Presentation on a Comparison of Taxation of DFS Versus Traditional Financial Services in Nine African Countries. Presented at the GRA & ICTD conference "Taxing Mobile Money: Lessons and Ways Forward

1. PARTNERS
Digital financial services
taxation in Africa
DIGITAX
Drs Hannelore Niesten & Awa Diouf

2. Outline
The specificities of DFS
taxes in African
countries
Context and rationales
of DFS taxation in
Africa
The impact of DFS
taxation
Lesson learnt and
further research

3. What is taxed?

4. WHAT - DIGITAL FINANCIAL SERVICES
Traditional financial services Digital financial services
Medium/
infrastructure
• Traditional/physical infrastructure:
traditional channels of branches and ATM
networks, particularly brick-and-mortar
• Digital infrastructure: digital (electronic) channels,
particularly mobile phone, computers, tablets
• Physical transactional points can include agents
(outside bank branches and ATMs) that make the
service widely accessible to everyone.
Financial
services
• Physically deposit money
• Money transfers
• Money payments
• Money withdrawal
• Converting cash to electronic funds through physical
deposit of money (i.e. through an agent)
• Peer-to-peer electronic/mobile money transfers
• Digital payments
• Withdrawing cash from electronic/mobile money
account
Type of
financial
service
providers
• Traditional financial institutions, mainly
banks, credit union, or another financial
institution (e.g. cooperative, microfinance
institution) or the post office
• Primarily by telecom operators; also in partnership
with financial institutions (banks, leasing companies,
and microfinance institutions) and fintech
• Agency networks allow to reach the unbanked

5. WHAT – TAXING Digital Financial Services

6. Who is taxed?

7. WHO is taxed?
2. Taxes on the FEES charged by DFS providers
• Similar taxes on TFS and DFS in EAC (Tanzania, Uganda)
• Kenya harmonized taxes since 1 July 2023
• Higher taxes on TFS than DFS (Rwanda, Zimbabwe)
• Newcomer: CAR (1%)
3. Taxes on underlying transaction VALUES
• Uganda: 0.5% tax on MM withdrawals
• Zimbabwe: 2% tax on intermediated money transfers
• Tanzania: tiered tax on MM withdrawals
• Ghana: 1% levy on electronic transactions
• Newcomer: Zambia (ZMW 0.08-1.80; USD 0.0035-0.079)
(1)Taxes on the TURNOVER
• Cote d’Ivoire (7.2% earmarked for special tax purposes); Benin (5%); Burkina Faso (7%);
Congo (1%); DRC (3%)
Providers
Consumers
With different structure and target, but broadly the same objective

8. Why is taxed?

9. WHY is taxed?
Domestic revenue
generation objectives
Formalizing the
informal economy
Success in MM
industry, considering
limited traditional
banking
Globally profitable
Telco sector:
undertaxed (or
overtaxed?)
Widespread usage of
MM and the question
of fair burden sharing
More transparency
Limited peer-to-peer
learning despite peer
pressure
MM is an
enabler/access route
so taxing it is a proxy
for other DFS taxation

10. Where is taxed?

11. WHERE is DFS taxed?
Types of DFS taxes Time period

12. How is taxed?

13. Ghana’s E-levy
Reasons
• Domestic revenue generation
• Including the informal sector in the tax net
Tax design
• 1% e-levy on transfers (reduced from 1.5%)
• Exemptions for transactions with merchants registered with GRA
• Exemption of 100 cedis for MM transfers
Tax policymaking
• Stakeholder consultations but not consistent
• Limited impact studies
Introduction
1 May 2022
Rate reduction
11 January 2023
HOW is DFS taxed?
Nigeria’s EMTL
Reasons
• Domestic revenue generation
Tax design
• NGN 50 (USD 0.031) Electronic Money Transfer Levy (EMTL) to
electronic receipts or electronic transfers of money deposited
in any deposit money bank or financial institution, for any
transfer of NGN 10,000 (USD 6.23) or more (introduced by
Finance Act 2020)
• 7.5% VAT applied to fees or charges payable to banks, non-
bank financial institutions or telecom service providers

14. Tanzania
Taxes
• 10% excise duty on transaction fees
• Tiered bracket on values of MM withdrawals (introduced 1
July 2021, amended 4 times)
Tax policymaking
• Policy changes: from taxing transfers to taxing withdrawals
• Limited stakeholder consultation, impact studies and
analysis
Tax design
• Multiple tax reforms (tax base, transactions, tax rate,
exemptions, threshold, etc.) – tax certainty?
Uganda
Taxes
• 15% excise duty on excise fees
• 0.5% specific tax on MM withdrawals (introduced in July
2018 as 1% tax on all MM transactions)
Tax policymaking
• Policy changes: from taxing transfers to taxing withdrawals
• Limited stakeholder consultation, impact studies and analysis
Impacts:
• Revenue, market development, consumer behavior
HOW is DFS taxed?

