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Beware of taxing remittances

Cape Town - There has been much discussion recently around taxing on remittances.

According to a recent report by the World Bank, taxing remittances would be a bad idea. Ahmed Cassim, managing director at Hello Paisa, agrees.

He believes taxation on remittances will impact the most hard working, enterprising, entrepreneurial individuals who go in search of a better future.

According to the United Nations' migration statistics, in excess of 254 million people (3.4% of the world’s population) live outside the country of their origin with the market size for remittances estimated at $610bn.

“Hello Paisa targets migrants living and working in South Africa and has a customer base of 350 000 individuals who rely on the remittance solution to send money home to their families simply, legally, effectively and at a low cost," says Cassim.

"Many of these individuals also don’t have bank accounts.”

Before such formal remittance solutions were available, many migrants made use of illegal and informal channels to send money home. These illegal money transfer solutions were fraught with problems including delays, lack of pricing transparency and could also end up being very expensive.

Illegal market

“Hello Paisa has already moved R4.5bn out of the illegal or black market and into the regulated space. If taxation is approved on remittances, it would mean that many individuals will go back to using illegal money transfer operators, exposing them to risk, moving money out of the regulated space and ultimately impacting the economy,” says Cassim.

He told Fin24 that Hello Paisa was founded in 2005 after finding a niche market gap in SA, namely the migrant workers. In March 2010 the company launched its Hello Mobile product which had more than 250 000 customers within the first year.

"We found that the way migrant workers were sending money home was shocking. No one was looking after them regarding their need of sending money out. We approached the SA Reserve Bank (SARB) about the issue and in 2013 new regulations allowed companies like us to do international remittances," says Cassim.

"We got an independent money transfer operating licence so we could partner with banks and supermarkets across the world and launch various services. We knew the power of the mobile phone. With Hello Paisa we already have more than 350 000 customers and are about to break the R5bn mark in value after just over two years."

The company already provides jobs for 600 people.

He says one needs to understand what customers' problems are, how to communicate with them and keeping it low cost. Then there are opportunities as a business.

"We changed the lives of so many people, who were no longer forced to use a third or fourth party to get money to their families," says Cassim.

"My message to South Africans is that we like the current approach of SARB and have not heard anything about the tax on remittances issue raised locally. This is currently a global issue, but not currently a problem for us in SA. I think the authorities understand the issue, but we need to be aware of what is happening on the global stage. I think taxing remittances will be counter-productive."

In his view, the negative impact of taxation on remittances to the overall economy would discourage innovation in Africa. Not only will such taxation impact customers using these solutions, but will also impact employees of these solution providers. 

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