Vodacom flags negative effect of mobile money taxes in Africa

• Phone giant says government policies pose a significant challenge to sustainability of services

Vodacom says taxation policies pose a significant challenge to financial inclusion gains by mobile money services.

The group, which operates one of the largest mobile payments platforms on the continent, has authored a white paper that aims to win over African legislators to a world of softer regulation.

The Vodafone subsidiary says mobile money has been “central to Africa’s major financial inclusion gains” since its inception in the early 2000s, tackling poverty, accelerating economic growth and improving overall health and wellbeing.

“However, government tax policies pose a significant challenge to the sustainability of mobile money services and financial inclusion gains made by these innovations.”

In essence, the cellphone company argues that taxing mobile money reduces the main advantage of the offering, which has tended to be the low cost of transacting and a way of making payments other than using traditional banking services.

“While many countries have embraced mobile money services, mobile money taxation can have unintended consequences for the people who stand to benefit significantly from these platforms”, said Stephen Chege, Vodacom’s group chief officer for regulatory and external affairs, highlighting why the company is taking such a strong stance on this.

The group plans to have about a fifth of its revenue coming from this line of business in coming years. How much of that it gets to keep is likely to be affected by how much is forked over to the tax authorities. Taxes could deter consumers from using such services, thereby reducing potential earnings from the fast-growing segment.

The likes of Vodacom and rival MTN have staked a large part of their growth on areas beyond the declining voice business, led by financial services. The latter is already dealing with mobile money taxes being implemented in Ghana, Benin and Cameroon, while Vodacom is feeling the effects of such moves in Tanzania.

Both operators have flagged reduced margins in their financial service units in their latest earnings reports.

With mounting pressure, Vodacom has authored a white paper in a bid to win over African regulators.

“We need to remember that many of the people who use mobile money are highly sensitive to transaction costs, therefore even a marginal increase in the fees associated with using these services could make them unaffordable.

“Higher transaction taxes may even compel some users to return to cash-based transactions,” said Chege.

Vodacom, together with Kenya’s Safaricom, operates the best-known mobile money platform in Africa, M-Pesa, which has 52-million subscribers and is available in six countries.

In the three months to endDecember, revenue in financial services, the fastest-growing contributor to Vodacom’s suite of new services, rose 30.6% to R2.6bn, boosted mainly by demand for services on the MPesa platform, as well as doubledigit growth in insurance policy and airtime advance sales in SA.

Over the past 12 months, M-Pesa processed $366.7bn, an increase of 17%.

The white paper also suggests that increased taxes could hamper the ability to provide services to underserved portions of the market.

According to the mobile operator, where the tax burden is too high, there is a chance that providers will limit investment, reducing mobile money penetration, leading to lower customer usage on the continent and, consequently, the loss of the socioeconomic benefits derived from these platforms.

While Vodacom makes its case in the rest of Africa, where mobile money is more prevalent, law firm Webber Wentzel recently warned that local fintech businesses should gear up for increased regulation in SA.

Among its list of recommendations, Vodacom said: “Mobile money taxation strategies can be developed in line with longstanding tax principles based on equity”; while “governments and regulators can engage more robustly with mobile money operators and telcos on the unintended consequences of mobile money taxation to find a middle ground that is favourable for customers”.

WE NEED TO REMEMBER THAT MANY OF THE PEOPLE WHO USE MOBILE MONEY ARE HIGHLY SENSITIVE TO TRANSACTION COSTS