Recently, I visited Mombasa, the heart of Kenya’s Coast Region, for a short holiday, which naturally led me to stop at Marikiti, the city’s famous spice market. What struck me was how many vendors insisted on cash payments. Considering that only a few years ago, Mombasa was one of the most mobile money-friendly cities in the country, the shift back to cash felt abrupt and puzzling. A system once praised for convenience suddenly felt less welcome on the shop floor.

This makes the Central Bank of Kenya’s newly released Kenya National Financial Inclusion Strategy 2025-2028 especially relevant. The strategy aims to use digital transformation to strengthen both financial inclusion and financial health. It recognises that Kenya has already made major gains. Access to mobile money has grown from 27% of adults in 2006 to 82.3%  currently, and the plan seeks to build on this foundation by shifting from simple access toward deeper financial well-being.

In practice, financial health means having the capacity to meet daily needs, manage shocks and emergencies, and plan or invest for the future.

Within this framework, the absence of any lowering or removal of excise duty on mobile money fees is notable. Although mobile money transfer services in Kenya are exempt from value-added tax (VAT), the country has applied excise duty on money transfer fees since 2013. This began with the Finance Act, 2012, which amended the Customs and Excise Duty Act and introduced a 10% duty on fees charged for money transfer services. The current rate is set at 12%.

In the spirit of improving financial health, lowering the excise duty on mobile money fees or replacing it with a lighter alternative would support the very goals set out in the national strategy. A recent International Monetary Fund (IMF) Working Paper, Taxing Mobile Money: Theory and Evidence, makes a strong case for such a shift. The study shows that mobile money taxes undermine financial inclusion and financial health along several fronts.

The evidence shows that taxing mobile money reduces its use. Countries that introduced such taxes saw a sharp and persistent drop in both the number and value of transactions. In Cameroon, a 10% increase in consumer prices, including the fee and tax, translated into a 21% decline in the average monthly transaction value per user. Surveys across different countries also show a consistent picture. The number of active mobile money accounts declines, and fewer people use mobile money once the tax is applied.

The effects differ across groups. People with bank accounts respond more sharply because they can switch to an untaxed alternative. Unbanked users do not have that option. For them, the higher cost can erase the benefit of sending money altogether. The tax, therefore, falls most heavily on those with the fewest alternatives. It is regressive in practice, raising the effective cost for unbanked households and rural communities that have limited access to formal banking. Rural areas also show weaker reductions in mobile money use, not because the tax is lighter, but because the lack of substitutes forces users to absorb the burden.

The tax also pushes people back toward cash. That shift increases informality by weakening the digital trail that supports compliance, transparency, and measurement of economic activity. It reverses gains made in bringing everyday transactions into the formal system.

Finally, the tax generates a deadweight loss. The higher transaction costs borne by users exceed the revenue collected by the State. In practical terms, the tax shrinks the overall volume of transactions so much that the economy loses more value than the government gains.

To the Mombasa Marikiti trader, the return to cash payments reflects the real-world impact of mobile money taxes. Just as the excise duty raises the cost of using digital transfers, it encourages both traders and users to revert to cash. Wealthier customers may shift to untaxed alternatives, while those who rely on mobile money, often the unbanked or rural populations, face higher costs and may abandon mobile money transactions altogether. 

This dynamic directly undermines the goals of the Kenya National Financial Inclusion Strategy, which aims to improve financial health by expanding access to convenient, affordable financial services. The result is daily transactions that are less efficient and more costly, much like the sudden preference for cash observed on the market floor.