What Tanzania can learn from Kenya's decision to protect mobile money from VAT
Last Thursday, Kenya's Parliament made a decision that should be studied across East Africa. By a vote of 122 to 40, the National Assembly rejected a proposal in the Finance Bill 2026 to introduce a 16 per cent VAT on peer-to-peer mobile money transfers, explicitly citing the risk to financial inclusion.
The bill, which would have subjected M-Pesa and Airtel Money fees to VAT for the first time, drew opposition from the Kenya Private Sector Alliance (KEPSA), the Kenya Bankers Association (KBA), professional bodies like the Institute of Certified Public Accountants of Kenya (ICPAK), and payment service providers including Safaricom, and Airtel Kenya, who warned it would drive users back to cash, what the KBA's CEO called"mattress banking." Kenya reviewed the evidence and chose not to run the experiment. Tanzania is still running it.
What is important here is not simply that Kenya protected a popular service from an unpopular tax. The lesson for Tanzania is that Kenya made a calculated economic judgement: that mobile money is more valuable to the government as infrastructure for formalisation and inclusion, than as a direct revenue line with diminishing fiscal returns.
That distinction is enormously significant for Tanzania, and with the Finance Bill 2026 being passed, the conversation turns to what reforms can be built into the 2027/28 budget cycle.
Kenya's decision was grounded in two decades of evidence. Mobile money penetration has reached 157.7 per cent, with over 84.1 million active subscriptions. Formal financial access, which stood at just26.7 per cent of adults in 2006 before M-Pesa launched, now sits at84.8 per cent.
According to research from MIT and Georgetown University, M-Pesa alone lifted an estimated 194,000 Kenyan households out of extreme poverty. That trajectory was built on a tax framework that treated mobile money as infrastructure to be protected.
The Kenyan parliament reaffirmed that approach, and the expected outcome follows a pattern seen every time a comparable market has made the same choice.
One of the most documented of those is Ghana. In 2022, Ghana introduced a 1.5 per cent e-levy on electronic transactions. The results were immediate, as transaction values and revenues fell by up to 38 per cent year-on-year, whilst cash withdrawals surged by 61 per cent as users routed around the levy.
Ghana abolished it entirely in early 2025 and the response was equally as swift. In the first two months of 2025 alone, Ghana recorded GHC 649.2 billion in mobile money transactions; a64.68 per cent year-on-year increase, according to Bank of Ghana data.
By March 2026, GSMA named Ghana the highest-improving country in Africa on its Digital Africa Index, directly attributing the gains to the levy's removal.
Tanzania has already run a version of this experiment, and the results were equally clear. When the government introduced a mobile money levy in July 2021, layered on top of an existing 18 per cent VAT and 10 per cent excise duty on mobile money transaction fees, peer-to-peer transactions fell 38 per cent within three months.
The levy was eventually abolished, but the underlying VAT and excise duty structure was never reformed. According to PwC Tanzania, the effective tax rate on telecom services, accounting for all levies, stands at 46.61 per cent per unit of consumer spend.
This is the central tension in Tanzania's 2026/27 fiscal strategy. The Finance Minister's June budget speech mandated digital payments across mass transport, retail, education fees, land transfers, and strategic crops, using Tanzania's Instant Payment System, which processed 651 million transactions worth TZS 54.95 trillion in 2025, to pull the informal economy into the tax net. It is the right strategy.
Tanzania's informal sector accounts for an estimated 44.9 per cent of GDP, and only 5 to 7 per cent of those transactions are currently captured in the tax system. The formalisation prize is enormous, but it can only be viable if participation in the digital economy is deemed affordable enough to be universal, which is precisely what Kenya has just chosen to protect.
The fiscal pressures driving Tanzania's current approach indeed deserve acknowledgement. However, the evidence from every comparable market shows the same thing: the tax collected directly from introducing friction around mobile money is smaller than the tax forfeited when those transactions shift back to cash. Uganda learned this in July 2018, when the government introduced a 1 per cent tax on mobile money transaction values.
A UNCDF survey conducted just two weeks later found that 47 per cent of users had stopped using mobile money completely, whilst some merchant payment segments saw transaction volumes fall by up to 60 per cent.
The government was forced to reduce the tax to 0.5 per cent within months. A Tanzanian market trader paying through mobile money generates a VAT trail, income visibility, and a credit history. The same trader paying cash generates little to nothing.
What Kenya's decision teaches Tanzania is this: protecting mobile money from punitive taxation is a revenue strategy, and should not be seen as a concession to the private sector. Three practical steps remain available before Tanzania's Finance Bill is enacted. Removing VAT from mobile money transaction fees would align with Tanzania’s long-term digital economy ambitions.
A published, multi-year schedule for reducing excise duty would give operators the certainty needed to invest in rural network expansion. Finally, the budget introduces a new requirement that compels some operators in extractive and agricultural industries to maintain a formal financial account as a condition of doing business.
The problem is that the provision specifies only a bank account; it says nothing about mobile money. In rural Tanzania, where bank branch penetration remains low and mobile money is the primary financial tool for millions of smallholder farmers, livestock traders, and fishing communities, this is a significant barrier.
Kenya chose the longer revenue arc over the shorter one. With the Finance Bill 2026 about to become law, the 2027/28 budget cycle is Tanzania's next opportunity to make a choice that supports it digital economy agenda.
The author writes in a personal capacity on matters of mobile financial services.
