Over half of Tanzanian adults have gained access to financial services through mobile money
service. The benefits of using mobile money extend far beyond financial inclusion. Yet, mobile
and mobile money services are taxed at a rate similar to or greater than the products that generate
significant negative externalities.
a)By using some of the theories you studied in public Sector economics,explain two
(2)reasons for adoption of such tax policy and their two (2)economic
consequences.
b)Between the service providers(telecommunication company)and the service users
(mobily money users)which part is more likely to bear the tax burden?
a) Two reasons for adoption of such tax policy are Pigouvian taxation and the ability-to-pay principle. Pigouvian taxation is a tax on goods or services that generate negative externalities, such as pollution, in order to reduce their consumption. The ability-to-pay principle is a taxation system that taxes individuals based on their ability to pay, rather than their income or wealth. The economic consequences of these two tax policies are that they can reduce the consumption of goods and services that generate negative externalities, and they can also reduce income inequality by taxing those with higher incomes at a higher rate.
b) The service providers (telecommunication companies) are more likely to bear the tax burden, as they are the ones providing the service and are thus responsible for collecting and remitting the taxes.