Digital Financial Service and Fair Taxation in Africa: Risks, Barriers and the way forward

Digital financial services (DFS) have rapidly expanded across Africa and other low-income countries. Low-income countries also face strong pressures to increase domestic resource mobilisation, and major challenges in taxing the digital economy. A growing number of countries in Africa (including Ghana, Uganda, Zimbabwe, and Kenya, among others) are therefore advancing or considering new taxes on DFS, including on money transfers and/or specifically on mobile money. These taxes have generated much debate and there are significant disagreements over the rationale.

The DFS industry complains about inequitable treatment of DFS compared to traditional financial service providers, and there is concern that the new taxes could negatively impact progress made in financial inclusion over the past decade. On the other hand, proponents of these taxes argue that they are an administratively simple way of raising additional revenue, justified by the profitability of the DFS industry and the difficulty of taxing mobile money operators and other financial service providers via corporate income taxes. Simultaneously, civil society actors have voiced demands for greater inclusion in tax policymaking processes around DFS and for taxes on DFS to be fair, transparent and socially acceptable.

This session will take a roundtable discussion format, exploring and unpacking the controversies by drawing on the research done by DIGITAX, a research programme at the International Centre for Tax and Development (ICTD). With the chair to deliver a brief opening presentation of the issues and 4 panellists, we will address three topics:

• How are different countries across Africa taxing digital financial services (DFS)? What are the advantages and disadvantages of their different approaches?
• Is the telecommunications, and mobile money industry in particularly, over-taxed or under-taxed in Africa? What is the rationale for imposing specific taxes on mobile money?
• How can DFS be used to make taxation fairer?