Kenyan mobile operator Safaricom has announced that the cost of transferring money through its M-PESA service will go up following changes in government taxes...
Kenyan mobile operator Safaricom has announced that the cost of transferring money through its M-PESA service will go up following changes in government taxes. The Kenyan government has introduced a 10% excise duty tax on transaction fees for all money transfer services. Following this change, Safaricom will raise the handling fee for transactions worth more than USD1.20 by 10%. Charges for transactions below this amount will remain unchanged. Mobile money transfer is used by around 20 million Kenyans and the Central Bank estimates that in H1 2012, approximately USD8.6 billion was transferred through M-PESA.
Mobile money transfer services such as M-PESA have gained in popularity over the past few years particularly in emerging markets where there is a significantly high proportion of the population without access to banking services. The service enables a range of convenient payment services including depositing/withdrawal of money, transfer money to other M-PESA users and non users, bill payment, airtime purchase and interbank money transfer.
The Kenyan government has realised strong benefits from the telecoms industry in the country over the past few years. In June 2009 it removed VAT from mobile handsets, as a result of this, handset purchases surged and mobile penetration increased from approximately 50% in Q2 2009, to 57% in Q2 2010 and 70% in Q2 2011. The exemption of tax from handsets resulted in operators contributing more in tax to the government. The Kenyan government does not appear to have announced any justification to the raise the mobile money transfer tax particularly as it has witnessed greater benefits from exempting tax on particular areas of the telcom sector in the past. Safaricom also does not appear to have considered other options such as absorbing the full tax increase or at least part of it. Safaricom has passed on the tax increase by the government to the consumer which although is relatively small will have an impact on the lowest earning users in the country.
Based on the figures provided by the Central Bank and the assumption that 90% of M-PESA transactions are above USD1.20, the amount where increased taxation will be placed. The government could see M-PESA contributing between USD1.5 billion – USD2 billion in tax over the following year.
The tax increase will contribute to more reduced consumer usage of the M-PESA service in the short term which will result in lower profitability for the operator and furthermore a lower incentive to invest in the service.