Give Safaric*m a tax break on M-Pesa split

Monday, April 22nd, 2024 06:30 | By
M-Pesa transaction. PHOTO/Print
M-Pesa transaction. PHOTO/Print

The on-off split of M-Pesa from Safaricom to create an independent entity continues to drag its feet on government lethargy.

There are two key strands to this development. The first is that this split must happen, and Safaricom needs to embrace the inevitable. Two major dynamics inform this decision. The first is dominance. Regulators globally adopt an uncompromising stance towards dominance by any market player.

Only a fool would argue against M-Pesa’s dominance in the mobile money market. One could even argue that it is effectively a monopoly. This split will enable proper regulation to allow competition to emerge and thrive. The fact that no other mobile money player has made even a dent in that market, alone, should worry regulators.

The second dynamic is security. M-Pesa is no longer just another Safaricom service. It is now the main platform on which the economy is transmitting money. It can no longer be left at the mercy of Safaricom’s commercial imperatives, which are chiefly driven by “maximizing shareholder value.”

Kenyans remember the absolute chaos and financial losses that were caused by the M-Pesa outage that happened in July 2023 and January 2024. Those are two times within six months, two times too many!

Even more insidious is the threat of a hacking or terrorist attack, not to mention how convenient the platform can be for use as a conduit for financing illegal activities, money laundering and terrorism financing.

Without question, this split is long overdue to facilitate the development of  a more robust regulatory environment. The existing laws and regulations could never have foreseen the emergence of a financial platform as efficient, all pervasive, international, and as prolific a money spinner as M-Pesa has become.

And instead of continuing its doomed efforts tying itself in knots as it has done over the years trying to stave off the inevitable, Safaricom should embrace this, and start seeing its future business model as a multi-sectoral company operating several business lines across the economy under different regulators.

The second key strand is that the government should not be seeking to make money from this shotgun divorce. It’s almost hilarious for the government to declare that what has held up this split for years is because a “solution” is still being sought on how to handle the tax liability of Sh75 billion arising from this transaction. It is opening itself to accusations that its main motivation is a cash grab, it just wants to make a killing.

The mindset that the government needs to adopt is that Safaricom really does not want this. So it is unconscionable to force this transaction and then seek to profit massively from it. Safaricom is “losing all the way” in this transaction. The split might be in the public interest, but clearly Safaricom feels it will affect its business.

Further, Safaricom is the government’s cash cow, or prize bull (take your gender preference). In the last financial year, it remitted to government over Sh130 billion, at least five per cent of all tax revenues. It has given the government over Sh1 trillion since inception.

The government should be bending over backwards to accommodate Safaricom in this transaction. Indeed, it ought to offer fiscal incentives to Safaricom to make the process as least disruptive as possible.

Sometimes it is difficult to understand how government officials process. In the last five years, the government has pumped Sh117 billion into bankrupt State-owned sugar millers, another Sh55 billion to Kenya Airways, and has budgeted Sh95 billion to shore up finances of struggling parastatals. Not only will these parastatals never repay a single cent of this money, but the government has received zero return on its investment to these organisations in decades.  And this is but a tip of the iceberg!

So, the government should stop this showboating and waive the Sh75 billion tax liability immediately, something it should have done ages ago to free up everybody involved to move on with their lives. This decision is a no-brainer really.

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