by Ben Taylor
Controversial mobile money tax introduced, partially retracted
The most controversial and headline-grabbing move in the 2021-22 budget was a new tax on sending and withdrawing money on mobile phones. A levy of between TSh 10 and TSh 10,000 was introduced on mobile money transactions.
The effect varies according to the particular network being used and the amounts of money involved, but for example, the cost of a transfer of TSh 15,000 on Airtel Money would rise from TSh 350 to TSh 960, while the cost of a TSh 600,000 transfer on the same network would rise from TSh 1,000 to TSh 7,400.
The government hoped the move would raise a total of TSh 1,254 bn over the course of the year. Framing it as a “Patriotism Levy”, Finance and Planning minister Mwigulu Nchemba said it was important that every Tanzanian took part in it.
Given that 2019 saw mobile money transfers in Tanzania worth approximately $40 billion, representing over 60% of the country’s GDP, this new tax could potentially have a major impact on the circulation of money, on poverty reduction efforts, and on the economy as a whole.
The change prompted a major outcry from economists and citizen groups across the country. Richard E. Ms homba, Professor of Economics at La Salle University, Philadelphia, USA, wrote that “the end does not justify the means”. He added that though this type of levy “may be a convenient tax window, it may also lead to a slowdown in economic activities and exacerbate inequality in the country.”
In previous research, the global association of mobile phone network operators, GSMA, found that taxes of this kind are generally “regressive in nature, undermining the fundamental concept of tax equity.”
The Legal and Human Rights Centre (LHRC) filed a court case challenging the new levies.
A few days after the levy came into effect on July 15, the Tanzania Mobile Network Operators Association (TAMNOA) said the business has dropped drastically, therefore asking government to amend the new charges.
The government responded to these complaints by first announcing in late July that possible changes to the levy were under discussion, and President Samia Suluhu Hassan directed the Minister of Finance and Planning, Dr Mwigulu Nchemba and his Communications and Information Technology counterpart Dr Faustine Ndugulile to review mobile money transaction charges.
Then, at the end of August, the Ministry of Finance and Planning released a statement saying Dr Nchemba had signed the amendments of the Regulations for Electronic Transactions Levy for 2021 with a view to reduce the rates by 30%.
Business leaders welcome 2021-22 budget
Finance and Economic Planning minister Mwigulu Nchemba in June tabled the TSh 36.3 trillion budget before Parliament, with a bundle of fiscal measures that business associations say contain promising prospects. A slightly-revised budget was approved by parliament two weeks later, with a value of TSh 36.6 trillion.
Headline measures in the budget include a cut in PAYE from 9% to 8% for the lowest taxable band, cuts on various import tariffs and abolition of VAT on imported metals and raw materials.
Confederation of Tanzania Industries (CTI) policy specialist Frank Dafa said the budget generally brought relief to the manufacturing sector and the move could boost investment and increase job opportunities.
“There are significant improvements in the taxes and levies of employers and manufacturers. So the relief provided will stimulate industrial growth,” said Mr Dafa, adding that the abolition of the 15% additional import duty on industrial sugar was commendable. The local manufacturers have been complaining about the requirement which left their billions of shillings in the hands of the government due to delayed refunds.
Tanzania Bankers Association (TBA) chairman Abdulmajid Nsekela echoed the sentiments, saying that it was a relief budget. He said if the budget would be implemented accordingly it would create conducive environment for business, translating into more opportunities for banks to provide finance.
Nevertheless, CEO Roundtable chairman Sanjay Rughani said “a deeper look on the impact from the newly introduced taxes on mobile money transactions plus daily levy on SIM card is necessary as it can constrain the financial inclusion agenda and can have other implications.”