Mobile money firms as fiscal intermediaries in Rwanda

A Rwandan man in a yellow vest holds a mobile phone.  Another man in a red shirt is standing next to him.  They're both under a yellow umbrella with the MTN mobile money logo on itImage via Umuseke

I’ve been thinking about the role that firms play in helping governments to collect taxes ever since Ken Opalo wrote about this a few months ago.  A recent example comes from Rwanda, where MTN mobile money agents are complaining about the company’s new policy of automatically withholding their income taxes, rather than expecting them to self-report their income to the Rwanda Revenue Authority (RRA).  According to Global Press Journal, many agents weren’t aware that they needed to self-report their income, and have been caught off guard by these new deductions:

But others say both the end-of-year tax and the withholding tax are unreasonable, because the agents do not earn much to begin with. In July, Nshimiyimana made 80,000 francs ($91), he says. After the withholding tax was deducted, he took home 68,000 francs ($78). He says that many agents, himself included, make far less than what the RRA estimates that they earn in a day. Like any type of sales work, some days are good for business, and some days aren’t, he adds.

Sadiki Nambajimana says the 15-percent tax was deducted from his April earnings, and he later quit his job. “I’m married with four kids, and I couldn’t afford my rent payment anymore,” he explains, adding that Rwanda’s cost of living is getting higher and higher.

Unusually, while the RRA is using MTN to facilitate its tax collection, it’s not basing its tax rates on the firm’s reports of the agents’ actual income.  According to the article, RRA decided to impose the 15% tax on the basis of what they assume the average income for mobile money agents to be — approximately 195,000 Rwandan francs per month — rather than their actual income.  The quoted example of someone earning only 80,000 per month should have put them in a lower tax bracket.  It’s definitely not optimal to have a tax system based on typical income for an employment category rather than actual earnings, as this leads to some individuals in that category being overtaxed and others undertaxed.

It’s also not quite clear how this new withholding scheme fits in with Rwanda’s overall income tax policy.  According to the article, people making between 2 – 4 million francs per month should pay 60,000 in annual income taxes, for a tax rate of 3% on income of 2 million.  That doesn’t line up with either the 15% monthly withholding through MTN, or with other reports of how the income tax brackets are structured.  This PwC report says that the tax rate should be 0% on monthly income up to 30,000 francs, and 20% on income from 30,001 – 100,000 francs.  Under that system, someone earning 80,000 francs should pay (80,000 – 50,000)*.2 = 10,000 francs per month, for an effective rate of 12.5%.  If any of my Rwandan readers want to talk me through this, I’m quite interested in understanding how the tax system actually works.

 

One thought on “Mobile money firms as fiscal intermediaries in Rwanda

  1. when looking at countries with lower average incomes compared to our home countries (for example) I guess they start taxing at a lower rate, or possibly zero. That must be difficult to collect and difficult to afford. When $15 a week is a big deal, you can’t afford to lose it, can you?

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