Kenyans all know that President William Ruto has been salivating about how to grab M-PESA money that Kenyans send to each other mainly for medical costs, school fees, emergencies, and other basic needs. Ruto and his government need money desperately and they have no idea how to get it.
The loans pouring in, in hundreds of billions since Ruto took office is not enough. They need to grab money from Kenyans. Instead of widening the economy so Kenyans can grow their economy and pay more taxes, Ruto and his friends in government just want to grab the little money Kenyans get from family members through M-PESA.
Kenya has instituted a new tax that affects users of M-Pesa — a widely popular phone-based money transfer service used by more than half of Kenya’s adult population. The new 10 percent excise duty on fees charged for money transfer services applies to mobile phone providers, banks, and other money transfer agencies. Operated by Safaricom, the largest mobile network operator in Kenya, M-Pesa accounts for the largest share of users of money transfer services.
“Users of M-Pesa products will therefore bear most of the impact of the tax.M-Pesa services are used by companies and individuals of all income levels. But because of the low cost of the transfer service, it is the poor that benefits the most from this product; low-income workers in urban areas who rely on M-Pesa to transfer money to their families in the countryside. Is the burden on the poor created by taxing M-Pesa justifiable?
Does it mean that the tax will be paid by the providers rather than the customers? The answer to both questions is no. Because there is a real need by the people in Kenya to use this product, this product can be characterized as what economists call highly price-inelastic; meaning the demand for the product will not change significantly in the presence of price increases (within a certain range, of course), at least in the short-term. This gives a strong incentive to the service providers to transfer most of the tax to the customers.”
Those are the words of Lisa Suarez from one of the countries in Latin America where government imposed taxes on mobile money transfers.
The bottom line is that as soon as the government starts taxing the banks and the providers of M-PESA, the financial institutions will transfer that cost to the users, both sender, and receiver. That is how banks work. So if I send Kshs. 10,000 to my niece like I have to do in a few hours for her to buy books and food at the college where she is in Thika, once the tax is in place she will not get the Kshs. 10,000 because some of it will be deducted as tax.
The way M-PESA works for Kenyans outside the country like me is very complicated but the banks sorted it all out by themselves. I use my bank card to send M-PESA from Toronto Canada where I work. That money is in my family or friend’s account number within minutes. My bank in Canada does not tax me and whoever I send the money to gets the exact amount I send. Now if the Kenya government imposes a 10% tax at their end then the money providers will deduct 10% to send to the government. That is robbing very poor people who get that money for basic needs.
My bank and any other banks in Canada, North America, and Europe have set up the arrangement with Safaricom so that money goes very smoothly. I was stunned listening to Alfred Mutua, Kenya’s Foreign Affairs CS when she visited Kenyans in the US and was very energetically telling them how the Ruto government will bring M-PESA to the US. It is already there and has been for decades now. It is done through the WorldRemit system and is very efficient.
The thing that is driving Ruto crazy about remittances is that the amount sent by Kenyans from abroad alone is real serious money.
Kenya’s remittances, the East African nation’s largest source of foreign exchange, is expected to grow by at least a fifth this year, according to money transfer company WorldRemit Ltd.
Kenyans abroad sent home a record $3.72 billion last year, 20% more than the previous year. Remittances in the first quarter of 2022 are already about a quarter higher than a year earlier, according to Central Bank of Kenya data. That is Kshs. 345 billion per year. President Ruto wants to put his hand on that taking 10% of that for himself.
What the Kenya government does not understand and what this Ruto regime will never comprehend is that the Kshs. 345 billion remitted by Kenyans abroad can be Shs. 3 trillion per year in a few years if the Kenya government was smart enough to do what countries like Bangladesh and Philippines have done over the years.
Remittances are like change money for emergencies to help family and friends. If the Kenya government would come up with a policy to enable Kenyans abroad to invest in industrial manufacturing in Kenya they would send trillions a year.
The best way to do that is to remove taxes from investments by Kenyans living abroad if they bring manufacturing equipment and tools to the country to start up a manufacturing company. So you buy your industrial manufacturing gear in the country where you are a resident or a citizen and your country allows you to invest that at home with no excise duty and other taxes.
You are allowed to only do that to start the company and once that is done the tax exemption is removed. Those Kenyans living and working abroad as residents or citizens have access to loans and other financial facilities in those countries where they work and own assets. Why not give them an opportunity to access those resources and invest them in Kenya?
Our problem is how to buy equipment for investment in Kenya, pay taxes where we buy them abroad and then pay excise duty and other taxes when we ship the equipment to Kenya. That is double taxation and it is stopping millions of Kenyan citizens abroad from investing in their country.
The remittances from Kenya are over Kshs. 500 billion every year even during COVID. Can you imagine how high that would go if Kenyans out here were given the opportunity to buy equipment for investment at home with no taxes imposed on those equipment on delivery?
We could be talking trillions of Kenya shilling investments every year in a very short time. If you want to address that come to us and we will talk.
