Risks of Widening Financial Exclusion
In many developing nations, including Kenya, mobile wallets and Electronic Tax Registers (ETRs) have become essential parts of the digital financial ecosystem in recent years. With their simple, quick, and reasonably priced payment options, mobile wallets like M-Pesa, Airtel Money, and T-Kash have completely changed how millions of people in Kenya and around Africa access financial services. In a similar vein, businesses and government income have benefited from the increased compliance and simplified tax collection brought about by Electronic Tax Registers (ETRs).
To enable smooth tax payments, digital invoicing, and other financial transactions using mobile devices, a new wave of innovation is advocating for the integration of mobile wallets with ETRs. Although there are a number of advantages to this integration, including increased convenience and efficiency, there are also serious worries about the possibility of growing financial exclusion, especially for individuals who are already excluded from the official financial system.
The Connection Between ETRs and Mobile Wallets
ETRs are tools or systems that electronically record and store transaction data for tax purposes, guaranteeing quick and accurate sales and revenue reporting. The Kenya Revenue Authority (KRA), for instance, mandates that companies in Kenya utilise ETRs to track sales and generate invoices, which are subsequently sent straight to the tax authorities.
By enabling companies to pay taxes, issue receipts, and reconcile accounts all from within a single mobile platform, the plan to integrate mobile wallets with ETRs seeks to improve the payment process. This might simplify tax compliance, cut down on potential for tax evasion, and streamline operations for small enterprises.
Customers may benefit from faster payments, increased transparency, and improved transaction record-keeping as a result of the connection. Theoretically, by streamlining financial transactions and enhancing the general effectiveness of tax systems, connecting mobile wallets with ETRs is a breakthrough that might help both individuals and companies.
Financial Exclusion’s Dangers
Although many people’s financial inclusion could be improved by integrating mobile wallets with ETRs, there are hazards for individuals who are currently shut out of the financial system. These dangers are caused by multiple factors:
Limited access to technology and the digital divide
The digital divide, or the difference between those who have access to technology and those who do not, is one of the largest obstacles to financial inclusion. Despite the high rate of mobile phone adoption in Kenya, smartphone use and dependable internet connectivity are still scarce among lower-income and rural people. Many Kenyans use feature phones, which might not be able to support the newest software for mobile wallets or services connected to ETR.
The combination of mobile wallets and ETRs may further exclude these people from necessary financial services. People without access to the required technology may be excluded from formal financial and tax systems, further driving them into the informal economy, if using a mobile wallet becomes a requirement for doing business or filing taxes.
Awareness and Literacy in Finance
Concerns regarding consumers’ financial literacy are also raised by the integration of mobile wallets with ETRs. Although many Kenyans use mobile money services for simple transactions, many consumers and small company owners may lack the financial literacy necessary to comprehend the complexity of tax compliance, invoicing, and digital payment systems.
It could be difficult for small business owners in particular to understand the technical specifications of mobile wallet systems connected to ETRs. They may be subject to penalties, fines, or even legal action as a result of non-compliance or mistakes. Furthermore, people who are unfamiliar with digital financial systems can find it challenging to adapt to a fully integrated mobile wallet-ETR environment, which could cause misunderstanding and even financial losses.
Privacy and Cybersecurity Issues
Cybersecurity is another concern that comes with connecting mobile wallets to ETRs. Personal and corporate data are more susceptible to hacks as more financial transactions are handled online. System flaws could be used by hackers to commit fraud, identity theft, or financial loss.
The dangers of cybercrime may serve as a powerful deterrent for groups that are already financially precarious or are not conversant with digital security procedures. People may be less likely to use digital payment methods if they believe that their financial information is secure, which would further isolate them from official financial services.
Workers in the Informal Sector Are Not Included
A sizable section of the populace works in the informal economy in Kenya and many other African nations, where cash transactions are common and enterprises might not be tax-registered. Although many workers in the unorganised sector now have access to basic financial services thanks to mobile wallets, connecting mobile wallets to ETRs may unintentionally force these people out of the system.
For instance, informal traders may find it difficult to adhere to the tax laws related to the ETR integration if they do not register their sales or give official receipts. These dealers risk operating in an entirely informal manner or facing fines and penalties if they are unable or unwilling to embrace the digital tools required for tax compliance. They might be further shut out of the formal economy and the wider advantages of financial inclusion in either scenario.
Policy and Regulatory Difficulties
The regulatory environment and the laws governing mobile money and tax compliance are crucial to the success of connecting mobile wallets with ETRs. Integration may worsen already-existing disparities and present new difficulties for vulnerable groups if it is not handled appropriately. For example, poorly crafted policies may result in unjust penalties on specific categories of people, such as low-income individuals or small enterprises, or unequal access to mobile wallet services.
The regulatory frameworks facilitating this integration must be inclusive, equitable, and built to safeguard the interests of all users, particularly those who run the danger of being excluded, according to governments and financial institutions.
Ways to Address Financial Inclusion
Although there is a chance that the integration of mobile wallets with ETRs may increase financial exclusion, this risk is manageable. Several steps can be made to reduce these risks and guarantee that everyone benefits from digital financial services:
Better Infrastructure: To guarantee that everyone has the resources to engage in the digital economy, governments and telecom companies must give top priority to enhancing internet and mobile connectivity in rural regions.
Financial Literacy Programs: Providing digital literacy and financial education to a large audience, with a focus on small business owners and underserved communities, will help close the knowledge gap and guarantee that individuals are prepared to use mobile wallet-ETR systems efficiently.
Inclusive Policy Design: To facilitate the shift to digital financial services, policymakers should create digital payment and tax compliance systems that cater to the requirements of marginalized groups and the unorganized sector by providing streamlined processes and assistance.
Strengthened Cybersecurity Protocols: Ensuring the security and privacy of consumers’ financial data is crucial as mobile wallets and ETRs become more integrated. To shield users from fraud and cybercrime, robust cybersecurity frameworks and public awareness initiatives about digital security should be put into place.
In conclusion
There is potential for improving the effectiveness of tax collection and financial transactions by connecting mobile wallets with electronic tax registers. To prevent escalating already-existing disparities and financial exclusion, the integration of new technologies must be carefully regulated. Kenya can guarantee that the advantages of this innovation are available to everyone, especially those who are most at risk of falling behind in the digital economy, by tackling the issues of digital access, financial literacy, cybersecurity, and policy design.