Drop 0.5 per cent tax on Mobile Money
Resulting from the public outcry and pressure, government has since tabled an amendment Bill, Excise Duty Amendment Bill No. 2, 2018, to have the Mobile Money tax reduced to 0.5 per cent and only limited to withdrawals.
A research carried out by civil society reveals a drop in sales, volumes of money transacted, and profits realised by the Mobile Money proprietors.
The survey, shows that out of the 48 respondents 17 (35 per cent) reported an average drop in transaction volumes of 75 per cent. Forty three out of the 48 respondents (89.5 per cent) had an average drop in transaction values of 74.5 per cent.
In terms of profitability, 36 (75 per cent ) out of the 48 respondents also had a 74.5 per cent average reduction in profits.
The survey shows that reducing the transaction value tax to 0.5 per cent only serves to reduce the impact on profits and transaction volumes by 50 per cent to about 37.3 per cent.
Thirty-five per cent (17) of the interviewed proprietors had laid off some workers.
Thirty-three per cent (16) of the proprietors were reported to have closed business due to failure to meet some overhead costs such as rent and facilitation of the people they employ in these several Mobile Money kiosks.
Twenty three per cent (11) had resorted to other businesses such as payway and only Easy load.
Four per cent (8) of the proprietors were reported to have no coping mechanism but their affinity to closure was high.
Uganda may incur huge losses from the potential increase in tax revenue if the money collected from the 1 per cent tax cannot compensate for the revenue realised from efficiency gains arising from the use of Mobile Money. Similarly, the introduction of this now proposed 0.5 per cent tax has discouraged the use of Mobile Money for utilities payments.
Mobile Money has increased transaction speeds and reduced outstanding credit times, minimising the time it takes to collect and inquire after payments.
According to the Bank of Uganda, the power company Excise Duty reported a 99.1 per cent revenue collection rate in 2014, compared to 94 per cent in 2012. The increased revenue collection rate was partly attributable to increased Mobile Money payments.
The Kampala Mobile Money Dealer’s Association revealed that by close of June 2018, there were 99,000 active agents countrywide operating Mobile Money businesses as companies and the association accounted for 41,000. However, by close of July 2018, the association had an active membership of only 28,700.
The difference (12,300 agents) have been closed (30 per cent) in one month after the introduction of the transaction value tax. According to the association, every agency/company employs three workers on average. With the closure of 12,300 companies/agents, a total of 36, 900 employees have been rendered jobless in Kampala alone.
Taxing the movement of money discourages trade and commerce, it discourages the formalisation of the economy and it interferes with financial intermediation.
Additional charges added to Mobile Money in particular threaten the survival of innovative companies in the digital payments space, and make it more difficult for innovators to create new solutions within that ecosystem. The Mobile Money tax services will encourage people to revert to cash decreasing the ability of government, businesses and individuals to monitor and account for economic activities.
Kenya has experienced a faster growth in Mobile Money transfer services in the world, raised Mobile Money excise tax from 10 per cent to 12 per cent on withdrawal charges. Uganda simply raised the tax without any specific plans pegged to the additional revenue to be collected. Kenya plans to use the funds realised from the levy to fund universal healthcare programme that aim to cover all households by 2022.
Introduce excise duty brackets in either of the following scenarios:
Increase Excise Duty from 15 per cent to 17.5 per cent on all withdrawal fees. This would generate Shs122 billion.
Alternatively, instead of imposing a blanket charge, for purposes of equity, CSO’s propose that government introduces progressive bands in the Excise Duty regime for tax on transaction charges as follows; Shs0–Shs100,000 (10 per cent), Shs100,000 – Shs1,000,000 (15 per cent) and Shs1,000,000 and above (20 per cent).
This will raise Shs89b with minimum impact on the poor (excise tax to remain at 10 per cent for the lowest tier) in comparison with the 1 per cent transaction charge on Mobile Money. Introduce interest earns on Mobile Money account balances.
Mobile Money has facilitated easy movement of money across regions and individuals. Introducing extra taxes undermines the progress and successes made in the country in respect of financial inclusion and it hurts the poorest most.
Ms Naisanga works with Uganda Debt
Network. [email protected]
