Madagascar’s three mobile money operators – MVola, Orange Money and Airtel Money – have denounced plans by the government’s Directorate General for Taxes (DGI) to tax mobile money transactions, which they say will discourage financial inclusion and harm the economy.
The DGI announced last Thursday it is looking to introduce a 0.5% tax on all mobile money transactions above MGA150,000 (a little over US$32.00), which it said will generate MGA143 billion in tax revenue per year.
According to a joint statement from MVola, Orange Money and Airtel Money published on the Ecofin news agency website, the actual tax revenue would be far less, as it would actually reduce usage of mobile money services.
MVola, Orange Money and Airtel Money said families would see fees for money transfers increase by up to 5x, and while fees for merchant payments would increase by much as 10x. That would cause the number of active mobile money users to drop 30% immediately, and decrease the value of transactions 60% within six months, they said. There are currently around 23 million mobile money users in Madagascar.
Reduced usage of mobile money services would also impact the 164,000 distribution agents (cash points) operating in the country, the operators said.
In essence, mobile money operators claim the tax would encourage people to switch back to cash, which goes against the financial inclusion efforts promoted by the Central Bank of Madagascar, as well as the government’s own digitalisation initiatives.
Among other things, taxing mobile money would slow down digitization of the economy, increase security risks, reduce the traceability of transactions (which would also make it more complicated to collect tax revenue), reduce foreign exchange inflows and discourage local and international investment, the operators said.
MVola, Orange Money and Airtel Money also noted that similar tax schemes in other countries such as Tanzania, Ghana, Cameroon and Central African Republic that have seen similar results.
Mobile money operators said that if the government wants to increase tax revenues, it should accelerate large-scale adoption of mobile money services. The resulting boost in total transaction volumes and value of merchant payments would in turn accelerate digitalization and boost the digital economy.
“This digitization will contribute to the formalization of the economy and generate increased tax revenues, of the order of MGA100 billion,” the operator statement said.
