Zim­babwe is hik­ing mo­bile money taxes to plug its fis­cal deficit but it could back­fire

Zambian Business Times - - DIGITIZATI­ON -

Cash-strapped Zim­babwe has turned to mo­bile money for ad­di­tional trea­sury fund­ing with a hike in taxes for mo­bile wal­lets and elec­tronic pay­ment trans­ac­tions.

Zim­bab­wean busi­ness own­ers and con­sumers in the coun­try say the new fis­cal mea­sure will push up costs in an econ­omy al­ready bat­tling ris­ing in­fla­tion and cur­rency short­ages.

In a coun­try with a his­tory of cash short­ages, mul­ti­ple cur­ren­cies and hy­per­in­fla­tion, mo­bile money had be­come a key pay­ment al­ter­na­tive. Cash is hardly ever ac­ces­si­ble in Zim­babwe as banks fre­quently run out of mon­e­tary notes, leav­ing mo­bile money and bank cards as the only trans­ac­tion op­tions.

But it now ap­pears mo­bile money, dom­i­nated by lead­ing mo­bile op­er­a­tor EcoNet’s EcoCash with a 96% mar­ket share, could be made a vic­tim of its own suc­cess.

The re­cently ap­pointed fi­nance min­is­ter, Mthuli Ncube, said the tax on mo­bile wal­let and elec­tronic trans­ac­tions will in­crease from a flat five cents per trans­ac­tion to two cents per each dol­lar trans­acted. This would be a re­duc­tion if all you ever trans­acted was one dol­lar but a sig­nif­i­cant in­crease be­yond that.

Zim­babwe hopes the re­struc­tur­ing of the taxes will raise ad­di­tional funds for the gov­ern­ment which is bat­tling fis­cal deficits. Ncube has ex­plained that such mea­sures, although hard to bear, will en­able the gov­ern­ment to mo­bi­lize funds for trea­sury.

Mo­bile money has been one of the few sig­nif­i­cant suc­cesses in Zim­babwe’s trou­bled econ­omy over the last decade. The in­tro­duc­tion of bank to wal­let trans­fers has spurred mo­bile money us­age, ac­cord­ing to the telecoms reg­u­la­tor. It said the to­tal num­ber of active mo­bile money subscripti­ons in­creased by 12.6% to reach 5.6 mil­lion at the end of the sec­ond quar­ter.

The gov­ern­ment stands to rake in the earnings, es­pe­cially as the mo­bile money mer­chant, air­time and bill pay­ments val­ues in­creased by 45.3% in the sec­ond quar­ter 2018 to $1.1 bil­lion ( pdf ) com­pared to the first quar­ter pe­riod.

The num­ber of mo­bile money trans­ac­tions had also risen by 38% to about 404 mil­lion. This ef­fec­tively means that the gov­ern­ment of Zim­babwe pre­vi­ously earned about 5 cents from a trans­ac­tion of about $100 but now earns around $2 for trans­ac­tions worth the same amount. There has been dis­may over this, with Zim­bab­weans tak­ing to so­cial media to con­demn and regis­ter frus­tra­tion over the tax hike.

Econet Wire­less, which runs the dom­i­nant mo­bile wal­let, EcoCash, has ini­ti­ated the un­bundling of the plat­form with a view to sep­a­rately list it on the Zim­babwe Stock Ex­change. An­a­lysts at IH Se­cu­ri­ties said this week that the fin­tech di­vi­sions of Econet – in­clud­ing mo­bile insurance – have be­come valu­able as­sets worth sep­a­rat­ing from the mo­bile tele­phony ser­vices. “We be­lieve that the fin­tech di­vi­sion is an at­trac­tive stand-alone as­set and as at FY18 rev­enue in this SBU was $244 mil­lion. As the cash con­straints per­sist, EcoCash re­mains well po­si­tioned to main­tain its strong growth tra­jec­tory,” IH Se­cu­ri­ties said in a mar­ket note.

In­dus­tri­al­ists in Zim­babwe have com­plained about the mo­bile money tax in­crease, with the Con­fed­er­a­tion of Zim­babwe In­dus­tries ex­plain­ing that “this tax will com­pound through the value chain” with the consequenc­e that there will be a 2% charge at each value chain stage. “This will prejudice the com­pet­i­tive­ness of Zim­babwe value chains against for­eign value chains. We be­lieve that this can be ef­fec­tively mit­i­gated by a cap (mon­e­tary value) on the charge ( per trans­ac­tion),” said Sife­lani Ja­bangwe, pres­i­dent of the Zim­babwe in­dus­tri­al­ists group­ing.

The tax hike on mo­bile money in Zim­babwe fol­lows Uganda which in­tro­duced a con­tro­ver­sial mo­bile money and so­cial media tax ear­lier this year but has now has re­duced the mo­bile money levy from 1% to 0.5% for cash-outs. The Ugan­dan par­lia­ment also voted in fa­vor of abol­ish­ing mo­bile money taxes for ‘send­ing, re­ceiv­ing and de­posit­ing money into mo­bile wal­lets. Other African gov­ern­ments such as Kenya have how­ever, also raised mo­bile money taxes, with Kenya hik­ing mo­bile money statu­tory levies from 10% to 12% in June.

Left scratch­ing his head. Zim­babwe fi­nance min­is­ter Mthuli Ncube

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