By Liliana Rojas-Suarez
Kenya has instituted a new tax that affects users of M-Pesa — a widely popular phone-based money transfer service used by more than half of Kenya’s adult population. The new 10 percent excise duty on fees charged for money transfer services applies to mobile phone providers, banks, and other money transfer agencies. Operated by Safaricom, the largest mobile network operator in Kenya, M-Pesa accounts for the largest share of users of money transfer services. Users of M-Pesa products will therefore bear most of the impact of the tax.
M-Pesa services are used by companies and individuals of all income levels. But because of the low cost of the transfer service, it is the poor that benefits the most from this product; low-income workers in urban areas who rely on M-Pesa to transfer money to their families in the countryside. Is the burden on the poor created by taxing M-Pesa justifiable? The Kenyan government could look to Latin America’s past experience with taxing financial service products to gain further insight .
M-Pesa’s success lies in the product’s adequacy for the evolving social-economic characteristics of Kenya – a country that is urbanizing faster than others in Africa. With an under-developed pension system, most families support older relatives by sending money home. M-Pesa greatly facilitated and significantly reduced the cost of these transfers.

Full Content: Center For Global Development