When govt salivates on mobile money

Consumers Association of Malawi (Cama) executive director John Kapito is a bitter man.

Just like a ferocious and mangy dog, Kapito is now relentlessly barking at Capital Hill, for one reason: Capital Hill’s decision to propose an introduction of a one percent withholding tax on non-bank mobile money transactions contained in the 2019/20 National Budget, which is has a nominal value of K1.7 trillion.

Kapito, a longtime consumer rights activist is not amused, not at all, with the proposed tax which is the first of its kind since the inception of mobile money platforms in the country.

Kapito’s fury is also mirrored on the face of one Dorica Katungwe, 34, a mother of three who lives a high density suburb of Mtandile in Lilongwe.

Katungwe is a mobile money agent who facilitates Airtel Money transactions under her makeshift umbrella along Kaunda Road.

“I am just hearing that going forward, government will be deducting more money from our transactions and if what I am hearing is true, then I would rather go back to my village in Dowa than continue being an agent, but getting nothing in return,” she laments when told about the introduction of the tax by government.

Katungwe is among 40 000 other mobile money agents who earn a living from the business.

In fact, mobile money agent network has grown to 45 929 agents at end of June 2019, according to National Payments Systems (NPS) report for second quarter of 2019.

It is also estimated that about seven million Malawians are now subscribers of either TNM Mpamba or Airtel Money and this represents about 40 percent of the entire population.

Shooting own foot

At a news conference in Lilongwe last week to express displeasure at the introduction of the tax, Kapito did not mince words.

He said with the  proposed tax measure, government is shooting itself in the foot. His argument was very clear.

“The new tax is against financial inclusion initiatives and it is clearly segregative and against the poor. It is also against fairness and neutrality, some principles of taxation,” said Kapito.

While he was busy tearing into this tax measure,  a few kilometres away in Parliament, one legislator Collins Kajawa, who is also Malawi Congress Party spokesperson on finance was also rebuking the same tax measure.

He said such a proposed tax is not only retrogressive, but also militates against the country’s financial inclusion agenda.

Over the years, Malawi has been making strides to bank the unbanked population. For a country where access to financial products has been a critical policy issue, Kapito is wary of how such a tax could reverse the gains already made in the financial inclusion trajectory.

Results of a FinScope Malawi Survey carried out in 2008 speak volumes of the problem of financial exclusion.

A whopping 80 percent of the adult population in Malawi was not able to borrow from any source to finance their activities, but this figure went down to 71 percent in 2014.

Such a situation was pathetic that Malawi is predominantly a cash- based society to the extent that 75 percent of the cash in the economy is outside the banking system, leaving only 25 percent in the banking system.

Disturbed with the high numbers of people outside the formal banking system, in 2017, the Ministry of Finance, Economic Planning and Development launched the 2016–2020 Strategy for Financial Inclusion, which provides direction to achieving and promoting inclusive finance in the country.

Perhaps with such efforts on the ground, over the past years, the country has made strides in the financial inclusion agenda as figures show that Malawian adults with mobile money accounts has now grown from 8.4 percent to 42.8 percent within a period of three years to 2018.

It is with this background that people such as Kapito are angry to see a reversal and or withdraw of a proposed tax on mobile money transactions.

“There is need for a serious reflection on the tax position that is likely to destroy all the gains which have already been made by all players in the quest to achieve financial inclusion,” he said.

Here in Malawi, mobile money service is offered by private entities, Mobile Network Operators (MNOs), and these are primarily in the telecommunication business and offer mobile money as an added service.

Gold to revenue collectors

Dissecting transaction flows in various payment system channels in the NPS report reveals that K454 billion worth of mobile money value was transacted between April and June 2019 and this was an increase from K375 billion worth of transaction recorded between January and March 2019.

Surely, for a country with a narrow tax resource base, it would be naïve and irrational for a hunger tax collector to sit back and watch such gold exchanging hands freely.

With a 2019/20 National Budget yawning with a deficit of K155.9 billion, the versatile Finance Minister Joseph Mwanamvekha is aware that he desperately needs resources from whatever means just to finance this gap.

But University of Malawi’s Chancellor College (Chanco) economics professor Ben Kaluwa thinks such tax measure is misplaced.

He said: “So, if you impose this tax on them where is the inclusion? Why not put it on the companies. This should really be reconsidered, it will not help Malawians.”

Kaluwa is supported by his colleague and dean of law at law at Chanco Sunduzwayo Madise, who has also written a number of papers on mobile money.

His argument is that instead of using mobile money services to empower the rural masses and the unbanked or under-banked, the tax will work towards disempowering the same rural masses.

Said Madise: “So, with one hand, the mobile money service was touted as a solution to empower the rural people, but with another, the system has now decided to plot against the very people it should empower and will take from them the little that they have and fill up the tax purse.

“It, therefore, begs the question whether the mobile network operators, micro-finance networks, the Consumers Association of Malawi (Cama) and the Reserve Bank of Malawi (RBM) were consulted. Or has the agenda to use mobile money as tool to get more Malawians on the financial bandwagon been abandoned?”.

It seems it never rains but pours for Treasury as Malawi Confederation of Chambers of Commerce and Industry (MCCCI) is also on its neck over the same matter.

MCCCI chief executive officer Chancellor Kaferapanjira has asked Treasury to reconsider the tax measure, arguing it is draconian and counters the efforts of RBM to promote non-cash transactions such as mobile money transfers.

Both opponents of the tax fear that mobile money agents will likely earn less due to tax pressure on consumers, a loss of rural and low income consumers who will likely drop useage of mobile money platform let alone discouraging savings.

Lessons from other countries

Malawi is not a pioneer of mobile money operations in Africa because unlike Malawi, the concept has come along away in most West African countries since 2011. But is it right to say Africa is a global leader in mobile money?

However, suffice to say that similar tax on transactional values has been introduced in other countries within the region, but have ended up being repealed or modified after public outcry. Most of the countries have confined themselves to taxes on fees, commissions and interest.

On this, Kapito argues that only one country in Southern Africa Development Community (Sadc) region, Zimbabwe, has similar tax. Uganda, in east Africa also has that tax.

But unlike in the fashion in which Malawi intends to apply the tax, Kapito says Zimbabwe’s tax on mobile money transaction at twp percent above all transactions of above $20 (about K14  800) has been outlawed by the court and no longer exists.

Uganda is applying 0.5 percent, a decrease from the earlier  one percent after public uproar and that the tax is only applied on withdrawals.

But as the debate rages on, Mwanamvekha argued that the introduction of the tax aims at ensuring that a large number of the citizenry are motivated to contribute towards national building through the payment of taxes, which he said goes towards improving public service delivery.

He said the introduction of the tax is in line with development in neighbouring countries. However, much as the tax could help in increase revenue, it cannot considered to be progressive as it is penalising many Malawians who are largely poor.