Mobile Money Taxes Backfire: High Costs, Lower Use, and Rising Inequality in Africa

Mobile money taxes sharply reduce digital financial activity, push users back toward cash, and disproportionately burden poor and unbanked households. Drawing on theory, cross-country evidence, and rare microdata, the IMF study shows these taxes are highly inefficient, with economic losses far exceeding the revenue they generate.

Mobile money has become a cornerstone of financial inclusion across Africa, enabling millions to transact securely without a bank account. Yet this very success has drawn the attention of governments seeking new revenue sources. A new working paper from the International Monetary Fund’s Fiscal Affairs Department, drawing on research supported by institutions including the IMF, the World Bank, and data from mobile operators, presents the clearest evidence yet that mobile money taxes are not only inefficient but also disproportionately harmful to the poor.

How a Small Tax Alters Everyday Financial Choices

The study begins with a theoretical model exploring how users choose between mobile money, cash, and bank transfers. When a tax is imposed on mobile money transactions, its cost rises relative to alternatives. Banked users, who have formal accounts as a substitute, quickly shift into untaxed channels. Unbanked users, however, lack good alternatives and often continue using mobile money at a higher cost or fall back on cash, which is less secure but untaxed. This creates a regressive burden: the poorest pay a greater share of their income in mobile money fees, while wealthier users avoid the tax entirely. The model also predicts an overall decline in usage and a substantial excess burden, because people switch into inferior and costlier transaction modes.

What Happens Across Countries When the Tax Arrives

Using staggered introductions of mobile money taxes across African economies, the authors analyze data from the IMF Financial Access Survey and the World Bank’s Global Findex. The results are striking. Active mobile money accounts fall by around 20 percent within two years of a tax taking effect, and total transaction volumes decline by more than 10 percent. Survey respondents also report an 8-percentage-point drop in the likelihood of using mobile money, an especially sharp fall given that only about one in five adults used it before the tax. Responses differ across income groups: wealthier and banked users exhibit strong substitution into formal banking channels, while poorer and unbanked users show limited adjustment, not because they are unaffected, but because they have no alternative but to absorb the higher costs.

Microdata Reveal the Full Scale of Shrinking Digital Activity

To understand how users behave at the transaction level, the study analyzes millions of anonymized records from mobile operators in Cameroon, the Central African Republic (CAR), and Mali (a tax-free control). Cameroon’s 0.2 percent levy, introduced in January 2022, triggered a 40 percent drop in monthly transaction values and a one-third fall in transaction counts. CAR, which implemented a 1 percent tax in 2024, experienced even sharper contractions: transaction values fell 47 percent and transaction numbers 51 percent. Mali, meanwhile, saw steady growth. These declines were broad-based, affecting small and large transfers alike, and were most pronounced in regions with strong banking access, where users had viable substitutes. Rural and low-bank-penetration regions, by contrast, showed weaker responsiveness, meaning residents there effectively paid more of the tax.

A Tax That Costs More Than It Collects

Using Cameroon as a case study, the authors calculate the excess burden, the economic loss beyond the revenue raised. Scaling transaction data to the national market, they estimate that the tax generated an efficiency cost equal to roughly 35 percent of the revenue collected. When combined with increased informality, evidenced by a surge in cash withdrawals, and the regressive distribution of the burden, the social justification for such a tax becomes tenuous. Standard measures of the social marginal value of public funds in Africa are far below the level needed to defend the policy.

Overall, the study concludes that mobile money transaction taxes are a deeply flawed tool for revenue mobilization. They undermine financial inclusion, push activity back into cash, and impose high costs on the very populations digital finance was meant to empower. Far from representing an easy or equitable revenue source, such taxes risk reversing years of progress in digital financial development, without delivering meaningful fiscal gains.