Sunday May 18 2014

Taxation shouldn’t disrupt mobile money operations

Parliament’s Budget Committee proposed tax on mobile money deposit transaction is unhelpful. The tax levy will undermine increased uptake of banking services among Ugandans. In a surprisingly short time, the mobile money service has caught on as part of Ugandans’ everyday life, compared to commercial banks. This service has eased the burden of carrying cash around and exposing owners to risks.

This proposed tax by MPs in the new financial year will only undermine this convenient and low cost banking. To date, Uganda boasts an estimated 17.5 million active mobile phone handsets and MPs are right that mobile money deposit tax would raise tens of billions of shillings in revenue to government. Admittedly, the mobile money transaction becomes an irresistible money-spinner for government to plug its budget shortfall and fund priority areas.

However, the tax would frustrate rapid and cheap cash transfers. The platform has attracted formerly unbanked Ugandans to subscribe en masse to mobile money accounts. In 2012, alone, transaction by 8.9 million mobile money subscribers hit Shs11.7 trillion, up from Shs3.75 trillion in 2011. These figures overshadow individual banks’ reserves and the number of bank accounts, estimated at about 4.5 million.

The proposed tax will only weaken this low cost banking. Uganda must first grow the banking culture, and widen banked customer base. Let MPs not ruin this ease of banking with increased tax levy. To its credit, the mobile money services have bridged access to banking services for Ugandans across income levels. It has proven convenient and affordable.

The tax will only add costs on the service. Already in 2013/14 financial year, government imposed a 10 per cent charge on mobile money transfer, which has increased costs on wanainchi. So this move, more than regulate and spur growth in the economy, will instead slow down the less bureaucratic banking in Uganda. Cheap internet-enabled mobile money platform has boosted Ugandans uptake of technology and money market growth and the tax levy should not prove a disabler.

Part of the key reason Ugandans own cellphone is because of the mobile money platform despite handsets being more expensive for Ugandans.
Government must first put in place a legal framework before rushing to impose a levy on mobile money transactions. The Uganda Law Reform Commission must quickly complete its consultation and come up with a maiden law to regulate the mobile money sector. The new tax will force telecom firms to raise mobile money tariffs and pass on the costs to end users.