Tanzania’s tax burden on mobile money remains higher than in many neighboring countries, raising concerns that current policies could undermine financial inclusion and discourage investment in digital financial services, according to a new research initiative.
The Tanzania Affordable Digital Finance Research Initiative (TADFRI), a partnership between Innovations for Poverty Action (IPA) and Fiscality, reviewed the country’s digital financial services (DFS) tax system to investigate how taxes affect uptake, usage, and affordability, particularly among underserved populations.
Administrative data from the Bank of Tanzania shows a rapid increase in active mobile money accounts, rising from 30.3 million in 2020 to 60.8 million in 2024. However, many users hold multiple wallets across providers to manage transaction limits, fee structures, and network coverage gaps. For low-income users, smallholder farmers, and small business operators, even small levies on each transaction can add up, making alternatives such as cash more attractive.
Since 2013, Tanzania has introduced a number of taxes on digital payments, particularly those related to mobile money. The government initially introduced an excise duty on money transfers, followed by a value-added tax (VAT) on service charges, and an electronic transaction levy based on the transaction value.
In 2023, DFS-related taxes accounted for an estimated 2.71 percent of government revenue. However, Tanzania’s tax burden on mobile money remains higher than in many neighboring countries, such as Rwanda and Kenya. This increases costs for users and adds administrative complexity for service providers, with potential implications for investment and innovation over time.
The introduction of the transaction levy in 2021 sparked widespread public backlash and prompted multiple policy revisions, including changes to rates, thresholds, and coverage. Combined with resistance from some leading DFS providers, these developments have strengthened calls to rethink DFS taxation to better align tax policy with affordability, usage patterns, and inclusive growth objectives.
The research highlights that if poorly designed, DFS taxes risk being regressive, placing a disproportionate burden on low-income and financially vulnerable populations who are least able to absorb additional costs. Beyond equity concerns, excessive or poorly targeted taxation can discourage investment in new technologies and services, stifle competition, and hold back innovation.
In addition, taxes on high-frequency, small-value transactions may alter user behavior, reducing usage and potentially eroding the tax base itself. The researchers emphasized that evidence-based policy design, grounded in an understanding of how taxes affect DFS usage, affordability, and small-value transactions, is essential.
Tanzania’s experience highlights a broader policy dilemma with implications for inclusive growth across Africa: how can governments raise needed revenue without undermining their own goals of digital and financial inclusion? The research included a regional comparison of DFS taxation approaches, noting that neighboring countries have adopted different tax structures that may offer lessons for Tanzania.
The broader body of work also included a DFS tax model to assess how different tax design options impact revenue, adoption, and usage; an analysis of current and previous DFS taxation policies and their effects on fiscal and inclusion objectives; and an assessment of how DFS taxes affect different users, including individuals, small businesses, women and men, and urban and rural populations.
Through a series of policy briefs, stakeholder interviews, and workshops with the Government of Tanzania, the research has supported renewed thinking on how Tanzania can approach DFS taxation in the future, moving towards policies that expand financial access without sacrificing fiscal sustainability.
The research identified the full burden of taxes on DFS and mapped key institutions and market actors, including the Ministry of Finance, the Tanzania Revenue Authority, the Bank of Tanzania, and telecom and fintech providers. It also reviewed taxes on digital enablers, such as mobile phones and internet access, to identify whether targeted tax reductions could improve digital access and uptake, especially for low-income and rural users.
Digital financial services are transforming how individuals in Sub-Saharan Africa send money, pay bills, and access public services. However, the high costs of using DFS can impede further uptake and may have adverse implications for the sustainability of the DFS ecosystem.
As Tanzania and other countries continue to expand digital finance, the research underscores the need for evidence-based tax policies that balance revenue needs with the goal of inclusive growth. The project is part of the Tanzania Affordable Digital Finance Research Initiative, hosted by Innovations for Poverty Action and funded by the Gates Foundation.
