In February 2024, revenue authorities, policymakers, industry, and researchers convened in Ghana to explore how taxes on mobile money could be effectively and equitably designed
Tax design is neutral – neither universally good or bad. Rather, the choice of design should be informed by the economic and social context of each country.
This is one of several critical insights revealed during a workshop earlier this year where revenue authorities, policymakers, industry, and researchers convened to explore – through research and real-life experiences – how taxes on mobile money and other digital financial services (DFS) could be designed effectively and equitably.
Held in Accra, Ghana, on 28–29 February 2024, and titled ‘Taxing mobile money: Lessons and ways forward’, the workshop was organised by the International Centre for Tax and Development (ICTD) in partnership with the Ghana Revenue Authority (GRA).
The rapid growth of mobile money in Africa
Mobile money has transformed Africa’s financial services landscape. However, its rapid growth challenges governments and tax authorities in designing fair and effective taxation policies that balance revenue generation with promoting financial inclusion and innovation. This issue has been central to our DIGITAX Research Programme for three years.
More than 15 countries have implemented DFS taxes over the past decade. ICTD research in countries such as Ghana, Uganda, Tanzania, Kenya and Nigeria has revealed valuable insights, from design to implementation.
Avoiding past taxation mistakes
The workshop discussions focused on the impact of mobile money taxation on the industry and on users, the lessons learnt from Ghana’s e-levy, and the need for continuous learning and evidence gathering.
Participants highlighted the challenge of insufficient comprehensive data and literature on DFS taxation in Africa.
They advocated for stronger collaboration between African governments and academic institutions to generate relevant data, and rigorous analysis modelling to guide policymaking, thereby avoiding past mistakes. The value of research collaborations, both within and across countries, was emphasised, showcasing how engagements with relevant institutions can positively influence future taxation policies.
Lessons learnt and ways forward
Five critical insights and strategies that can guide future policy design and implementation emerged through in-depth discussions and analytical exploration.
1. Country-specific context should inform DFS taxation design
Insights from countries that have implemented DFS taxes show the different effects of policy reforms and the need to tailor tax policies to each country’s market structure. From excise duties on transaction fees to taxes on transaction values, the participants highlighted the importance of aligning tax structures with the realities of users and businesses, particularly those in the informal economy who rely heavily on mobile money to be financially included.
2. Effective stakeholder engagement is vital in shaping tax policies
From understanding the motivations behind taxation to mitigating its unintended consequences, active stakeholder involvement emerged as crucial in designing equitable and impactful taxation frameworks. Clear communication about the government’s motivations can enhance acceptance and reduce negative impacts of tax policies on the DFS market.
3. Policy design should be iterative
DFS taxes are relatively new. Therefore, the experiences of many African countries underscore the importance of continuous learning and gathering evidence through cycles of introduction, adjustment and refinement.
They also emphasise the need for flexibility, adaptability, and robust data to accommodate evolving market dynamics and user behaviours. We also need data, research, and collaboration to inform the redesign of taxes and adjustment of DFS taxes.
4. The system should be balanced and fair, and not focus purely on generating revenue
The choice of tax design should be informed by the economic and social context of the specific country, as there is no universally good or bad design.
The taxes specific to DFS can vary based on targeted transactions, the rate design and the tax base. One of the topics covered in the workshop is the design of more effective taxes. Policy design should aim not only to generate revenue, but also to create a balanced and fair taxation system.
- Targeted transactions: Tax policies should be tailored to different use cases such as transfers, payments, withdrawals and deposits. Operators in some countries favour taxing withdrawals to encourage users to keep electronic money in their accounts. The fairness of this approach depends on the income level of the people making withdrawals. Therefore, decisions regarding DFS taxation should consider the state of the mobile money industry and usage patterns.
- Rate design: Keeping the tax rate low can minimise the financial burden on users while promoting compliance. Thresholds and well-targeted exemptions can be explored for creating a fair and effective system. For example, exempting low-value transactions can protect the most vulnerable users. Analysing the market structure can help determine a fair exemption threshold, so it is important to engage with operators in this process.
- Tax base: DFS taxes can target transaction values, fees, or operator turnover, but defining the tax base is challenging. Some suggest an excise tax based on fees and transactions as a more effective approach. However, this design raises equity issues because fees are relatively less significant for larger transactions.
5. Behavioural changes should be anticipated
Understanding who ultimately bears the final tax burden – whether it falls on users, merchants, agents or providers – is critical for effective tax implementation. Insights from countries such as Uganda, where mobile money taxes influenced a shift back to cash transactions, highlight the need to anticipate behavioural changes and design taxes that minimise adverse impacts.
To ensure gradual acceptance and compliance, public perception must be managed through:
- rigorous estimation of revenue potential
- clear objectives
- effective communication about tax purposes and benefits, to increase knowledge
- earmarking of collected revenue.
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Links
- Workshop announcement, programme, speaker profiles and media coverage | Press release and speeches
- Policy briefs:
- Papers:
- Research briefs (with onward links to the full papers):
