Who Is More Likely to Pay the Tax on Mobile Money Withdrawals?

ABSTRACT

This article investigated the distributional effects of a tax that was instituted on mobile money withdrawals in 2021. The lowest taxable amount of TZS 1,000 (USD 0.0023) was taxed at the highest rate of 1% on every withdrawal, while the largest taxable bracket (starting from TZS 3 million, equivalent to USD 1,304.35) was taxed at a rate of 0.33% on every withdrawal. Almost immediately after its introduction, transaction volumes across mobile money platforms declined substantially. Policymakers revised this tax multiple times before removing it altogether. Given this turnaround, the article investigated how the tax affects different consumer groups. The findings revealed salaried respondents based in urban areas as being more likely to reduce consumption of mobile money services because of this transaction tax. The article also observed gender dynamics at play, as being female was associated with receiving less mobile money from friends and family. These results suggest that less wealthy respondents in rural areas with fewer substitutes were forced to contend with this tax, while wealthier urban respondents substituted into different financial services. The results are consistent with those from other African countries that also attempted to introduce similar taxes on mobile money and faced similar outcomes.