Why Mobile Money Users in Tanzania are Returning to Cash Payments?

Several sub-Saharan African governments are imposing high taxes on mobile money services, a trend that has reversed previous advances in financial services in countries like Tanzania and Kenya.

In Tanzania, the introduction of a tax on mobile money transactions in 2021, which ranged from TZS10 ($0.004) to TZS10,000 ($4), coupled with existing value-added tax and excise duty, led to a significant drop in mobile money usage. The government subsequently reduced the levy, but mobile money revenues decreased by 1628% between June and August 2021.

While some smaller-value transactions have recovered, mid and higher-value transactions are still significantly lower. This has raised concerns about the negative impact on financial inclusion and economic growth in the country.

Kenya is also experiencing a shift away from mobile merchant payment accounts to cash transactions among business owners due to increased compliance checks by the tax authority. This shift is a response to efforts to boost tax compliance, which included online business registrations.

Mobile money services have played a crucial role in financial inclusion in sub-Saharan Africa, with millions of registered accounts and active users in the region. These services facilitate transparency in transactions and improve tax collection, contributing to government revenue. The imposition of high taxes on mobile money threatens to push users toward cash transactions and hinder the benefits of financial inclusion and tax transparency.

The GSMA reports that cash transactions often go unregistered, leading to the growth of a shadow economy and tax evasion.