As industry bodies warn of the tax’s repercussions on Africa’s financial inclusion, South Africa’s National Treasury says it will not introduce the electronic transaction (e-levy), or digital payments levy.
Over the last few years, countries across the continent have been introducing an e-levy on electronic financial transactions – including Tanzania (2021), Ghana (2021), Congo (2019), Malawi (2019), Côte d’Ivoire (2019), Kenya (2018) and Uganda (2018).
The levy, which has been met with resistance from various sectors of society, is applied to all digital payments, including mobile money payments, bank transfers, merchant payments, inward remittances, point-of-sale and online merchant payments.
After months of heated public debates between parliamentarians, Ghana this month steamed ahead with its e-levy policy, when its parliament approved a re-adjusted taxable amount of 1.5% instead of the earlier stated 1.75%.
The Cameroonian e-levy sparked a public outcry when it was first announced in January, with citizens in the central African country establishing an online petition − #EndMobileMoneyTax − to urge government to halt the introduction of the tax bill.
In January, Benin announced it was in the process of introducing a 5% e-levy, which will only be applied to its mobile money transactions.
In the same month, Zimbabwe outlined its new e-levy plan, noting it has contracted British Virgin Islands company Daedalus World to collect taxes from e-commerce operators, digital advertisers, content platforms and sports betting outlets, according to ITWeb Africa.
The new regulations come as mobile money transactions are booming across the continent, playing a significant role in financial inclusion in an emerging market where over half of the population (57%) consists of unbanked citizens – around 95 million people, according to the World Bank.
Responding to ITWeb’s questions, SA’s National Treasury noted it has no plans to introduce the e-levy locally.
“There has been no announcement in any past Budget by the minister of finance on taxing mobile phone-based money transactions. There is, therefore, currently no intention to introduce such a tax,” said the department.
According to the GSM Association’s (GSMA’s) annual State of the Industry Report on Mobile Money released this month, mobile money adoption and use across the continent saw continued growth in 2021, processing a record $1 trillion last year. The volume of person-to-person transactions was up to more than 1.5 million every hour, it says.
The digital payments market is booming in SA, with digital wallets players reporting an increase in the use of their services, as more South Africans have turned to mobile wallets since the onset of the pandemic.
Regressive taxation
African governments are adamant the e-levy will be a driving force for the continent, which has seen dwindling tax revenues and exports, due to the ongoing pandemic. However, financial industry bodies GMSA and the International Monetary Fund (MNF) have been urging governments to reconsider their stance, warning the regulations have far-reaching implications.
During a recent GMSA webinar, Ashley Olson Onyango, head of financial inclusion at GSMA, explained: “Taxes put on digital transactions have become a growing trend in Sub-Saharan African countries, as well as Asian countries. We see taxes on these services as regressive to financial inclusion and it plays a part in excluding resources from financial inclusion and social inclusion strategies.
“We are working together with mobile operators and regulators to advocate a message on the ramifications this has and the negative impacts on the growth of digital transactions on the continent.”
Economists at the IMF have issued a stern warning to governments, stating an e-levy could be fiscally inequitable and further hinder financial inclusion in Africa.
According to Olson Onyango, Southern Africa saw registered mobile money accounts showing a healthy growth rate over the past year, with registered accounts increasing by 8% and active accounts growing by 25%, while transaction value increased by a strong 42%.
She noted the GMSA conducted a study on the impact of the e-levy on mobile money transactions in Tanzania since it introduced the new law last year.
“Immediately when the tax went into effect, we saw a 38% drop in peer-to-peer transfers over the course of the following month, which is a huge signal of citizens regressing to cash and it’s not making a positive mark on mobile money and digital innovation.
“One of the areas that we are advocating a message for is the other ways in which mobile money contributes to government funding revenue; for example, in Kenya mobile money has helped the Kenyan Transportation Authority increase in monthly revenue collection from $1.1 million in July 2015 to $2 million in October 2016. This is far more than what they could collect through taxes,” she pointed out.
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