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Mobile transaction taxes to erode e-payment gains in Kenya - Brookings

In Summary
  • The contribution of mobile money related taxes is less than one per cent of total tax revenue, a negligible contribution to Kenya’s total tax income, at high economic costs
An employee assists a customer to set-up M-Pesa money transfer service on his handset inside a mobile phone care centre in Nairobi, May 11, 2016. /REUTERS
An employee assists a customer to set-up M-Pesa money transfer service on his handset inside a mobile phone care centre in Nairobi, May 11, 2016. /REUTERS

High tax regime on mobile money could see the poor revert to more cash transactions as the rich resort to making few lump sum transactions.

A study released Tuesday by Brookings dubbed ‘taxing mobile phone transaction in Africa- lessons from Kenya’ indicates that people are likely to choose affordability over continence, if states continue to apply more taxes on mobile money.

‘’The tax policy and design of taxes on retail electronic transactions as well as bank transactions has the potential to reverse the gains that technology has pushed Kenya to the frontier of electronic payments and financial inclusion,’’ the report said.

According to the report, the tax burden on mobile phone-based transactions, airtime, and operators in sub-Saharan Africa has been on the increase in the last decade, rising by approximately 26 per cent in at least 12 countries.

In Kenya for instance, apart from a 2003 excise tax on airtime, the country has introduced and reworked taxes on goods such as mobile phones, computer hardware, software, and, more recently, retail financial transactions.

The most recent adjustments in taxation in the Finance Act 2018 which increased excise on money transfer services by banks from 10 per cent to 20 per cent, on mobile phone-based financial transactions from 10 per cent to 12 percent, and introduced a 15 per cent excise tax on internet data services.

The study further revealed that the contribution of mobile money related taxes is less than one per cent of total tax revenue, a negligible contribution to Kenya’s total tax income, at high economic costs.

‘’These lessons are not just relevant for Kenya but also for other countries in Africa with such tax propositions,’’ the study said.