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Tax on mobile phones threatens financial inclusion

Heavy taxation eroding Kenya's mobile e-commerce gains

In Summary

•Banks have been at the forefront in supporting more Kenyans to access financial services through investments in fintech

•There should have been a graduated scheme where only high-end expensive phones are taxed

Mobile phone purchases will now cost more following the introduction of a 10 per cent excise duty on the importation of cellular phones in the Finance Act 2022.

This too effect  on July 1, 2022, and will also see an additional Sh50 excise duty being levied on every new SIM card. In addition to the tax on cell phones, the government introduced a digital tax a few years ago.

There is also 20% excise duty on airtime, internet services, mobile money and bank charges. 

The additional tax burden could potentially slow down the growth of financial services in the country, where a majority today rely on their mobile phones to access various financial services. A 2020 study by Boston Consulting Group (BCG) titled, ‘Five Strategies for Mobile-Payment Banking in Africa’, shows that transactions via mobile wallets and phones were the equivalent to 87 per cent of the country’s gross domestic product.

Kenya and Ghana have the second and third highest mobile payment usage globally respectively, after China.

Innovation in the financial sector is spreading at a fast pace thanks to millions of interconnected users.

The driving force of the fintech revolution is the growth of new services, which enables people to reap the benefits of financial inclusion.

Banks too have been at the forefront of supporting more Kenyans to access financial services through investments in fintech. 

The benefits for both consumers and businesses are transformative. Fintech provides the catalyst for small businesses to grow, while fostering financial inclusion across the region. Thanks to mobile credit service, banks are today able to use data analytics to credit score their customers to provide unsecured loans.

According to GSMA, a global organisation unifying the mobile ecosystem, as African economies begin to recover from Covid-19 pandemic, mobile technology will even be more integral to how people live and how businesses operate.

GSMA projects that Sub–Saharan Africa will have over 130 million new mobile subscribers by 2025 with nearly half of these subscribers coming from Kenya, Tanzania, Nigeria, DRC, and Ethiopia.

The opportunities afforded by e-commerce through the flexibility of smartphones and digital payment solutions can empower entrepreneurs, when starting or running businesses.

Studies show that some of the significant barriers to mobile internet adoption include high costs of smartphones compared to low-income levels among the people.

Any further increase in tax will however deny more Kenyans access to the much sought-after financial services and slow down the gains that have helped to drive financial inclusivity over the years.

It will not only impact financial inclusion but other basic rights that rely on mobile devices including e-health, e-learning, and e-government among others.

While there is need to raise additional revenue, a blanket tax will impact the most vulnerable in society by putting devices out of their reach.

There should have been a graduated scheme where only high-end phones are taxed.

The Writer is the Head of Digital Business at I&M Bank Limited