The effect of taxation policies on mobile money

by May 19, 2023Insights

Mobile money services have emerged as a transformative solution for financial inclusion in many countries, including South Africa. According to the World Bank, over 1.4 billion people worldwide have limited or no access to traditional financial services. Mobile money services have the potential to bridge this gap by enabling people to send and receive money, pay bills and access other financial services through their mobile phones without the need for a bank account. 

In South Africa, these services have seen significant growth over the past few years, driven by increasing mobile phone penetration and the need for financial services among the unbanked population. However, the growth of these services is not without its challenges. One of the critical factors to consider is the impact of taxation policies on the sector.

Mobile money taxation affects the poor

Mobile money has become an effective way to provide low-income and rural households with access to financial services and modernise financial transactions in developing countries. Despite these benefits, the Covid-19 pandemic and its resulting economic crisis have prompted governments to seek additional avenues for tax generation, including the taxation on mobile money transfers. 

Critics have raised concerns about the potential negative impact of taxes on mobile money transactions for lower-income groups, particularly those working in the informal sector. According to the United Nations Capital Development Fund (UNCDF), this tax disproportionately affects the poor. 

When taxation policies are imposed on mobile money services, it can result in higher costs for service providers, which can be passed on to the end users. Since individuals with lower incomes are more price-sensitive, they may reduce their usage of these services, leading to reduced financial inclusion. 

In this context, taxation policies on mobile money can worsen the inequality gap. This can perpetuate the cycle of poverty, limiting the economic mobility of individuals and preventing them from accessing better economic opportunities.

The benefits of taxation policies 

On the flip side, taxation on mobile money is not wholly a bad thing. The policies play a crucial role in regulating services, which can foster a stable financial environment for mobile money operators. This can help to attract new players into the market, leading to increased competition and innovation.

Moreover, taxation policies can provide a revenue stream for the government which can be used to fund infrastructure development and other social services. In South Africa, mobile money services are subject to Value Added Tax (VAT) at a rate of 15%. 

This collection of VAT revenue is vital for the government to fund critical services such as healthcare, education and infrastructure development. When properly channelled, tax revenue can have a positive impact on the country’s poorest populations. 

Balancing out the effects of taxation on mobile money services

While the taxation of mobile money services can potentially improve tax revenue generation in South Africa, policymakers must carefully consider the impact on low-income users. While taxation policies can provide benefits for the government and regulatory certainty for mobile money operators, they can also lead to increased costs for mobile money providers and hinder innovation and service quality. 

As South Africa seeks to increase financial inclusion, policymakers need to carefully balance out the benefits of financial inclusion with driving economic growth. 4C Group of Companies has strategic partnerships with mobile operators in Africa. We believe that it is a valuable tool for driving financial inclusion. For more information about our various services for MNOs and telcos, and to learn more about our African Fintech Solutions, please contact us today.


At 4C Group of Companies, we strive to effect operational changes and cost savings for customers through our iNSight product and associated services. This product’s main function is to re-purpose and deliver business-critical information to a variety of systems and stakeholders. 

We specialise in information assurance, business assurance, African Fintech solutions and a variety of cyber security services. For more insights into our products and services, check out our blog page or follow us on Facebook, LinkedIn and Twitter.

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