The Cost of Connection: Tanzania’s Mobile Money Tax and Its Toll on the Poor

A World Bank study found that Tanzania’s 2021 mobile money levy sharply reduced rural households’ food consumption and increased food insecurity by making digital transactions costly. The tax, meant to boost revenue, instead undermined financial inclusion and hurt the country’s poorest citizens.

A groundbreaking study by the World Bank’s Poverty and Equity Global Department has revealed the far-reaching consequences of Tanzania’s 2021 mobile money levy on household welfare. Authored by World Bank economists Revocatus Paul and Dhiraj Sharma, the paper, “The Impact of a Mobile Money Levy on Household Welfare: Evidence from Tanzania”, presents the first rigorous evidence of how digital transaction taxes can deepen poverty in low-income economies. Using national survey data and high-frequency phone interviews, the study finds that the levy, which dramatically raised transaction fees, led to a measurable decline in food consumption and an alarming rise in food insecurity, particularly among rural families who rely on mobile money for remittances and daily financial activities.

When a Tax Doubled the Cost of Sending Money

In July 2021, the Tanzanian government introduced a mobile money transfer and withdrawal levy as part of a broader effort to increase domestic revenue. Before the policy, sending USD 18 via mobile money cost about USD 0.50 in fees, already above the regional average. With the new levy, the fee jumped to nearly USD 1.20, a staggering 140 percent increase overnight. The backlash was swift and intense, prompting a 30 percent reduction just two months later. Yet, by then, the financial ecosystem had already been shaken. Between June and September, peer-to-peer transfers fell 38 percent, cash withdrawals dropped 25 percent, and the mobile money sector’s revenues sank by 16 percent. Many Tanzanians reverted to cash-based transactions, undermining over a decade of progress in digital financial inclusion.

Tanzania’s Financial Revolution Under Threat

Before the levy, Tanzania was a regional leader in mobile finance adoption. Since the launch of mobile money services in 2008, financial inclusion has expanded dramatically, from just 9 percent in 2006 to 57 percent by 2013. By 2023, 89 percent of Tanzanians lived within five kilometers of a financial access point, and nine out of ten remittance transactions took place through mobile platforms. This revolution was especially transformative for rural communities, where traditional banking services remain scarce. For millions, mobile money was not merely a convenience but a lifeline, enabling remittances, savings, and informal insurance during crises. The 2021 levy disrupted this ecosystem by making digital transactions prohibitively expensive, pushing vulnerable users back toward informal, risky cash networks.

Measuring the Impact: A Natural Experiment in Inequality

To measure the levy’s true effects, the researchers combined two waves of the Tanzania National Panel Survey (2014/15 and 2020/22) with data from 11 rounds of the High-Frequency Phone Survey launched during the COVID-19 pandemic. They employed a “triple-difference” methodology, comparing rural and urban households before and after the levy’s introduction, while controlling for time and location effects. The findings were unequivocal: after July 2021, rural households’ per capita food consumption fell by 10 to 18 percent, and their likelihood of worrying about food shortages rose by 8 to 10 percentage points. Many households reported eating less-preferred foods, cutting meal portions, or skipping meals altogether.

The welfare impact was most pronounced in rural areas, where mobile money usage is high but access to banks is minimal. Only 13 percent of rural adults hold a bank account, compared with 43 percent in Dar es Salaam. With few alternatives, rural Tanzanians absorbed the full brunt of the levy. Those relying on remittances through mobile money, about 55 percent of households, faced the steepest declines in living standards. Since 87 percent of remittance-receiving families use the money for food and essentials, any barrier to mobile transfers immediately translates into hunger and hardship.

Why the Poor Paid the Highest Price

The study’s robustness checks reinforced these conclusions. Comparing regions, the largest welfare decline occurred in Mainland Rural Tanzania, followed by Zanzibar and other mainland urban areas. During the third quarter of 2021, when the levy rates peaked, rural households’ food consumption dropped by roughly 8 percent; in the following quarter, after partial fee reductions, the effect moderated. Even when controlling for external shocks like COVID-19, the downward trend persisted. Data from the high-frequency phone survey confirmed that rural households’ economic well-being worsened primarily because of the levy, not other concurrent events.

The mechanism behind the shock was straightforward: the tax choked liquidity and disrupted remittance flows. Peer-to-peer transactions fell by one-third, while cash withdrawals, critical for households operating in cash-based local markets, plunged by 60 percent. As a result, rural families lost access to quick cash for food and emergencies, further limiting their ability to manage risks. When mobile money use declined, the economic lifeline that had sustained millions suddenly weakened, pushing many closer to poverty.

A Warning for Policymakers in the Digital Age

The World Bank researchers conclude that the Tanzanian experience serves as a cautionary tale for other developing economies seeking to tax digital transactions. While expanding domestic revenues is an urgent priority, policies that raise the cost of mobile financial services risk backfiring by undermining financial inclusion, reducing transaction volumes, and harming the poorest citizens. Mobile money has become the backbone of financial resilience in much of Sub-Saharan Africa, a system that allows families to share risk, smooth consumption, and respond to shocks. When governments tax this infrastructure, they effectively tax the ability of the poor to survive.

Tanzania’s mobile money levy was eventually scaled back, and by 2023, it applied only to cash withdrawals. But its short-lived implementation left a lasting mark on rural welfare. The World Bank’s findings underline a delicate policy balance: while fiscal reforms are vital for growth, they must not come at the expense of household welfare. As the study concludes, taxing digital lifelines can erode hard-won progress in financial inclusion, a reminder that, in striving to fill state coffers, governments must be careful not to empty citizens’ pockets.