How Tanzania's levy on mobile money affects small businesses

Abstract

Motivation In July 2021, during the COVID‐19 pandemic, the Tanzanian government introduced a new tax on mobile money transactions ranging between TZS 10 to TZS 10,000, increasing the costs of mobile money transfers and withdrawals in addition to the pre‐existing 18% VAT and 10% excise duty. It was labelled as “patriotic levy” to finance development projects, followed by public outcry and concerns about setbacks in the financial inclusion. Purpose This article examines the impact of the Tanzanian e‐levy on the payment behaviour of loan repayments, as well as the level of knowledge and perceptions of micro and small enterprises (MSEs) as saving and credit cooperative organizations (SACCOS) members in Tanzania. Approach and methods This report is based on the combination of a unique database of loan repayments of MSEs and structured phone interviews with 600 MSEs. Findings The results show that the loan repayment amount of MSEs grew, while the total number of transactions decreased; the general knowledge about the e‐levy is poor, and more knowledge leads to a more negative perception of the tax; while the general perception of mobile money is positive, the general perception of the e‐levy is negative, particularly among male‐led MSEs operating in urban areas and engaged in the trade sector, as well as businesses with higher levels of digital inclusion. Policy implications The e‐levy's limited impact on loan repayments suggests resilience among MSEs but highlights the need for transparent communication and balanced tax design. To foster greater understanding and policy effectiveness policy‐makers could enhance transparency and tailor awareness efforts to different groups.