To Tax or Not to Tax Mobile Money: The Impact on Digital Financial Services in Africa and Beyond

Since the pioneering mobile money service M-PESA was launched in Kenya in 2007, helping to drive impressive gains in financial inclusion, mobile money has been widely seen as a new engine for global development. But since these services also tend to be engines of profit, governments in Africa are increasingly eyeing mobile money and other digital financial services (DFS) as a lucrative source of tax revenue. Ghana is the latest country to push forward with a new tax on electronic transactions, despite uncertainty over its effects and design.

While the government sees the tax as a way of shoring up public finances, critics are calling the e-levy – and others like it in Uganda, Cameroon, and Zimbabwe – “punishing.” They stress that the burden of these taxes “falls disproportionately on the poor,” suggesting that they “could dent” the growth of Africa’s digital economy or even “reverse all the gains made with digital financial services, leading clients to revert to cash.”

Given that these taxes are relatively new, the jury is still out on their full impacts. But with more than a decade of research on the spread of DFS, can we make any confident predictions about their effects? What clues does the evidence hold, and where is further research needed? Read more on this Next Billion article.