(Ecofin Agency) - The government aims to cut back on cash use and promote digital payments to improve tax collection. However, in a country where cultural habits, limited infrastructure, and high electronic transaction costs slow adoption, success is far from certain.

Since January 1, 2025, cash transactions exceeding CFA100,000 (about $159) in Benin are subject to a 1% tax. This policy has stirred controversy but underscores President Patrice Talon’s push to digitize the economy and reduce the dominance of cash in commerce. The government aims to improve financial traceability and boost tax revenues. However, in a country where 75% of the population lacks access to banking services, financial infrastructure is limited, and the informal economy accounts for nearly half of the GDP, this is an ambitious move.

Frustration Over the New Tax

Antoinette, a woman in her 40s living in Cotonou, was caught off guard by the tax. On a recent Thursday, she went to deposit CFA900,000 in cash at a notary's office to finalize property title paperwork. To her surprise, she had to pay CFA9,000 in tax on the deposit. “Why should I pay to use my own money?” she said, visibly upset.

She had withdrawn the cash directly from her bank account to avoid the usual hassles—checks often get rejected by government offices, bank transfers can take too long, and many businesses refuse mobile money payments. “Mobile payments are complicated. Some companies won’t accept them,” she explained. Preferring cash, she found herself caught in the trap of a tax she had forgotten about.

Cash Still Reigns at Dantokpa Market

In the bustling alleys of Dantokpa Market, the largest in the country, cash remains king. Vendors continue to rely heavily on cash transactions. “Why should I pay a tax just to use my own money?” asked Françoise, a fabric seller. While the tax does not apply to bank deposits, mobile money transfers, or withdrawals, it affects large cash transactions, especially when receipts are needed.

With digital payment options scarce in the market, vendors worry the tax will make life harder. “We don’t have card machines here, and everyone prefers cash. This tax will just push prices up,” said a phone seller. Although the government is pushing for a cashless economy, many in the informal sector see that goal as far off.

The cash tax is part of broader reforms to encourage digital payments and increase tax revenue. Since 2021, businesses subject to VAT have been required to use Certified Electronic Billing Machines (MECEF) which record transactions in real-time and send data directly to the tax authority.

By December 31, 2023, 157,039 MECEF devices had been deployed for 11,073 taxpayers, according to the World Bank. However, adoption in the informal sector, a major part of the economy, remains low.

Despite challenges, electronic payments have grown significantly in Benin since the COVID-19 pandemic accelerated digitization. BCEAO data shows that between 2020 and 2023, digital transactions increased by 68%, rising from 28 million to 47.2 million transactions. Their total value nearly doubled, reaching CFA2,115 billion in 2023 compared to CFA1,200 billion in 2020.

Mobile money services like MTN Mobile Money and Moov Money have played a central role, especially for unbanked populations. The number of mobile financial service accounts grew from 2.6 million in 2018 to 11.1 million in 2023—a 327% increase in five years. However, high transaction fees and limited use in commercial transactions remain barriers. While the payment of utility bills has become more common, mobile money in Benin has yet to achieve the widespread success of Kenya’s M-Pesa.

Bank card usage is also increasing, with 1.33 million cards in circulation in 2023, up from 800,000 in 2020. However, access remains limited: Benin has just 326 ATMs and 498 card payment terminals, mostly concentrated in urban areas, leaving rural regions underserved.

The Persistent Grip of Cash

But the truth is cash remains dominant in Benin’s economy. “With cash, there are no extra fees, no technical issues—it’s fast and reliable,” said a vendor at Dantokpa Market. High fees for digital transactions deter small merchants, whose profit margins are already slim. “The fees for bank cards or mobile money eat into our profits. No one wants to pay that,” another vendor lamented. In rural areas, where financial and digital infrastructure is almost nonexistent, cash is often the only option.