15. HOW is taxed?
Cameroon
Taxes (since 1 January 2022)
• 0.2% Electronic money transfers & withdrawals via
financial institutions or telecom companies
Exemptions
• Bank transfers and tax payments
Chad
Taxes (since 1 January 2022)
• 0.1% Electronic money transfers & withdrawals via
financial institutions or telecom companies (previously
0.2%)
Exemptions
• Bank transfers and tax payments
Kenya
•Excise duty on money transfer fees, implemented in
January 2013 and amended a few times.
•Since 1 July 2023 – harmonized TFS and DFS excise duties to 15%

16. DFS TAX WEBSITE
• A. Diouf & H. Niesten (2023), Taxation of Digital Financial Services in Africa, International Center for
Tax and Development
• Available here: https://digitalfinancialservices.tax/

17. • H. Niesten and M. Abounabhan, Taxation of digital financial services: Factsheets.
• Available here: https://www.ictd.ac/publication/?_sft_publication-type=factsheet
FACTSHEETS

18. Why does it matter?

19. The main argument against DFS
specific taxation is the potential
obstacle to financial inclusion
• Financial inclusion is a key tool in the fight against poverty.
• And has been facilitated by the expansion of MoMo in
Africa.
• Between 2012 and 2022, the number of MoMo accounts
increased tenfold.
• In 2021, 48% of active accounts in the world were in SSA.
• The adoption of mobile money has had significant impacts:
• Resilience against shocks,
• Facilitation of aid programs,
• Household consumption,
• Reduction of inequalities.

20. …But also, a strong opposition from taxpayers

21. The DIGITAX programme’s C1 explored many
topics around DFS taxation in Africa.
Is the policymaking
process comparable
to other reforms?
How are these taxes
contribution to tax
revenue?
Does DFS taxation
impact financial
inclusion?
What is the impact of
DFS taxation on
poverty and equity?
How much do
taxpayers know and
agree about (so
protested) DFS taxes?
How do they react in
the face of those
taxes?
How can knowledge
drive perceptions?
How are special
users, like merchants,
experiencing DFS
taxes?

22. What do we know?

23. Data
• Surveys
• Nationally representative survey on 1500 MoMo users and non-users in
Ghana
• Survey on 1,065 businesses in Greater Accra
• Survey on 470 mobile money agents in Yaoundé (Cameroon)
• Qualitative data
• Focus group discussions
• Interviews with stakeholders
• Third part data
• Mobile money usage before and after DFS taxes application (Kenya,
Ghana, Uganda)
• Projections and Tax revenue collected from DFS taxes

24. Methodology
QUALITATIVE DATA
ANALYSIS
DESCRIPTIVE
STATISTICS
ECONOMETRIC
ESTIMATIONS
MICROSIMULATION
EXERCISE

25. Headline findings
1. Tax revenue below expectations but still not negligeable
2. Impacts are real but mostly temporary
• MoMo providers and agents reported a negative impact on
their activity
• Taxes are regressive but this can be mitigated
3. Perceptions and knowledge matter for impact

26. 0
50
100
150
200
250
300
350
400
450
500
Target Actual
Tax
revenue
in
National
Currency
Target
Actual
0
1000
2000
3000
4000
5000
6000
7000
8000
First target Revised target Actual
Tax
revenue
in
National
Currency
First target
Revised target
Actual
1. Tax revenue under expectations
Nigeria Ghana

27. Source: Countries’ Revenue Authorities
On average, DFS taxes provide 1% of total tax revenue
• In Ghana, Revenue from e-levy constitutes 4% of domestic indirect
tax revenue and 1.1% of total tax revenue (Jan 2023 – Dec 2023).
• In Uganda, Revenue from MM taxes (on fees and values) constitutes 6
percent of indirect tax revenue and 1.3% of total tax revenue. (1 June
21 to 30 June 22)
• In Nigeria, Revenue from the Electronic Money Transfer Levy
constitutes 2% of total tax revenue (Jan 2022 – Dec 2022).
• In Tanzania, Revenue from the Electronic Money Transfer Levy
constitutes 1.25% of total tax revenue.

28. …However, tax revenue are not negligible – Ghana case
Contribution of domestic indirect taxes in total tax revenue in 2023 – Source: Ghana Revenue Authority
0%
2%
4%
6%
8%
10%
12%
14%
VAT NHIL GETFUND
LEVY
COVID-19
LEVY
SPECIAL
PET. TAX
ELEVY EXCISE CST
Contribution to tax revenue

29. 2. Impacts are real but mostly temporary
Short term: impacts on MM usage are real (Uganda,
Tanzania and Ghana)
Long term: impacts appear to be minimal (Kenya,
Uganda, Ghana)
Exception: No significant effect of the excise duty at the
national level (Kenya).

