Taxes or costs: What’s pushing agent banking ?

Tuesday July 28 2020

A man walks past an agent bank in Kampala. 70 per cent of the agent banking transactions are cash deposits. File photo

For its half year performance in financial year 2019/20, Uganda Revenue Authority registered a Shs697b shortfall in tax collection.

One of the reasons it gave, was the increased use of agent banking compared to mobile money. 

“A levy on mobile money contributed a deficit of Shs30.4b which can be explained by the fact that high value clients withdraw their funds from agency banking,” then Commissioner General URA, Ms Doris Akol, said. 

The tax man cited MTN, noting that the telecom has had a drop of 36 per cent in mobile money transaction values since the introduction of the levy on mobile money. 

In addition, she expounded, other clients are adopting the use of mobile money as a mode of payment for services as opposed to withdrawing for cash.

Government, in July 2018, slapped a levy of 1 per cent on mobile money transactions. The move led to public outcry, strikes and warnings of a projected dip in transactions via the platform which hinders financial inclusion. 
Introduction of the tax did, indeed, affect mobile money transactions in July that year. 


Mobile money volumes, particularly in July, according to a telecom industry report, dropped from Shs866b to Shs475b. 
After long deliberations and opposition, Parliament in October amended the excise duty law to accommodate only a 0.5 per cent tax only on withdrawals. 

However, information from Bank of Uganda paints a different picture from URA’s statement.
For instance, the total value and number of transactions have increased since 2019. 

For instance, the number of transactions on mobile money increased from Shs218m in January 2019 to Shs269m in May 2020 as value of the transactions also increased from Shs5.7 trillion to Shs6.9 trillion during the same period. 

However, the number of transactions is not indicative of potential taxable incomes since there are various transactions on mobile money that do not attract taxes such as payment of airtime, float transfers among agents, utility and merchant payments among others. 

Even then, withdrawals on a monthly basis have increased from 21.9m in volume for January 2019 to 24.6m in May 2020. 
The value of withdrawals equally increased from Shs1.4 trillion to Shs1.5 trillion during the same period. 

URA’s explanation for the dip in taxes is also peculiar based on the fact that 70 per cent of agent banking transactions are customer deposits which do not attract taxes.

Tax policy on both platforms 
Mobile money taxes withdrawal transactions with a 0.5 per cent levy while agent banking attracts a 15 per cent levy on bank fees charged on transactions. 

This was increased from 10 per cent in 2018.
While this indicates that taxes would be lower via agent banking, information from Agent Banking Company of Uganda reveals that withdrawals account for around 15 per cent of all their transactions.

Steep battle for agent banking
Between January-to March, mobile money recorded nearly 820 million transactions compared to 7m transactions by agent banking during the same period.

Shs20 trillion was moved through the mobile money platform during the period compared to Shs6.9 trillion through agent banking for the three months. 
However, mobile money has been in existence since 2009 compared to agent banking whose inception was in 2018.