Amendment of the National Payment Systems Act, 2015 to introduce “Electronic money transaction levy” and widen its base:

The Minister of Finance and Planning through the National Budget Speech proposed to amend Section 46A of the National Payment Systems Act, Cap. 437 (Principal Act), by reducing the transaction levy from a maximum of 7,000 to 4,000 shillings in each transaction to reduce the cost of living among the citizens.

Before this fiscal year (FY2021/22), the maximum chargeable rate was TZS 10,000, but after several engagements between MNOs and the Government, it was agreed by the parliament that the maximum rate should be reduced to TZS 7000. This was a 30 percent reduction. This was a great relief to mobile money users and indeed the operators as the rate (TZS 7000) seemed to discourage usage of the service and this affected not only MNOs revenue but also government taxes that were collected by the Tanzania Revenue Authority. One could conclude that the rate was too high that it could not raise the intended revenue, therefore the Government thought it was justifiable to reduce it.

New Measure through the FA2022: Now, through the Finance Act 2022, the principal Act through section 46A has been amended by deleting the words “mobile money transfer” wherever they appear in the “principal Act” and substituting for them the words “electronic money”. This has been done to widen the “levy base” by introducing what has been termed
as the “electronic money transaction levy” that shall be chargeable to all electronic money transactions. Additionally, the maximum rate for the levy has been reduced by 60 percent, that is, from TZS 10,000 to 4000 for a transaction between 3 million and above while the minimum imposition (rate) remains the same at TZS 10 for a transaction between TZS 100 to 2,999 (See; National Payment Systems (Electronic Money Transaction Levy), Regulations, 2022, published on 01/07/2022 through GN No. 478V.)

Therefore, with this amendment, the levy will not only be chargeable on mobile money transfers (that is from one mobile money user to another whether on the same network or not) but also on all bank transactions. However, one thing that has been made clear is the fact that this levy shall not apply to transactions involving the payment of salaries by employers. (See; Finance Act 2022, Part XXVI)

In fiscal (tax) policy design, this could be seen as a very good move as the principle has always been to introduce taxes at a lower rate but widely scattered through a large base. However, despite this relief, several questions are being asked by various stakeholders especially financial economists, bankers, common “wananchi” etc., to mention. Some of the questions include; Does this measure lower the cost of living among the citizens? Won’t it have a negative implication on the financial inclusion and deepening efforts whose investment has been immense so far? Won’t the measure promote the presence of cash-based transactions?

All these questions are valid and it is evident that this move may pose a threat to the efforts to have a cashless economy. However, there is a need to also digest why the Government has come up with this measure wrist its potential threat. A common argument could be to raise revenue but the other argument could also be because of the informality nature of most economic activities (generating less tax revenue). That is informality is so high (propelled by a cash-based economy) that the Government decides to take its share during a bank withdrawal (own-views).

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