22 February 2019

Cote d'Ivoire: Raising Mobile Money Rates By Adding Taxes Is Killing the Golden Goose

London — Africa's cash-strapped governments have a nasty habit of taxing anything that moves, particularly when it involves big money. In January 2016 the Ivorian Government decided to increase the tax on individual mobile money transactions. Russell Southwood looks at what's happening and how this affects the development of the country.

In January 2018, the Ivorian Government decided to put a 0.5% tax on each mobile money transaction made. This follows a pattern set by other African Governments including Kenya, Tanzania, Uganda and Zimbabwe. When the tax was imposed in Cote d'Ivoire the value of transactions was estimated at up to XOF17 billion (USD33 million) a day, according to a report from Agence Ecofin, meaning the government was bringing in an additional XOF85 million daily.

According to PWC Cote d'Ivoire, the telecoms companies are subject to three major taxes. There is a specific tax of 5% applicable to the turnover of mobile telecommunication, information technology, and communication companies. Companies renting passive infrastructure and telecom towers to telecom companies are not within the scope of this tax. The 2019 financial legislation has extended the application of this tax to money transfer companies via mobile networks.

Companies operating in the telecommunication, information technology, and communication sector must also invest 20% of the amount of dividends transferred abroad in bonds of the public Treasury or any borrowing instrument issued by the government of Côte d'Ivoire. Lastly, there is a special tax of 3% is applicable on telecommunication services provided to the public. The tax is invoiced and collected by companies operating mobile or land telecommunication and internet services in Côte d'Ivoire.

Other than taxes collected for the purpose of financing Government itself, politicians have taxes at their disposal as a way of discouraging certain activities. For examples, many countries globally tax cigarettes and alcohol as a way of discouraging their consumption. South Africa has the "sugar tax" as a way of discouraging its consumption.

The impact of these kinds of taxes is two-fold: firstly, they do discourage people doing what is taxed; and secondly, their impact falls disproportionately on the "haves" and the "have nots". The wealthier can afford to pay the extra but the poor usually cannot.

In many ways the tax on mobile money (and indeed, Uganda's wider tax on social media) are the same. They hit the poor hardest who are arguably the people that mobile money services are of greatest use to.

According to Jean-Baptiste Koffi, Confederation of Consumers of Côte d'Ivoire (COC-CI) (which brings together 10 associations and federations), who has strongly criticized this decision of the government:"The rate of banking remains low in the country, with less than 20 people in 100 holders of a bank account... this decision is a bad signal for the cost of living in general and above all a limiting factor for financial inclusion so much desired by the Government itself ".

"The cost of mobile money transactions (payments or money transfers) has increased by 7.2% in 2019. It is much more expensive for consumers to use an accessible service that has started to get into our habits."

Koffi said that the dynamic growth of mobile money services in the country was "largely due to the low cost of transactions" and he called for the "outright removal of this tax" so that the sector can continue growing.

Last week he was joined in opposition to the tax by the unlikely figure of Ouattara Sié Abou, Director General of tax collection agency (Impôts): "The passing of these taxes on consumers is illegal, is a diversion from the letter and the spirit of the tax law." His opposition was based on the narrow point that it should be the mobile companies that paid the taxes, not individual consumers. But he also made the wider point that the imposition of the tax was contrary to the Government's own tax policies of trying to increase support to households.

He made his statement after the decision of the mobile companies operating mobile money services to apply a "proportional increase" to the costs of transactions in exchange for new taxes - an accumulated amount of 7.2% on the amount of commissions paid - to which they have been subject to since 1 January 2019.

African Governments have limited sources of potential revenue and taxing citizens through mobile services is a beguilingly easy way of raising money. However neither the telecoms industry nor the citizens of Cote d'Ivoire are a bottomless pit and a tax at this level will harm the growth of a service that benefits all citizens.

It provides an overview of: Main Platforms Used and Advertising revenues; Social Media Platforms; Voice and Messaging Services; Media Platforms; Audio-Visual Services; Music Services; Payment and e-commerce Services and Other Digital Services. It covers the 11 Top Digital Landscapes in Sub-Saharan Africa: Nigeria ; South Africa; Kenya; Tanzania; Ghana; Ethiopia; Cote d'Ivoire; Angola; Senegal; Cameroon and Uganda. The report concludes by looking at the new type of business models required to promote new digital content and services.

If you're interested in either report, email us on info@balancingact-africa.com and we will email you details when it is published.

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