KENYA: Former CBK boss faults mobile money taxes

Former Central Bank of Kenya (CBK) governor Njuguna Ndung’u has faulted Treasury’s imposition of tax on mobile money services saying this could reverse financial inclusion gains Kenya is famed for.

President Uhuru Kenyatta’s administration has been targeting products like mobile money consumed by a vast majority of Kenyans with new fees in an attempt to spread the burden of taxation.

Last year, Treasury raised the excise duty on fees charged on money transfer services tax by two percentage points to 12 per cent, prompting operators to increase mobile money fees.

Prof Ndung’u, under whose tenure financial inclusion grew rapidly, said several studies had shown mobile money services had increased financial inclusion, encouraged savings and credit, reduced poverty, encouraged more effective monetary policy, facilitated tax collection and enhanced public service delivery.

But in his study titled ‘Taxing Mobile Phone Transactions in Africa, Lessons from Kenya’, he warned the gains were likely to be erased by higher taxation of mobile money services. The Washington, DC-based think tank Brookings Institution published the study.

“The tax policy and design of taxes on retail electronic transactions as well as bank transactions have the potential to reverse the gains that technology has pushed Kenya to the frontier of electronic payments and financial inclusion and back to cash preference and financial exclusion for low-income earners,” he said.

“Kenya was moving into a cashless economy. This trend is now in danger of reversal.”

Prof Ndung’u, the executive director of African Economic Research Consortium, said any future review of excise tax rates on airtime and financial services should be preceded with a thorough analysis of optimal taxation for an excisable product and the likely change in consumer behaviour for the financial services.