Tax on mobile transactions 1 step forward, 3 backwards

University of Malawi Law lecturer Sunduzwayo Madise aka Mfundusi comments on the introduction of tax on mobile mobile services in this article taken off his blog site:

A lot has already been written regarding the salient features of the 2019/20 budget, including whether the fiscus should be saddled with funding the construction of private stadia for arguably the two top clubs in the land, Bullets aka MaPalestina or Wanderers aka Nyerere. I must confess that I am Mawule (Bullets) to the bone. Whether I think using the public purse to fund the construction of private infrastructure projects is a good, wise or a financially sound policy or even legal is a debate for another day. However, one budget-line entry that may have gone under the radar, but which I argue is still as important is proposed 1% tax on mobile money. In his maiden full budget speech, the Minister of Finance put it thus:

Madam Speaker, Government has introduced a 1.0 percent final Withholding Tax on non-bank mobile money transactions based on the transaction amount. This measure aims at ensuring that a large number of the citizenry are motivated to contribute toward national building through payment of taxes and ensure that Government has scope to improve service delivery. This Madam Speaker is in line with developments in neighbouring countries.[1]


As a way of background, the mobile money service is offered by private entities, mobile network operators (MNOs). These MNOs are primarily in the telecommunication business and offer mobile money as an “added service.” There are two local mobile money services in Malawi, khusa m’manja[2] or Airtel Money offered by Airtel or (TNM) Mpamba[3] offered by TNM. It may therefore be argued that since mobile money is not public or state issued money, it is amenable to levies or taxes like other services.[4] To put matters in context, mobile money is an emerging form of money which uses a digital or electronic form. It is not state-issued money (also called fiat money) because it is created by mobile money operators. It is therefore private money. However, because it has a one-to-one ratio with fiat money, and is issued in exchange of fiat money, it serves as a mirror of fiat money. Although not regulated as money, it is nonetheless regulated as an electronic means of payment. It must however be pointed that mobile money is not pseudo money, it is actual money, but only manifested in digital format. Although not legal tender, with increased use, mobile money has steadily gained status as a trusted means of social tender.

Mobile money is a service that has grown exponentially, since its introduction, less than a decade ago, piggybacking on the equally phenomenal growth of mobile phone usage since its introduction in 1995.[5] It is therefore no surprise that it may have caught the eye of the fiscus as a source of tax revenue. Indeed, it is not unusual to subject most services which are offered to the public to tax. The Minister’s budget statement seems to attest top this. However, for mobile money, this seems incongruent with the government’s own financial inclusion agenda. The current financial inclusion in Malawi has traditionally been based on the opening of a bank account. Elsewhere I have argued for a redefinition of the financial inclusion matrix.[6] I have argued that this definition of financial inclusion is elitist and ignores the reality of the Malawian economy. The central bank has since the advent of mobile money, targeted it as one of the means of attaining financial inclusion, especially by those who do not have bank accounts. This targeted group accounts for a great deal of the rural based population. This shift in approach rides on the fact that one does not need to have a bank account to “open” a mobile money account. It is this radical change that has made mobile money a game-changer.


To sum it all, the mobile money service was seen as a god-send to redefine the financial inclusion landscape. Compared to other money transfer and remittance services, mobile money is relative cheap, less onerous and instantaneous. Initially, one was only limited to transact on a single platform. As such one had to register for both Mpamba and Airtel Money to transact on broth platforms. Now there is interoperability, including with bank accounts allowing transfers to be done with ease, subject to transactional fees. That is why the introduction of the 1% tax goes against conventional wisdom. What this means is that instead of using mobile money services as a means to empower the rural masses and the unbanked or under-banked, the tax will now serve to disempower them. The cost of transacting on the mobile money platform will rise. Unfortunately this tax is of general application and will apply to all mobile money transactions regardless of the status of the user of the service. Just to put it in context, imagine paying an extra 1% of the value for all bank transfers, or all payments made on mobile banking platforms. This is how it will feel to those who do not have bank accounts. So with one hand the mobile money service was touted as a solution to empower the rural people but with another the system has now decided to plot against the very people it should empower and will take from them the little that they have and fill up the tax purse. Imagine this scenario if you can. Two middle class people who want to remit money to each other through a bank account do not have to pay any tax. However, two villagers who wish to remit money to each other using the mobile money platform have to pay 1% levy on top of transactional fees! Define irony, if you will. The statement that the 1% tax is what is obtaining in neighbouring countries also needs fact-checking. So far, a search on Google reveals that only Uganda imposed this tax, and has already renegaded with mixed messages.

It therefore begs the question whether during the MNOs, micro-finance networks, the Consumers Association of Malawi and the Reserve Bank were consulted. Or has the agenda to use mobile money as tool to get more Malawian on the financial bandwagon been abandoned, even before the station master has blown his whistle?