Minister of Finance, Economic Planning and Development Joseph Mwanamvekha has bowed down to public pressure and announced withdraw of the proposed one percent withholding tax on non-bank mobile money transactions.
Mwanamvekha made the announcement in his 2019/20 Budget Debate winding up statement in Parliament in Lilongwe on Monday evening.
Several commentators argued that the proposed tax threatens the financial inclusion agenda as the cost of the service will likely rise.
During the debate of the budget, legislators also opposed to the tax.
Meanwhile, the withdraw of the tax comes in the wake of a legtter by TNM Plc Chief Executive Officer Michel Buitelaar to Finance Minister asking him to put aside the tax.
In a letter dated October 3, 2019 and leaked to Nyasa Times TNM has raised a number of concerns, chief among them being that the tax would stifle growth of mobile money and with it the economy as cost of mobile money would resultantly soar by 25 percent, making it unaffordable to majority of Malawians in the predominantly unbanked rural areas.
Buitelaar, who is chairman of TNM Mpamba Ltd–a 100% owned subsidiary of TNM Plc group– also said the tax contradicts the government’s government’s objective of deepening financial inclusion. Mobile money provides the real alternative to financial transaction through transfers for over 70 percent of Malawians who do not have a bank account.
“This tax will slow down Malawi’s economic development. This proposed tax’s contradiction to the government’s objective – to create financial inclusion – is regrettable. [It] is equally non-aligned with the vision and recommendations of international bodies such as the World Bank and the GSM Association. The Consumers Association of Malawi (CAMA) and several other voices in Malawian society do not support the tax either,” wrote Buitelaar.
He said mobile money usage remained far below 50 percent and wondered why government had decided to curtail its growth by imposing a tax without thorough consultation with operators and other key stakeholders.
Buitelaar also warned of severe consequences to the economy as a result of the tax such as curtailing potential growth in revenue collection by government and increasing financial crimes through fraud.
To highlight why the 1 % tax would be a burden and punitive, Buitelaar said the mobile communications sector was already subjected to taxes that are considerably higher than for other sectors of the economy.
“We experience excise tax, withholding tax on commissions, income tax, PAYE, TEVET levy, and VAT. In 2018, TNM contributed 29% of its sales in different forms of tax, to central and local governments, as well as to MACRA. This amounted to MK 34 billion. In 2018, Mpamba contributed more than MK 200 million to corporate social investments,” he said.
The CEO said Malawi would become a pariah as most other African countries do not have such tax on mobile money or have had it removed. “Where such taxes were introduced, they were removed shortly after introduction, or severely reduced,” he said.
Several quarters, including the Consumers Association of Malawi (CAMA) are against the proposed mobile money tax.