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by Mercator Advisory Group 0

Noting the success of the M-Pesa mobile payment system, and need to cover increasing government obligations, Kenyan authorities in 2012 passed the Customs & Excise Duty Act. The law includes attendance that for the first time introduce a 10 percent tax on transaction fees related to all mobile money transfer and payment services provided cell phone providers, banks, money transfer agencies and other financial service providers.

The tax, which went into effect last month, sees a 10 percent duty attached to all mobile transactions worth more than 101 KShs. (US$1.17). The new tax does not apply for mobile payments and transfers under 101 Kenyan Shillings. While the position taken by authorities to improve Kenya’s financial standing is understandable, the new tax has the potential to halt the growth of M-Pesa and mobile transactions in general. Safaricom (parent company of M-Pesa) CEO, Bob Collymore reinforced this notion in a statement saying:

“As Kenya’s largest taxpayer, we appreciate the need to support government as it seeks to reach its financial obligations. However, we maintain our position that a tax on mobile money is at that this time premature and is likely to have a negative impact on the country’s financial deepening agenda by creating an unnecessary barrier for Kenyans who are most in need of basic financial services.”

The rise and success of M-Pesa is well documented, and in recent years it has expanded beyond Kenya into other African and Asian countries, and into the e-commerce segment (link to my M-Pesa perspective). While the new tax on mobile payments and transfers may not spell the end of M-Pesa, it will make mobile transactions less appealing to the broad consumer base which has made companies such as M-Pesa as successful as mobile payments and transfers offered a cheaper alternative to sending money. The tax will make an impact on the consumers in the coming months, so monitoring the effects on the number of mobile transactions should provide an excellent case study for future mobile regulation and tax policy in developing countries.

Click here to read more from The Habari Network. Read Tristan Hugo-Webb’s Perspective about boosting mobile payments in Africa.

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