Ghana’s proposed mobile money tax poses a problem for financial inclusion

Following the announcement of a new mobile money tax in Ghana, we take a look at what it might mean for average Ghanaians

Two weeks ago, Ghana’s Finance Minister announced the introduction of a 1.75% levy on all electronic transactions including mobile money. According to the minister, the tax was meant to widen the tax net, capture people in the informal sector and close up the budget deficit for the previous year.

Although the government probably has a good fiscal argument for the decision, it has nonetheless left many scratching their heads in confusion.

In 2015 only 53% of Ghanaians were financially included per a 2018 report from the National Financial Inclusion and Development Strategy (NFIDS). Although banks constituted the main channel of financial inclusion due to their history, the report noted that mobile money and non-bank financial institutions(NBFIs) have contributed the most to financial inclusion since 2010. Rural residents, women, and poor people were noted as more likely to use mobile money than banks. It is not an overstatement to say that mobile money drives financial inclusion in Ghana.

Although the financial inclusion numbers have likely improved from 53% by 2021, there are still many Ghanaians locked out of the financial ecosystem. The 2018 report also admitted that lowering costs was one of the ways to improve the adoption of mobile money in rural areas. This makes the government’s decision appear counterintuitive.

If lowering costs will improve the adoption of mobile money, isn’t taxation going to do the opposite?

One of the reasons the government feels confident about the decision is that it believes the people have already gotten too accustomed to mobile money payments that they won’t really have a choice but to pay the fees. While that may be true for current users, we may find that people who are still financially excluded may be more reluctant to make the switch. We may also see a lot more people going back to cash as their preferred option, especially for microtransactions (under $10)

Although the new taxes are not expected to kick in until February 2022, we have already begun to see panic withdrawals according to reports. Worried by the impending charges, Ghanaians are withdrawing bulk sums of money to ensure they have cash in hand. Mobile money agents have also kicked bitterly against the increase, citing that the current charges and work environment were already stressful enough.

With the new law, users may end up paying anywhere between 1.75% to 6.75% on charges, depending on the nature of the transaction.

As highlighted earlier, even the government’s 2018 report, noted that the cost of using mobile money was prohibitive to user adoption. With the new law, users may end up paying anywhere between 1.75% to 6.75% on charges, depending on the nature of the transaction. That means a transaction of 100GHC will cost anywhere between 1.75GHC to 6.75GHC to complete. Such exorbitant charges will only be an extra hurdle for financial inclusion in the country. Overall, the mobile money tax feels like a step backward for Ghana’s previously fast-improving financial inclusion progress.

If more people resort to keeping using cash, then Ghana will see all the financial inclusion progress it has made in the past few years grind to a halt. Banks are already in no position to lead the financial inclusion race. The top 11 biggest banks by the number of branches in the country have a sum total of 795 branches — an abysmal rate of one bank branch per 39,000 people.

So, what’s the way forward?

The mobile money tax doesn’t kick in until February 2022, so there’s still some time for the government to walk it back. However, the body language doesn’t appear encouraging. In the meantime, Ghanaians have to hope that one of either the government or mobile network operators drop their charges to reduce friction.

Over the years, mobile money played a critical role in stimulating both savings and remittances in Ghana, it will be of further interest to see how the current tax regime affects both.

Ultimately, the effects of the new tax regime can only be speculated. Maybe Ghanaians will adapt to the new taxes and financial inclusion will grow at a positive trajectory. Come February 2022, the results will begin to show for themselves