Dar es Salaam. Bank users across Tanzania are complaining about the new levy imposed on all withdrawals done over the counter, ATMs and all transfers (TISS & SWIFT), with some hinting at the possibility of shirking banking altogether, saying it is “increasingly becoming a luxury.”

Speaking in Parliament in June this year, Minister of Finance and Planning Mwigulu Nchemba informed the House about the government’s plan to “expand the scope” of transaction levy “to cover all electronic transactions.” Dr Nchemba said then the goal is to “rationalize the transaction levy”.

The levy was eventually formally published in the Government Gazette NO. 478V on July 1, 2022, and immediately it went into enforcement, causing uproar among bank users who think the levy serves any interests but theirs.

One pensioner, for example, raised the issue with John Heche, a senior opposition figure with CHADEMA and former MP, who subsequently shared the grievance on Twitter. According to the pensioner, the government takes Sh100 if one withdraws Sh10,000 -Sh20,000.

It charges Sh1,009 when you withdraw Sh100,000-Sh199,000 and it charges Sh1,397 when one withdraws Sh200,000-Sh299,000.

Double taxation

Ezekiel Ngitoria is a Tanzanian scholar who teaches economics at the University of the Witwatersrand, South Africa, who describes the levy as “double taxation of people’s income” and fears that they “won’t achieve whatever the [government] is trying to achieve.”

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Mr Ngitoria fears that the levy will “drastically” reduce banking transactions thus reducing both banking revenues and subsequently government corporate tax. If banks’ profits are impaired, he adds, they will likely not be able to loan out capital to other businesses.

“People will be forced to opt for a cash economy,” Ngitoria told The Chanzo in an interview. “This in itself has all these other implications, one being the increase in illicit activities and the booming of black markets.”

Mr Ngitoria also thinks the levy will have another unintended effect on financial inclusion.

He says: “These taxes are a drawback on the government’s previous efforts to [bring] onboard more people in the financial network. It’s not clear whether the benefit of these levies trumps the cost they are going to cause to the economy.”

Zitto Kabwe, leader of opposition ACT-Wazalendo and economist, agrees with Ngitoria’s conclusions on the issue of inclusion, saying the move by the government ​​will make it harder for normal Tanzanians who earn a bit more than $1 per day to continue using banking services.

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“For the past ten years, we have seen banks and other financial institutions, including mobile money, supporting farmers for farm inputs and this was a result of good government policies to ensure farmers are being paid through bank accounts,” said Kabwe in a written response to The Chanzo’s questions.

Equal to nothing

“Banks and financial institutions now have proper records, and this makes it easier for financial institutions to extend affordable loans to farmers and other entrepreneurs,” he added. “If people stop using banks, years of trying to make something that works will be equal to nothing.”

Mr Kabwe and other experts fear that the levy on withdrawal will have an unintended effect on banks what mobile transaction levy had on telecommunications and e-money service providers.

Days after being imposed, then chairperson of Tanzania Mobile Network Operators Association (TAMNOA) Mr Hisham Hendi revealed that millions of people, especially those in rural parts of Tanzania, had stopped using mobile money services due to rising costs.

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By December 2021, Vodacom reported a 4.4 per cent decline in the number of users of their M-Pesa mobile money service as well as 24.8 percent decline in the M-Pesa transactions, with the company pointing the shortfall was the result of levies.

In the latest report for the quarter ending on June 2022, the company reported a 9.2 percent decline in average revenue per user and 21.4 percent decline in M-Pesa transaction value. As a result, the company paid 74 percent less income tax in April-June 2022 than during the same period a year earlier, citing “the impact of the levy on mobile money transfer and withdrawals transactions” as the reason for these declines.

READ MORE: Will TZ Drop its Controversial Mobile Money Levy?

The Chanzo’s own analysis on February 3, 2022, also, showed that while the government planned to collect Sh228.1 billion as revenues from the mobile money transaction levy, it was able to collect Sh64.4 billion only.

“I am afraid [the withdrawal] levy could worsen liquidity position in the market because people will keep money at home and banks revenue might be impacted,” Kabwe told The Chanzo. “I ask the Ministry of Finance and banking operators to sit down and review the new levies for purposes of abolishing them.”

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Penny wise, pound foolish

Twaweza Executive Director Aidan Eyakuze shared these sentiments during an interview with The Chanzo, pointing out that a bigger related concern is the effect of such levies on citizens’ use of formal financial services altogether – mobile or banks.

Mr Eyakuze noted that Tanzania has worked hard to deepen financial inclusion and has been making steady progress, citing a 2017’s FinScope Tanzania survey that found that 65 per cent of the adult population in Tanzania was formally financially included, a 14 per cent growth from 2013.

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But Eyakuze, whose organisation works on enabling citizens to exercise agency to encourage a more open and responsible government, also fears that the levies could work against the broader objective of reducing cash transactions in the economy.

“I hope the government keeps an eye on this to avoid damaging long-term economic development for short-term financial gain which is itself uncertain,” Mr Eyakuze told The Chanzo in an interview. “Let us avoid being penny wise and pound foolish.”