Who is More Likely to Pay the Tax on Mobile Money Withdrawals?

Karia Sekumbo and Noela Ringo Constantine Manda

Working Papers from African Economic Research Consortium

Abstract: This study investigated the distributional effects of a controversial tax that was instituted on mobile money withdrawals in 2021. The lowest taxable amount of TZS 1,000 (USD 0.0023) was taxed at the highest rate of 1% on every withdrawal while the largest taxable bracket (starting from TZS 3 million equivalent to USD 1,304.35) was taxed at a rate of 0.33% on every withdrawal. Almost immediately after its introduction, transaction volumes across mobile money platforms declined substantially. The countrys policy-makers revised this tax multiple times before removing it altogether. Given this turnaround, we investigated how the burden of tax affects different consumer groups. Our data sources for this analysis comprised aggregated transaction- level data obtained from the Bank of Tanzania alongside nationally representative survey data. Relying on survey data answer choices, we constructed regression models assessing how social determinants contributed to mobile money use. Our findings revealed salaried respondents based in urban areas as being more likely to reduce consumption of mobile money services because of this transaction tax. We also observed gender dynamics at play as being female was associated with receiving less mobile money from friends and family. These results suggest that less wealthy respondents in rural areas with fewer substitutes were forced to contend with this tax while wealthier urban respondents substituted into different financial services. The results are consistent with those from other African countries such as Kenya, Ghana, Malawi and Uganda, which also attempted to introduce similar taxes on mobile money and faced similar outcomes.

Date: 2024-07-17
Note: African Economic Research Consortium
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