The government is targeting to raise at least Sh2.5 billion from taxes charged on mobile money transfers amid fears that the levy will slow down the penetration of financial services among the poor.
Safaricom became the first mobile phone company to announce that it would increase its money transfer tariffs by a tenth to accommodate the tax passed with the enactment of the Financial Act 2012.
The Act came into effect last Friday when amendments to the Customs and Excise Duty Act were published in the Kenya Gazette.
“The amendments introduce a 10 per cent excise duty on transaction fees for all money transfer services provided by cellular phone providers, banks, money transfer agencies and other financial service providers,” Safaricom CEO Bob Collymore said.
The Treasury has set a target of Sh4.5 billion from the tax when all service providers are taken into account.
The new M-Pesa rates take effect this week and will affect 16 million subscribers.
Essar’s yuMobile and Telkom Kenya’s Orange told the Business Daily they would pass on the consumption tax, similar to that on alcohol and cigarettes, to end users. Airtel Money was not available for comment.
Effecting the tax could prove problematic for Airtel and yuMobile which have not been charging a fee for sending money across all networks.
“With a tax introduced on fees, we will review, but ultimately, we will likely introduce a fee to cater for this tax burden,” said Essar’s yuMobile managing director Madhur Taneja.
Statistics from the Central Bank of Kenya (CBK) indicate that the total value of money transacted on the six mobile platforms — including Mobicash and Tangaza — grew by more than 100 per cent from Sh732 billion in 2010 to Sh1.5 trillion at the end of last year.
M-Pesa, which controls about 80 per cent of the mobile money transfer market, earned Sh10.4 billion from fees in the six months to September 2012.
If the trend is maintained, a 10 per cent tax on M-Pesa fees alone would earn the Kenya Revenue Authority Sh2 billion in a year.
Mr Collymore said Safaricom had passed on the tax to consumers in order to sustain the robustness and availability of its money transfer service across the country.
“It also ensures that we continuously invest in our platform and extensive distribution network,” Mr Collymore said. The company will absorb the tax for transfers of up to Sh100 whose tariffs will remain unchanged.
Telkom Kenya chief executive Mickael Ghossein also said the firm was assessing the pricing strategy for Orange Money in order to minimise the impact on customers.
“In principle, the excise increase will affect our customers, as the business will have to pass on the cost. It will negatively impact continued uptake of mobile money transfer services,” Mr Ghossein said.
The three telcos, however, warned that the tax could slow down the uptake of the services especially by the more than 30 per cent of Kenyans who are unbanked.
“This segment relies on mobile money services as a store of value, in addition to its core purpose of sending and receiving money,” said Mr Ghossein.
M-Pesa users sending between Sh501 and Sh5,000 will from Friday be charged Sh33 — up from the current Sh30 — to send the money to a fellow user.
Those withdrawing between Sh101 and Sh2,500 from their accounts would also pay approximately Sh27.5, up from the current Sh25. The increased rates will also apply to transactions involving unregistered users.
“A tax on mobile money is at this time premature and is likely to have a negative impact on the country’s financial deepening agenda by creating an unnecessary barrier for wananchi who are most in need of basic financial services,” said Mr Collymore.
Finance minister Njeru Githae has in past months been keen to tax the service, arguing it would help the government meet its revenue targets.
Mr Githae had in October warned operators like Essar Kenya and Airtel, who had launched free mobile money services to its customers, of the impending changes in taxation.
“Companies that are giving free airtime minutes (calls) can give it for free, but they have to pay tax on it,” said Mr Githae. He said the government would consider putting a specific tax — ad valorem in jargon — to enforce compliance.
“We are going to put in a minimum, for example 10 per cent of the transfer charge or say Sh50 per transaction (mobile money transfer),” Mr Githae said.
KRA collected Sh342 billion in taxes at the end of December, less than half of the targeted total of Sh817.5 billion for the current financial year.
With the budgetary pressures, KRA has over the past months targeted new revenue streams including taxing landlords, churches and investigating high net clients for suspected tax evasion.