Tanzania is trying to get people to ditch cash for good

The Tanzanian government has announced that it will reduce mobile money transaction fees by a further 43% to ease the burden placed on citizens by providers in a time of rising inflation caused by the Ukraine war.

A 2021 mobile money levy impact analysis report by the GSMA shows that the July 2021 introduction of the mobile money levy had an adverse effect on gains the country had made in financial inclusion since becoming the first nation in Africa to implement payments interoperability. Tanzanians were going back to using cash and the government started thinking on how to get them back to mobile money platforms.

When he presented the national budget for the financial year 2022/23 on June 14, the country’s finance and planning minister Mwigulu Nchemba proposed to parliament amendments that will see the fee for sending and withdrawing money on mobile platforms reduced from a maximum $3 to $1.72 per transaction.

“I propose, amendments to the National Payment System Act, CAP 437…I propose to extend the base and include all electronic transactions,” said Nchemba. “This measure is intended to reduce the cost of living for Tanzanians, especially during the current period of ongoing economic crisis, and to rationalize the transaction levy.”

The one year experience of having the levy has been difficult for most Tanzanians

On July 15 last year, the government’s amendment of  the Electronic and Postal Communication Act (CAP 306) that imposed a levy of between 0.0043 and $4 on mobile money transactions came into effect amid public outcry.

Despite collecting $28 million from the fees since mid-July, in September, the government yielded to public pressure and reduced the levy by 30%. Citizens and business people had started to avoid paying through mobile money platforms which they deemed exploitative.

The September 2021 reduction still put the transaction costs at a rate much higher than June 2020 costs. GSMA says that between June and September 2021, the cost of peer to peer transfer fees increased by 258% for on-net transactions and 133% for off-net transactions. The cost of cash-out transactions increased by 45% over the same period.

“The change in consumer behavior led to increased use of cash, reversing gains Tanzania had made in going cashless. Between June and September 2021, the total number of peer to peer transactions reduced by 38% from 30 to 18 million per month, while the total number cash-out transactions reduced by 25% from 33 to 25 million per month,” GSMA says.

Tanzania’s mobile money levy has long-term effects

Even with the latest levy reduction, Tanzania’s mobile money economy is expected to be on a much lower growth trajectory than before the tax was introduced and it is estimated that there has been a 12% contraction in the market compared to pre-tax levels. The reduced revenues have discouraged investment in the sector and slowed down innovation of new products.

Tanzania has six mobile money players — Vodacom with M-Pesa (39%), Tigo with Tigo Pesa (30%), Airtel with Airtel Money (20%), Halotel with Halopesa (7%), TTCL (3%), and Zantel with Ezy Pesa (1%) who compete for a market of 26 million active users. The market reached a value of $54.5 billion in 2021 and is expected to grow to $120.4 billion by 2027.

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