Zimbabwe’s Finance Minister Mthuli Ncube has been urged to emulate Tanzanian, which on Monday slashed mobile money transaction tax for the east African country, for the second time within a year.
Tanzania’s Finance Minister Mwigulu Nchemba this week cut the unpopular tax by 43% to “reduce the cost of living” among Tanzanians.
The reduction is the second time in less than a year that the country has slashed the controversial tax.
In September last year Tanzania reduced its IMTT by 30%, bringing the total mobile money tax burden down by 60% in less than a year.
Reports from Tanzania reveal that Nchemba said the measure is intended “to reduce the cost of living for Tanzanians”.
Experts immediately urged Prof Ncube, Zimbabwe’s Finance Minister, to follow suit.
They said at a time several governments are reducing or scrapping the mobile money levies altogether to help their citizens cope with the after-effects of the coronavirus pandemic, and with supply chain bottlenecks caused by the Russia-Ukraine conflict, Ncube should reverse the 4% mobile money tax the government recently imposed on domestic foreign currency remittances.
The new mobile money tax catapulted Zimbabwe to the number one position in Africa among countries with the highest Intermediate Money Transfer Tax (IMTT).
This is in comparison to the 0,1% charged by the Tanzanian government, the 0,2% levied by the government of Cameroon, the 0,5% charged in Uganda and the 1,75% levied in Ghana – where legislators had a fistfight in December last year, as the debate on the contentious tax boiled over.
Although Zimbabwe’s mobile money tax on local Zim dollar (ZWL) transactions is pegged at 2% percent, it is still far higher than that levied in any other African country.
Market experts say the a high mobile money tax disproportionately affects the rural poor, who have limited payment options and often depend on remittances.
They also argue that the tax will knock back Zimbabwe’s financial inclusion gains by several years.
“Mobile money has been a great economic enabler, especially for the marginalised. It’s the main driver of financial inclusion for the poor, women and rural communities across Africa,” Angela Wamola, head of sub-Saharan Africa at telecoms industry body GSMA, said.
“Any discouragement, such as extra fees or taxes on mobile money services, will take Africans backwards simply because there are no other alternatives for most people.”
Up until the introduction of the unpopular mobile money tax, Zimbabwe had won plaudits from across the world for the record progress it had made over the past 10 years towards achieving true financial inclusion.
But the recent round of taxes, along with the unrealistically low limits on local, ZWL transactions, has threatened to reverse the progress made over the years.
Before Tanzania lowered its IMT tax, a GSMA study found that peer-to-peer transactions dropped by 38%, from 30 million to 18 million per month soon after the tax was imposed last July.
South Africa-based tax expert Vusisizwe Ndebele said the decision by Zimbabwean authorities to hike mobile money transaction tax – at a time of high inflation – in an economy already burdened with levies such as value-added tax and excise duty on mobile services, means that the poor will be the first to be pushed out of the digital economy.
“Altering the demand structure for mobile phone-based transactions through a suboptimal taxation policy has the potential to reverse gains made in the financial sector,” he said.
“Zimbabwe was moving into a cashless economy, but the increase of tax on micro-transactions that use mobile phones has the potential to increase the incentive to use cash.”
Ndebele said it was essential for the government to consult widely and analyse the economic situation before implementing policies that result in lower tax revenue for the government in the long term.
“Poorly designed tax policies when applied to retail electronic transactions, as well as bank transactions, can potentially reverse the economic gains from mobile banking, especially for low-income earners who rely heavily on these services,” he said.
Africa Economic Development Strategies Executive Director Professor Gift Mugano said the government should scrap the 4% tax on mobile money to allow people to transact with minimum costs, so that the central bank will have more foreign currency deposits that will help them to fund import requirements.
“I think this is a wrong policy and the government must reverse it, because it is not just 4% as it has a compound effect. It discourages people from sending money using mobile platforms as they are charged over 8% just to transfer money. It clearly doesn’t make sense and the tax should be removed,” he said.