One sector continues to show growth in Africa and demonstrate the genuine potential the continent has to leapfrog global counterparts: mobile money services. Stakeholders, including mobile operators, have echoed the sentiment that the market is gaining traction and offers significant opportunity. However, recent media reports have highlighted one controversial aspect of the mobile money transfer market that continues to generate news headlines: taxation on mobile money services offered by network operators.
There have been numerous reports of the implementation of tax directives and related legislation by authorities in various countries – primarily within East and West Africa.
Kenya and Uganda are understood to be amongst the first to initiate tax on fees charged by operators to utilise mobile money services. A report by the Economist held that Kenya and Uganda have turned to the telecommunications industry as a source of additional revenue to support planned increases in expenditure.
Tanzania is expected to follow suit and recently Zimbabwe added its name to a list of African countries to impose a tax.
In October 2013 domestic media reported that the Uganda Revenue Authority (URA) is to focus on the commission earned by mobile money agents in fulfilling transactions.
In January 2014 Zimbabwe made public the fact that it has imposed a $0.05 on each mobile money transaction, while Uganda has indicated it will impose a 10% tax on cash transfers by mobile phones and other money transfer operators.
A review of analysis from technology experts and industry analysts suggests that taxation could be problematic and many seem to favour this line of thinking.
Juniper research suggests that nearly 400 million mobile phone users globally are expected to use their handsets for mobile money transfer by 2018 and that mobile money taxes in sub-Saharan Africa are a threat to the growth of domestic money transfer services.
A report by the research firm, Mobile Money Transfer & Remittances, Domestic & International Markets 2013 – 2018, indicates that the impact of tax on developing mobile money transfer markets could negatively impact growth and could put potential service providers off investment.
The rationale appears to be that if a tax – or what is effectively an excise duty – is imposed, it could lead to an increase in mobile money service tariffs. The reason? Because operators can either absorb the entire cost of the tax themselves and leave the retail price unaltered and this could impact on profitability or they can pass on some of the cost to the consumer and adjust the retail price accordingly – which they are legally entitled to do. However, this would mean an increase in the cost of mobile services.
However, it is worth noting that media have referred to recent data from the Central Bank of Kenya (CBK) which reflects growth in the volume of mobile payments – up 21.8% at the end of August 2013.
Why the interest in mobile money
Industry analyst and MD, World Wide Worx, Arthur Goldstuck, points out that there are three mobile money ecosystems evolving across the continent: mobile payments, mobile banking and retail money transfer.
As he explains, there are specific conditions under which each ecosystem grows. Mobile payments escalate where banking penetration is low, mobile banking increases in activity where there is a high banked population but limited access to physical branch banking, and retail money transfer grows where there is a well-developed retail infrastructure. If one considers the various dynamics within the environments across Africa, it is understandable that these services would suit market conditions.
The ability to transact, to withdraw, deposit and manage personal finances anywhere at anytime via mobile applications and devices is an attractive proposition for consumers. It is also strengthening efforts by financial institutions to help realise the objective of establishing cashless societies.
Services have evolved to allow customers to perform a number of transactions including money transfer, payments of goods and services and international remittance.
These are some of the advantages associated with mobile banking and money transfer services that service providers and financial institutions are looking to invest in- and provide to their markets.
Today there are numerous services that have been established for consumers including m-Pesa, yu-Cash, Orange Money, eTranzact and ecocash, to name a few.
The intention to bridge the gap between Africa’s increasing number of un-banked citizens and its banked community, particularly in terms of access to banking services, is another significant reason why the market has taken off so well in Africa.
According to the Global Voice Group, at the end of 2012, 65.67 million people in middle Africa regularly used mobile financial services. In the same year, financial transactions via mobile phones was recorded as $670 million. Meanwhile a recent GSMA Global Mobile Money Adoption Survey stated that there are now more mobile money accounts than bank accounts in Kenya, Madagascar, Tanzania and Uganda, as well as more mobile money agent outlets than bank branches in at least 28 countries.
A 2013 Survey indicated that there were “at least two or more mobile money services available in 51 markets” and 24 of these markets each have three or more mobile money services.
In December 2013 Dr. Louis Kasekende, Bank of Uganda Deputy Governor, revealed that mobile money transfers in Uganda had hit Ush1.6 trillion ($640m) between January to November this year, according to the latest figures.
He added that the number of mobile money subscribers has risen to 12 million, which exceeds that number of account holders at the different banks in the country.
If one considers the size of these markets, the volume of mobile money transactions that are being facilitated and the rapid growth, it seems unlikely that taxation on mobile money services will seriously and adversely affect these services or service providers.
Chris Tredger – Online Editor