MICROFINANCE PAPER WRAP-UP: “Taxing Mobile Phone Transactions in Africa: Lessons from Kenya,” by Njuguna Ndung’u

By Professor Njuguna Ndung’u, published by the Africa Growth Initiative at the Brookings Institution, August 2019, 14 pages, available at https://www.brookings.edu/wp-content/uploads/2019/08/Taxing_mobile_transactions_20190806.pdf

In this paper, the author uses data from the Central Bank of Kenya to explore the impact that the taxation of mobile phone financial transactions and airtime may have on the use of mobile phone transactions in the country. Professor Ndung’u argues that, although the government is seeking to expand its tax base, imposing such taxes may contract the tax base in the long run. In fact, the data show that the imposition of taxes on mobile air time and financial transactions is correlated with lower annual average increases in mobile phone transactions as a proportion of all electronic payments. Electronic payments include those made via debit cards, credit cards, electronic fund transfers and point-of-sale terminals, as well as mobile phones.

The author suggests that the moderation in mobile money growth may be due to taxes acting as a disincentive to the use of mobile phone transactions, particularly amongst people with low incomes, thus sustaining the usage of cash transactions. Over time, this may result in slower growth or even a reduction in financial inclusion in general. Professor Ndung’u suggests that other countries that are considering taxing mobile phone transactions may wish to study the matter further before moving forward.

By Jolene Khor, Research Associate

Sources and Additional Resources

Africa Growth Initiative policy brief
https://www.brookings.edu/wp-content/uploads/2019/08/Taxing_mobile_transactions_20190806.pdf

MicroCapital article on mobile money tax
https://www.microcapital.org/microcapital-brief-kenya-to-levy-10-tax-on-mobile-money-transactions/

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