Mobile money users spared higher taxes

M-pesa App

Mobile user using the Mpesa application.

Photo credit: File | Nation Media Group

The Treasury has rescinded plans to raise excise duty on mobile money transfers, handing relief to millions of users reliant on such services, including Safaricom’s M-Pesa.

National Treasury Cabinet Secretary Njuguna Ndung’u reversed plans to raise excise duty on mobile transfer agencies from 15 percent to 20 percent.

“I propose to retain the excise duty rate of 15 percent on fees charged on money transfer services by cellular phone service providers to benefit the retail electronic payments ecosystem,” he said when he presented his 2024/25 Budget Speech to Parliament.

Safaricom, which controls more than 98 percent of mobile money transactions, had protested the proposal during public hearings on the Finance Bill 2024, arguing that higher taxation on mobile money transfers would erode gains made in financial inclusion while opening the door to black market money transfer options which would hurt tax collection efforts.

Safaricom had also argued that fees on mobile transfers had for a long time been lower than those of other financial transactions, recognizing that the mobile money transfer segment serves the unbanked community.

“The cost of transactions will prevent ordinary mwananchi from accessing crucial services,” a representative of the telco had told MPs last week.

In the year ended March 31, 2024, Safaricom reported a 33.9 percent increase in M-Pesa volumes from 21.2 billion transactions to 28.3 billion transactions.

The value of the transactions was meanwhile up by 9.6 percent from the previous year at Sh40.2 trillion from Sh36.7 trillion revealing the importance of the mobile-money ecosystem.

Safaricom netted Sh139.9 billion from fees charged on the services in the period from Sh117.2 billion previously. Data by the Kenya National Bureau of Statistics shows that the value of mobile money transactions hit Sh7.95 trillion in 2023, marking a marginal 0.57percent growth from Sh7.9trillion the previous year. This was the slowest pace of growth in the value of mobile money transactions in four years.

The National Treasury has nevertheless retained proposals to raise excise duty on telephone and data services and fees charged for money transfer services by banks, money transfer agencies, and other financial service providers from 15 to 20 percent.

The proposal has irked players in the industry including the Kenya Bankers Association (KBA) who also see the move to be against the progression of financial inclusion.

According to analysts at consultancy firm KPMG, the number of mobile money transactions is likely to decline, hurting excise duty collection.

“The increase in excise duty on telephone and internet data services, fees charged for mobile transfer services and other financial services may lead to a decrease in the number of transactions thus may see a decrease in excise duty collection,” KPMG said in a note.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.