Mobile Money Consumption Taxes: What are the Distributional Impacts

The mobile money industry has conferred numerous benefits to consumers from all segments of income distribution. Given the rapid ascent of the industry, policymakers have grappled with its effective taxation. A key reason underlying this is a poor understanding of the distributional effects. This policy brief investigates a controversial tax that was instituted on mobile money withdrawals in Tanzania in 2021. Almost immediately after its introduction, transaction volumes across mobile money platforms plummeted. Tanzanian policymakers revised the tax multiple times before eventually removing it altogether. Given this U-turn, we investigate how the tax affects different consumer groups. Our findings revealed that salaried workers in urban areas as being more likely to reduce consumption of mobile money services. 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. To relieve the rural poor of the onerous burden of this tax, we suggest revising the burden on wealthier segments to ensure that the incidence of taxation leaves them indifferent to contending with the tax as opposed to substituting into different financial services.