.

Lower-value P2P transactions have recovered somewhat to higher pre-tax levels, while medium- and higher-value transactions are still down 31% and 58%, respectively. This shows users’ appreciation for lower transaction fees.

According to the GSMA report, “The decline in MM affordability therefore threatens to reverse the laudable gains in financial inclusion as Tanzanians revert to cash, particularly among the most vulnerable and poorest sections of the population.”

But these issues are not limited to Tanzania. The Kenya Revenue Authority, KRA, has raised concerns over a growing trend among business owners to freeze their mobile merchant payment accounts to cash transactions following increased compliance checks by tax authorities. KRA observed that businesses that previously used Lipa Na M-PESA for payments from goods purchase numbers are now requesting cash payments. The change comes after KRA deployed revenue service assistants to boost tax compliance efforts, which also include facilitating online business registration.

Mobile money services serve millions of Africans and over the past ten years, mobile money in sub-Saharan Africa has grown with 548 million registered accounts and 160 million active users in 2020, an annual increase of 18%. These services facilitated 27.4 billion transactions with a total value of $490 billion. Unlike cash transactions, which are often difficult to track or record, mobile money improves transaction transparency. It provides a convenient way to pay and collect taxes, improving collection efficiency and government revenue.

“Cash transactions are often unrecorded, enabling the development of a shadow economy and tax evasion,” the GSMA said in a report.

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