Mobile money has seen speedy growth since its emergence, becoming the formal financial service of choice for many in developing countries enabling completely cashless transactions across entire market segments. Its success has attracted the attention of tax authorities seeking to broaden their revenue base. The resulting taxes, especially mobile money transaction taxes, are controversial and incidents of it are increasing. One of such increase is the introduction of mobile money tax in Cameroon.
One development success story for many developing countries over the past decade has been that of mobile money. Having amassed more than a billion registered accounts, mobile money has financially included underserved groups who previously had neither the required identity documents nor the sufficient minimum funds to hold a formal bank account.
However, on January 1, Cameroon unveiled a new 0.2% tax on mobile money transactions through its newly enacted 2022 Finance Bill signed by President Paul Biya in November 2021. The tax applies to all transactions made through traceable platforms, including mobile telephony and the internet, with the exception of bank transfers and electronic transactions carried out to pay tax and customs duties.
Mobile money is hugely popular among Cameroon’s 26.5 million people, particularly used by the unbanked, middle- and lower-class citizens as well as small business owners as only a third, or 35%, of adults are estimated to have bank accounts.
Although the introduction of the mobile money tax offers additional revenue for governments, there is a risk they may negatively impact the underserved groups who typically use the service, potentially reversing the gains achieved in financial inclusion to date, increasing inequality, and undermining the attainment of development goals.
Many Cameroonians consider yet another mobile money tax unfair. These taxes, expected to add more liquidity to state coffers, are in addition to existing charges on mobile money transactions in Cameroon which users already complain about. As tax rates increase beyond the optimal rate, tax revenue declines and the potential for distortion in the market is raised. Excessive taxation on mobile money transactions could potentially reverse the gains for financial inclusion and create an incentive for cash transactions that escape taxation.
Levying an excise tax is premised on the assumption that demand elasticities will not change after the tax and so may raise the government’s targeted tax revenue. In most cases, excise taxes are imposed on the strong belief that the product in question is price inelastic. However, time and technological changes show that price can only be inelastic in the very short term. In the medium- to long-term, the structure of demand is likely to change, as will the nature of tax revenue anticipated; as a result, governments may receive less tax revenue and there will be a cost of price distortion in the economy.
Therefore, the mobile money tax may be seen as being excessive and beyond the optimal rate and this may push taxpayers to prefer alternatives to escape taxation, resulting in lower tax revenue for the government and undoing the gains made from financial inclusion.