Transcending Kenya’s Financial Technology Industry
Even as taxation of mobile-based transactions becomes popular across the continent, consumers are the first to feel the pinch from the additional taxes they have to pay for such services.
In continents such as Africa, mobile money transactions are playing a huge role in how people pay for their goods and services, signifying the importance of such platforms.
According to a research paper authored by former Central Bank of Kenya Governor, Prof Njuguna Ndung’u, titled: “Taxing Mobile Phone Transactions in Africa”, there is no doubt that those countries in the retail sector whose consumers pay for their purchases via electronic platforms have reaped huge profits.
An example is the Democratic Republic of Congo (DRC), which earned over $ 352 million four years ago from the sector.
Mobile money, notes World Bank’s Global Findex report, has promoted financial inclusivity by allowing at least over 60 percent of people in the world to have their own virtual money services.
In 2017, the report says, there were 78 percent of Kenyans who owned a mobile money account, and who were above the age of 15 years.
In Kenya, more people at the bottom of the pyramid use mobile money transactions as compared to the few at the top, who are likely to prefer Real Time Gross Settlements (RTGS) forms of electronic payments, such as plastic cards.
According to the axing Mobile Phone Transactions in Africa report, the value of electronic payments rose from over Ksh20 trillion in 2010 to over Ksh35 trillion in 2017.
The report traces the onset of taxing mobile money transactions in Kenya, beginning from 2003 to 2018.
The last one, enacted last year through the Finance Act, saw the tax base for mobile phone transactions increased to 12 percent, up from 10 percent.
It observes that taxation emanating from mobile money financial transactions are negligible, at less than one percent of the total tax revenue that Kenya collects.
Citing statistics from the Kenya Tax Authority, the report notes that in the third quarter of 2016, Kenya collected Ksh200 million from over 50,000 transactions.
Unlike countries like Zimbambwe, where the need for the public to hold cash is norm, and thus affecting how Federal Reserve controls the supply of money.
In Kenya, virtual money through mobile money transactions has meant that the banking regulator Central Bank of Kenya doesn’t have to exert much control of money supply.
“Rather than increase the tax base, taxation of mobile money and financial transactions is likely to have a negative impact on people or consumers at the bottom of the pyramid who have to pay an additional cost of tax, who may consequently be forced to revert to cash transactions as they cannot afford it,” explains the report.
Furthermore, it will tend to adversely affect the gains that have been made with regards to financial inclusion in countries like Kenya.
With mobile money, the need for cash transactions has been technically reduced to nil, argues the report.
While there is a logical reason for the government to tax the mobile money sector so as to earn a revenue, there is a need to ensure that those who make use of mobile money transactions, both in the formal and informal sectors, don’t leap back to cash-based transactions.
“With the benefits of mobile phone transactions being indisputably big, they nevertheless cast light on the untitled balance for those people who continue to pay for cash transactions,” states the report.
Because of mobile money transactions, Kenya is among the countries in the world that are recognised as “cashless economies”.
Others include Tanzania, Cote d’Ivoire, South Africa and developed countries like Sweden and Norway.
For one, it could mean that people may not be able to use airtime anymore, yet it is required for mobile money financial transactions.
The paper, therefore, proposes that the country can perhaps levy a tax of between 5 percent for mobile phones and banks, seven percent down from the current 12 percent tax.