30. Uganda: MM values rebound
0%
20%
40%
60%
80%
100%
120%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
%
GDP
Year
Excise duty
introduced
Tax on transactions
introduced and revised
Transaction values as a share of GDP
Source: digitalfinancialservices.tax

31. Ghana: strong growth after introduction
Announced
In
Force
Announced
Revision
Revised
0
1
2
3
4
5
6
2
0
1
9
m
1
2
0
2
0
m
1
2
0
2
1
m
1
2
0
2
2
m
1
2
0
2
3
m
1
Sending
Receiving
Payments
Withdrawals
Values
GHc
Thousand
per
person
Values of monthly MM transactions per person
Source: Digitax analysis of telco data

32. Kenya: growth of MM values largely unaffected
0%
10%
20%
30%
40%
50%
60%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
%GDP
Year
Excise duty
introduced
Revised
12%
Transaction values as a share of GDP
Source: digitalfinancialservices.tax

33. Negative impact on the supply side
Ghana
• Absence of consultation with providers during policy formulation.
• Reduced transaction values and volumes:
• Short term drop
• Rate of increase restored in the long term
• Some permanent reduction in absolute amounts
• The E-levy did not have the impact of a “normal” price change due to its political
dimension.
• Agents developed coping strategies.
Cameroon
• Adverse effect on agents’ profitability and revenue sustainability.
• Some agents are more likely to charge additional non-regulatory fees since the
MM tax implementation

34. In Ghana, the merchant exemption
encouraged the use of mobile money for
merchant payments.
• The merchant exemption caused a shift away from personal
accounts to merchant account; a strategy to have transactions
exempted from the elevy.
• However, increased mobile money usage for merchant payments,
particularly among larger, digitally inclusive businesses.
• Merchants using exempted services express higher satisfaction
with the e-levy policy and greater trust in the government and tax
system fairness.

35. Some regressivity along the value chain…
Ghana:
• smaller, less sophisticated merchants do not benefit from the
elevy exemption
• female headed households and households with children are
more vulnerable to the negative effects of the elevy
Cameroon: smaller, more vulnerable agents incurred a bigger
decline in profitability
Kenya: small impact on overall usage, but uptake slowed among
poorer and larger households

36. However, some countries
try to mitigate the
regressivity of DFS taxes
• Many DFS tax designs include an exemption
for low amount transactions
• Ghana: 100 cedis (8 $)
• Nigeria: 50 N (7 $)
• Zimbabwe: 5 $
• In Ghana, we find that the mobile money
exemption allows to protect the second
poorest quintile and removing it would make
the tax even more regressive.

37. Knowledge and sentiment mechanisms
Knowledge of
e-levy design
Sentiment towards
the e-levy
behavioural
change
• Political affiliation
• Demographics
• Specified merchant
status
• Threshold
• Exemptions
3. Do perceptions matter for impact?

38. What do Ghanaians know about the e-levy ?
• 1%
Tax rate
• 100 cedis
Exemption threshold for MoMo
• 20,000 cedis
Exemption for Bank transactions
• TRUE
Applied to sending
• FALSE
Applied to receiving
• TRUE (with conditions)
Applied to payments
• FALSE
Applied to deposits
• FALSE
Applied to withdrawals
19%
37%
93%
80%
23%
95%
77%
Source: Digitax survey data
0%

39. Knowledge, Political affiliation, and
Demographics are key to explain
perceptions
• Disagreement with the e-levy is associated with:
• Not knowing the rate
• Knowing the MoMo and bank thresholds
• Women
• NPP support

40. Perceptions determine
behaviour
• Almost half of the sample reported changing their behaviour
to avoid paying the e-levy
• Use more cash
• Transact below the threshold
• Send through an agent account
• The level of agreement is one of the main determinants of
reported behavioural change

41. What did we learn?

42. Lessons: policy, politics & process
Macro fiscal and political dynamics drive introduction of DFS taxes
Low revenue collection performance raises questions about
efficiency
Accelerated timelines mean inadequate consultation, projection,
and scrutiny
Transparency and better communication about tax purpose, design
and costs shape both acceptance and equity

43. Lessons: tax design
Relative tax burden on DFS and other financial services: aim for neutrality?
Choice of tax: excise and turnover taxes vs taxes on transaction values
Choice of transaction type: avoid multiple taxation of the same transaction
Exemptions and price controls can alleviate regressivity
If formalisation is a goal, MM taxes are regressive tool

44. PARTNERS
Thank you
a.diouf@ids.ac.uk
hannelore.niesten@ictd.ac