When Ben Ofosu Appiah heard that Ghana’s finance minister was slapping a new levy on mobile money transactions, his first thought was: Here we go again. 

Ghana already has a 5% tax on mobile telecommunications, and Appiah, a policy analyst and development consultant in Accra, worried that the new 1.75% levy on mobile money transactions of 100 cedis (about $16) and above, introduced in the latest national budget, was going to add yet more cost onto consumers. That, in turn, risks undermining years of work to bring lower-income and rural communities into the financial system. “The mobile money tax as it stands now goes against the government’s avowed aim of expanding financial inclusion,” Appiah said.

Tensions have run so high around the e-transaction levy in Ghana that it sparked off a scuffle between lawmakers in Parliament in December. A vote on whether to proceed with the e-levy has now been scheduled for January 18.

On January 1, Cameroon also unveiled a new 0.2% tax on mobile money transactions under a new 2022 tax bill that has reportedly already been signed into law by President Paul Biya. The new Cameroonian mobile money tax has been met with sharp criticism, sparking an online campaign #EndMobileMoneyTax in the central African country.

“It’s a lazy tax because it’s easily collectable by using telcos and mobile transfer businesses to do tax collections on behalf of the government,” Rebecca Enonchong, the high-profile Cameroonian tech entrepreneur and advocate, told Rest of World. Enonchong is helping to lead the online protest because the “mobile tax will hit the poorest segment of the population for whom mobile money is the only access they have to financial services.”

Ghana and Cameroon aren’t the only African countries looking at taxing mobile money. Mobile transactions have become ubiquitous across most of the continent over the past decade, and continue to grow in volume and reach. In 2020, the number of mobile wallet transactions rose by 15%, hitting 27.5 billion, and the total value jumped by 23% to $495 billion, according to global mobile industry trade body, GSMA. This growth has accelerated during the pandemic. 

But the success of mobile money stands in contrast to the fortunes of other sectors of the economy. African public finances have been hit hard by dwindling revenues from taxes and exports, as the global economy stuttered through 2020 and 2021. Some governments are now looking to the mobile finance industry as a way to broaden their tax bases and reach deeper into the informal economy. Industry watchers warn that this approach could harm a long-stated goal to improve financial inclusion.

Policymakers and development finance institutions like the World Bank and IFC have long pushed for improving financial inclusion in sub-Saharan Africa to help alleviate poverty and boost local economies. But illiteracy, lack of money, lack of documentation and distance to traditional banks had long been seen as barriers, until digital financial services — and mobile money in particular — helped overcome some of these challenges. 

Zimbabwe put in place a 2% intermediated money transfer tax (IMTT) in 2019. While the tax is unpopular, and the finance minister Mthuli Ncube has agreed to revise it, it is too lucrative to change. The IMTT, which applies to mobile money, electronic, and bank transfer transactions, now accounts for nearly half of all the corporate taxes the government receives.

The impact of the taxes, as well as tough economic conditions, has put pressure on the sector. Moses, 30, was a mobile money agent in Harare until February 2019 but quit to become an informal currency trader. 

Moses, who asked Rest of World not to reveal his full name because unlicensed currency trading is illegal, said many locals now “prefer using bank transfers” when sending money or purchasing U.S. dollars on parallel foreign currency markets because of the high transaction and 2% tax charges related to mobile money. Mobile money, the dominant payments platform in Zimbabwe, has helped to ease transaction hurdles in a country suffering hyperinflation, cash shortages, and currency woes that have prompted some to even switch over to the stablecoins cryptocurrency.

“For the whole of December, I spent most of the day in supermarkets because that’s where business is. People want to exchange money, and I use my bank cards to swipe money for them at the tills in return for U.S. dollars because the bank card charges are low compared to EcoCash [Zimbabwe’s leading mobile money platform],” says Moses. 

“The business of mobile money agents has gone down unless you have some other hustle or business line to complement it with. Even when you are trying to exchange money on the streets, people actually prefer bank to bank transfers.”

Even OK Zimbabwe, one of the two largest retailers in Zimbabwe, with over 40 stores around the country, has felt the pain of Zimbabwe’s mobile money tax on its finances. It reported in November 2021 that it had taken a $4.5 million hit on its profit base, due to the digital payments tax.

Kenya, Nigeria, South Africa, Egypt and Mauritius are among countries exploring plans for digital money taxes.

Uganda and Tanzania have also both imposed mobile money levies. In both countries, the governments have revised down their tax rates, after businesses and users complained. 

In Uganda, the introduction of the mobile money tax in 2018 “seems to have led to many users migrating to agent banking, where no comparable taxes” are applied, according to a new study by the U.N. Capital Development Fund (UNCDF). Agent banking — the practice where banks deploy agents on their behalf in physical locations — is fast gaining popularity in key African countries, like Nigeria. But the study claimed Ugandans with lower incomes tended to have less access to agent banking, which it said indicated that “the burden of this tax does fall disproportionately on the poor.”

Angela Wamola, the acting head of Sub Saharan Africa at GSMA, told Rest of World that in Uganda, the value of mobile money transactions dropped by nearly a quarter within a month of the levy coming into force. The government revised the levy down to 0.5% in July 2018, just a month after introducing it at 1%.  

Despite these concerns, the push for new types of digital transaction taxes is set to pick up pace in 2022, as more African countries have started putting early plans in place. These countries include Kenya, Nigeria, South Africa, Egypt, and Mauritius, according to a 2021 study by Afronomics Law.

Terry Karanja, the treasury associate at AZA Finance, a provider of FX treasury services in Africa, said her company has advised Ghana and Tanzania to avoid taxing mobile money transactions. “These governments should avoid levies being charged on smaller money transfers, and this would help to ensure that the mobile money operators do not simply pass the tax burden to the users,” she said. 

In Ghana, the early impacts of the new tax are already being felt. The Mobile Money Agents Association reported massive withdrawals from mobile wallets after news broke of the 1.75% levy. The tax is likely to face ongoing opposition, according to Bright Simons, founder of tech platform mPedigree and a frequent commentator on Ghanaian policy. “The political economy does not currently favor a 1.75% tax” in early 2022, he told Rest of World. He also added that, unless president Nana Akufo-Addo makes “considerable concessions" to appease opposition and civil society, he will likely face “political headwinds, and protests.”