Benin’s Cashless Push: Tax on Cash Transactions Sparks Debate Amid Challenges

The government of Benin is intensifying its efforts to reduce reliance on cash and promote digital payments as part of a broader strategy to enhance tax collection and boost financial transparency. However, the initiative faces significant hurdles in a country where cultural habits, limited infrastructure, and high transaction costs slow the adoption of digital solutions.

Since January 1, 2025, cash transactions exceeding CFA100,000 (about $159) are subject to a 1% tax. The new policy, while controversial, reflects President Patrice Talon’s commitment to modernizing Benin’s economy and reducing cash dominance. By encouraging digital payments, the government hopes to improve financial traceability and expand tax revenue. However, with 75% of the population unbanked and the informal economy contributing nearly half of the GDP, the ambitious move is sparking frustration among citizens and businesses.

Progress and Barriers in Digital Payment Adoption

The cash transaction tax is just one of several reforms designed to promote electronic payments and improve tax compliance. Since 2021, businesses subject to VAT have been required to use Certified Electronic Billing Machines (MECEF), which track transactions in real-time and share data with tax authorities. According to the World Bank, over 157,000 MECEF devices were deployed for 11,073 taxpayers by the end of 2023. However, adoption in the informal sector remains minimal.

Despite these challenges, digital payment usage has grown significantly in Benin. Data from the Central Bank of West African States (BCEAO) shows a 68% increase in digital transactions between 2020 and 2023, rising from 28 million to 47.2 million. The total value of these transactions nearly doubled during the same period, from CFA1,200 billion in 2020 to CFA2,115 billion in 2023.

Mobile money platforms such as MTN Mobile Money and Moov Money have been instrumental in this growth, especially among unbanked populations. Between 2018 and 2023, the number of mobile financial service accounts skyrocketed by 327%, reaching 11.1 million. However, high transaction fees and limited merchant acceptance hinder broader adoption. While mobile money is increasingly used for utility payments, it has yet to replicate the widespread success of Kenya’s M-Pesa.

Similarly, the use of bank cards is on the rise, with 1.33 million cards in circulation in 2023 compared to 800,000 in 2020. Yet access remains a challenge, with only 326 ATMs and 498 card payment terminals nationwide—primarily concentrated in urban centers, leaving rural areas underserved.

Cash’s Unyielding Grip on Benin’s Economy

Despite the government’s cashless agenda, cash remains the backbone of Benin’s economy. For many, it offers simplicity, speed, and reliability without additional costs.

In rural areas, where financial and digital infrastructure is even scarcer, cash is often the only viable option. While the government’s push for digitization continues, overcoming these structural and cultural barriers will require sustained investment and policy innovation.

SOURCE: AGENCIES