Taxing mobile transactions draws ire in Tanzania

By Kizito Makoye

DAR ES SALAAM, Tanzania (AA) – Tanzania’s decision to tax transactions through mobile phones has drawn ire in the country, with people arguing that it has put a burden on them at a time of recession caused due to COVID-19 restrictions.

President Samia Suluhu Hassan’s government imposed a patriotism tax on transactions through mobile phones, which came into effect on July 15 to boost official revenues.

Speaking to Anadolu Agency an entrepreneur Abdi Abdulkarim urged the government to rethink the decision as he apprehended that it will kill the mobile phone business in the country.

With about 26 million people, roughly half of Tanzania’s 58 million population using mobile phones for transactions, the impact of this tax is being felt on the ground.

“My daughter has stopped sending me money through World Remit from Texas in the US because whenever I go to withdraw it I end up paying too much as government fees,” said Lilian Masawe, a retired teacher in Dar es Salaam, a major city and commercial port on Tanzania.

Hisham Hendi, a former official of Vodacom Tanzania -- a telecom service provider -- claimed that nearly three million subscribers have stopped using mobile money after the imposition of this tax.

The mobile money had become an instant hit in Tanzania as it had enabled the poor to eliminate travel costs, saved them from going to the banks, and confronting other bureaucratic hassles.

Analysts said the success of this service soon drew the attention of the government to milk it to earn money to finance infrastructure and other official expenses.

Abel Daudi, 37, an autorickshaw driver in Dar es Salaam said he is now refusing payments from passengers through mobile money. He said he is telling those passengers not to carry cash to deposit money in his bank account directly instead of transferring it to his mobile phone.

“It’s better to use an ATM since the fee is too small,” said Daudi.

According to Global System for Mobile Communications -- a standardization group that creates mobile standards -- mobile telephony is the most heavily taxed sector in Tanzania, where operators are subjected to 10 different taxes along with regulatory fees and other charges. Operators say they pay $540 million annually contributing to 11% of the total tax revenue collected by the government.

- Taking tax regime to next level

They say that by imposing a levy now on each mobile transaction the government has taken the taxing regime to another level.

Officials said they are expecting to raise 1.25 Tanzanian shillings ($570 million) annually by taxing transactions. Sending or receiving $100 through mobile money means shelling out $2 as tax.

With people now increasingly abandoning mobile money transfers to avoid tax, the government decision has affected the revenues of telecom companies. Experts believe that in the longer run, the step will hit government revenue itself.

Upendo Mick, an analyst from Chartered Financial Analyst Society predicted that government is likely to lose nearly a quarter of the projected revenues by the end of the year.

The telecom sector in Tanzania is reported to have contributed to 1.9% of the real GDP in 2018. The fast-growing sector had grown to 28% since 2014. The experts said the growth was due to the increase in airtime used by mobile phone customers and the expansion of broadcasting and internet services.

“Everyone pays electricity and water bills using their mobile phones. So, when people avoid these services, it is a blow to the government as it loses revenue,” said Narendra Sadri, a digital marketing consultant at Ashton Media Company.

According to estimates since 2019, there have been 9.5 trillion Tanzanian shillings ($4 billion) worth transactions in the country through mobile phones.

Prosper Ngowi, a professor of economics at Mzumbe University, said the new tax regime will harm low-income people in rural areas, where banks are miles away.

"High tax rate on retail electronic transactions levied on low-income earners who are sensitive to transaction cost may discourage them from using mobile phone-based transactions," he said.