What happens when you raise taxes on mobile money? The case of Tanzania.

The focus this week is on the impact of tax increases on usage in the ICT sector. Tanzania offers a wonderful opportunity to see exactly how consumers react when the government decides to increases taxes. On the 30th of June 2021, the Government of Tanzania introduced new mobile money levies. The definition of mobile money includes the transfer of mobile money to another account (both bank and mobile money accounts) as well as money transferred using a bank’s mobile phone application but does not include bank to bank transfers. 

Initially, the electronic mobile money levies ranged from 10 to 10,000 TZS but after lobbying by mobile operators and consumer groups, the levy was reduced by 30% on the 30th September 2021 (except for the minimum charge of 10 TZS) so that range was now between 10 and 7,000 TZS. The new levies are up to 2.87% of transaction value. 

The impact on the number of MPESA customers was immediate. In December 2021, Vodacom Tanzania reported its quarterly results. Between June 2021 and September 2021, the number of customers dropped by 17%. Vodacom Tanzania doesn’t report MPESA transaction value for every quarter, but transaction value between December 2020 and December 2021 dropped by 24.8%. Both of these are massive declines. Customer numbers have recovered in December 2021 compared to September 2021, mainly because the tax was reduced by 30%, but the number of customers is still lower than the peak of June 2021. 

The behaviour of Tanzanian consumers is predictable because we know that demand for mobile money is highly elastic and that a small increase would result in a much greater fall in demand.

 Q4 2021Q3 2021Q2 2021Q1 2021Q4 2020Year-on-Year
MPESA customers 71186463779173957447-4.4%
Quarter-on-Quarter Change10.1%-17%5.4%-0.7%
MPESA transaction value (trillion TZS) 10.714.2-24.8%

The outcome in Tanzania is a useful illustration of the trade-offs of taxation policy. According to the World Bank, tax revenues in Tanzania were 10.3% of GDP compared to the target of 11.9% for the first three quarters of 2020/2021. The government desperately needs to find additional sources of revenue. But the figures from Vodacom show that if demand falls off a cliff, then government revenues would suffer anyway. And these figures do not take into account the effects of lower mobile money usage on the wider economy, the impact on employment, on productivity and disproportionately, on the poor. The poor are really the only ones in this fight without a voice as well as the ones that bear the brunt of the increase in taxes. 

Other news from around Africa 
  • Benin: A 5% tax will be imposed on digital and mobile money services as of the 1st February 2022. 
  • Zimbabwe: Telecel Zimbabwe is apparently on the verge of collapse after suffering multiple network outages. 
  • South Africa: 6 firms have applied for spectrum ahead of the high-demand spectrum auction on March 22, 2022. The six firms are Cell C, Liquid Intelligent Technologies, MTN, Rain, Telkom and Vodacom. Cell C’s application is puzzling since it no longer has a network.
  • Ghana: The government has explicitly said that the justification for the 1.75 levy on electronic transactions is because government revenues have declined significantly due to the COVID-19 pandemic.