30/10/2024
For everyday Kenyans, especially those who rely heavily on mobile money platforms like M-Pesa, the new tax measures could have several significant long-term impacts:
1. Increased Cost of Living:
Frequent Transactions: Many Kenyans use M-Pesa for daily transactions such as buying groceries, paying bills, sending money to family, and even receiving wages. Adding taxes like VAT to these frequent transactions will increase the cost of each one. Over time, this could eat into people's disposable income, particularly for lower-income households.
Compounding Fees: If every transaction is taxed, the cumulative effect on households that rely on mobile money could become significant. A 16% tax on each transaction may not seem like much individually, but for families making several transactions per week, the cost adds up.
2. Shift Back to Cash:
Reverting to Cash Payments: Taxing mobile money transactions could drive some users back to cash transactions. Many people may try to avoid the added fees by using physical cash, especially for larger or frequent transactions. This would reduce the convenience and safety of using mobile money, which has been a key driver for financial inclusion in Kenya.
Reduced Financial Inclusion: One of the strengths of M-Pesa has been its ability to bring unbanked populations into the financial system. With added transaction costs, there's a risk that more people will avoid digital money altogether, particularly in rural areas, leading to reduced usage and a potential step backward in financial inclusion.
3. Impact on Small Businesses:
Cash Flow Concerns: Many small businesses use M-Pesa for transactions, especially for receiving payments. Higher transaction fees or taxes could cut into their already thin profit margins, making it more difficult to sustain daily operations.
Less Competitive Pricing: Small businesses that pass on these costs to their customers through higher prices might struggle to compete with larger businesses that can absorb the cost. This could hurt local businesses and informal traders who depend on mobile money to stay competitive.
4. Effects on Charitable Contributions and Crowdfunding:
Deterring Donations: Safaricom has already flagged the concern that this tax could hurt charitable giving. Many Kenyans rely on M-Pesa for crowdfunding efforts, such as fundraising for medical emergencies, school fees, and community projects. If donors know that a portion of their donations will be taxed, they might be less inclined to contribute, affecting the social safety net many Kenyans rely on​
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5. Potential Decline in M-Pesa Usage:
Overall Reduction in Transactions: As taxes increase, people may look for alternative, cheaper methods of transacting. Safaricom’s revenue from M-Pesa could decline as users move away from the platform due to higher costs. This may also lead to reduced profits for Safaricom, which could then slow innovation and investment in new services for Kenyans​
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Long-Term Implications:
Economic Slowdown: As mobile money has become an integral part of the economy, taxing these transactions may have a ripple effect. A slowdown in mobile money use could lead to slower economic growth, particularly in sectors that rely on mobile payments.
Widening Inequality: The tax burden will likely fall hardest on low-income individuals, who already have limited financial flexibility. This could worsen inequality in the country, as wealthier individuals and businesses are better able to absorb these costs.
In summary, while the intention of raising tax revenue might help the government, these measures could have unintended consequences for financial inclusion, small businesses, and daily transactions, potentially slowing economic growth and pushing many Kenyans away from the convenience of mobile money platforms like M-Pesa.
