A new 0.05% levy on mobile money and electronic transfers has alarmed industry players, who warn it could push Malawians back to cash and weaken years of progress in financial inclusion.

The Association for Digital Financial Services (ADFS) Malawi says the tax will hit hardest on low-income and rural users who depend on platforms like Airtel Money and TNM Mpamba, arguing that even a small charge can discourage usage in a country where incomes are already tight.

ADFS vice-chairperson Lumbani Gondwe cautioned that taxing digital transactions risks driving users away from formal systems, increasing reliance on cash, raising currency management costs for the central bank, and eroding trust in digital finance.

He pointed to experiences in Uganda, Ghana, and Tanzania, where similar taxes caused sharp drops in mobile money usage, forcing governments to later reverse the measures.

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Gondwe warned that Malawi, which has expanded financial access largely through mobile money, risks undoing its gains, as most citizens rely on these platforms as their primary and often only financial service.

He argued that government should instead use digital systems to improve tax collection without making transactions expensive, stressing that affordability is key to economic growth, job creation, and resilience.

The levy, introduced by Finance Minister Joseph Mwanamvekha in the 2025/26 Mid-Year Budget Review, is part of broader efforts to raise revenue, close fiscal gaps, and stabilise the economy.

However, critics say the move conflicts with Malawi's financial inclusion strategy, which aims to bring 95% of adults into formal financial systems by 2028.

Peter Dimba, MCP spokesperson on finance, warned the levy could discourage people from using banks, with some opting to withdraw and keep cash at home due to rising transaction costs.

Sosten Gwengwe, chairperson of Parliament's Budget and Finance Committee, urged government to avoid overreliance on such taxes, instead expanding the tax base to include the informal sector while protecting low-income households.

The debate exposes a clear tension between short-term revenue needs and long-term economic transformation.

Meanwhile, Mwanamvekha defended the measures as necessary, also announcing higher income tax rates and an increase in VAT from 16.5% to 17.5%, further tightening the tax environment.