Cameroon joins growing list of African countries with a mobile money tax
The Cameroonian government has followed the footsteps of fellow cash-strapped African countries by enacting a mobile money tax for its citizens.
In a bid to drive revenue, the Cameroonian government has followed the footsteps of fellow African countries by enacting a mobile money tax for its citizens.
The move which has been regarded as lazy tax by some pundits has already been met with widespread online protest. The East African country has become the latest in a growing number of cash-strapped African governments looking to raise money by taxing mobile money transactions. Other countries on the list include Tanzania, Zimbabwe, Uganda, and more recently Ghana.
Although considerably lower than Ghana’s 1.75% tax, the Cameroonian tax comes with a twist. While the Ghanaian government is looking to collect a tax on only withdrawals, the Cameroonian government is collecting a tax of 0.2% on all transactions. This leads to default double taxation on every transaction i.e. If person A sent 100 francs to person B, they would pay a 0.2% tax on that transaction, then when person B decides to withdraw that 100 francs, they would have to pay a 0.2% tax too. That transaction would have an effective tax rate of approximately 0.4%.
The mobile money tax follows a trend of cash-strapped African governments looking to raise internal revenue through taxes on mobile money transactions. However, it also raises questions about the legitimacy of these taxes. Sovereign governments can choose to tax any kind of transaction, however, taxes are a part of the government’s social contract with its populace. In simpler terms, the government collects taxes from the populace so that it can provide social utilities in return. However, mobile money infrastructure is typically funded by the private sector, so it is unclear what exactly the mobile money taxes are for. On the other hand, government officials have argued that a mobile money tax will help expand the tax net, considering that many of the financially excluded people within Africa have access to mobile money.
Across the continent, there are more than half a billion registered mobile money users transacting close to half a trillion dollars yearly per the most recent GSMA report for 2020. The potential revenue from taxing those dollars has become more attractive than ever before for African governments that have had to deal with revenue shortfalls due to Covid-19.
Mobile money tax to the rescue
In Cameroon, the case is not any different. Like other developing countries, the East-African country was hard hit by the pandemic. The country recorded a recession of 1.7% in 2020, following the pandemic. Although it bounced back by 1.9% in 2021, it is still barely in the green. In addition to its economic issues, the country also has a significant debt to GDP ratio of 45.8% as of 2021. All indications point to the government being cash-strapped and in need of a cash injection.
Recent reports from CEMAC showed that there were over 19.5 million active mobile money accounts in Cameroon as of 2021. Although it should be pointed out that those accounts are not representative of unique subscribers, as a person can have multiple accounts. More importantly, however, is that those subscribers transacted over $2.8 billion — a 30.9% increase from the previous year. A 0.2% tax on that figure, could easily add a minimum of $5.8 million to government coffers over the next 12 months.
What about financial inclusion
Although financial inclusion is a goal for African governments, it seems to be taking a back seat in lieu of revenue generation. Cash-strapped with few options to generate income, more African governments are looking to mobile money taxes. Some government officials from Ghana have argued that the digital tax will not impact financial inclusion as mobile money is already an indispensable part of people's lives.
However, if history is anything to go by, financial inclusion will suffer, while the government's revenue targets remain unmet. In 2018, after the implementation of a 1% mobile money tax in Uganda, the value of mobile money transactions dropped by over a quarter within the first month. This drastic drop prompted the government to reduce the tax to 0.5% by the next month.
Cameroon's tax is 60% less than that of Uganda, so it's unlikely that it will have the same effect. Whether it will impact financial inclusion, on the other hand, is a question of "by how much". The government seems to have its mind made up on relegating financial inclusion in the pursuit of revenue. Whether it will prove to be a good decision or not is for history to decide.