Government is proposing a new tax on mobile money transactions. According to the tax proposals contained in the Excise Duty (Amendment) Act 2018, “A tax of 1 per cent of the value of the transaction will apply on mobile money transactions on receiving money, making payments and withdrawals of money”.
If this proposed new tax is passed law by Parliament, it will mean that with effect from 1 July 2018, government will take 1 per cent of the value of your money every time you use your mobile money account.
This means that when you receive money in your mobile money account, government will tax 1 per cent of it.
When you deposit money on your mobile money account government will take 1 per cent of it.
When you withdraw the same money from your mobile money account, government will again take another 1 per cent of the same money.
This tax will always apply every time you use your mobile money account whether you are paying your child’s school fees, paying your Yaka bills, or sending money to pay your parent’s medical bills in the village.
What it means
I will illustrate the impact of the proposed new tax with an example.
According to the proposed enhanced salary scale for civil servants, a post primary science teacher will earn about Shs1.4m a month.
After deducting income tax and NSSF, the teacher will have a net income of about Shs1m.
If the teacher opts to receive her salary into a mobile money account, government is proposing to take 1 per cent or Shs10,000.
Remember this salary has already been subjected to different taxes such as Pay As You Earn. That will leave you with Shs990,000.
Assuming you use your mobile money account to pay your child’s school fees of Shs400,000, government will take yet another 1 per cent of the same money which is an equivalent of Shs4,000.
And in the even you use the balance left to pay for any other bill such as Yaka government will subject a 1 per cent transation on any other transaction you conduct of the money.
If she transfers the balance left on her mobile money account into her savings account with her local Sacco, again government will take another 1 per cent of that money.
This taking of 1 per cent will continue until there is nothing left to tax. This proposed new tax of 1 per cent is different from the fee that mobile phone companies charge you for using their mobile money platform. It is a new tax that government is proposing to charge you for using your mobile money account.
Currently, if you deposit Shs1m on your mobile money account the mobile phone company does not charge you a fee to deposit.
When you send the Shs1m to another customer who is registered on the same network the mobile phone company charges you about Shs1,500.
If the other party withdraws the cash you have sent them from their mobile money account, the mobile phone company charges him or her a fee of Shs12,500.
The total fee charged by the mobile phone company is Shs14,500. Out of this, government levies an excise duty tax of 10 per cent.
This is going up to 15 per cent effective 1 July 2018. This means out of the total Shs14,500 collected from you as mobile money charges the government takes 15 per cent which is Shs2,175 as excise duty.
This new tax will only apply to mobile money transactions. It will not apply to you if used your bank account to conduct all the transactions ferred to above.
Likewise it does not apply to other alternative money transfer services such as Western Union or Moneygram.
Most importantly, it will not apply if you closed your MTN or Airtel mobile money account and used M-Pesa with Safaricom.
On the face of it, the tax appears to be discriminatory as it will only apply to mobile money transactions.
It is also a form of double and in some cases triple taxation as the money being subjected to the 1 per cent tax was already taxed at the time of being earned from your employer.
The tax does not appear to be equitable as it is levied every time you transaction using your mobile money account.
Principle of taxation
One of the basic principles of taxation is fairness and neutrality. This principle demands that taxes should not favour any one group over another and should not be designed to influence individual decision making.
The tax appears to be penalising Ugandans who opt to use mobile money services as opposed to the traditional commercial banking services.
It also appears to be designed to discourage Ugandans from using mobile money services.
This is because if you were to deposit, make a payment, withdraw or transfer money using your bank account, this tax will not apply to you.
The tax also violates the basic principle of equality which requires people in equal circumstances to be treated equally.
Based on my example above, two post primary science teachers earning the same salary will be taxed differently depending on whether one uses their mobile money account or bank account.
On the basis of preliminary consultations and discussions I have had it is possible that this tax could be a violation of Articles 21 and 43 of the Constitutional.
Right, we need to widen the tax base to include all people earning from certain economic activities but there must be another way to do this.
There are about 24 million people who use mobile phone services. Out of these, 88 per cent are subscribed to mobile money services, translating into about 22 million people.
The above figure is nearly three times the number of people in Uganda who hold a bank accounts. Uganda has about four million bank accounts.
In the year ended December 31, 2017 mobile money transactions are estimated to have been in excess of ShS54 trillion, which represents more than half of the country’s’ gross domestic product.
The rapid increase in mobile money use has enabled the previously unbanked citizens to have access to basic financial services.
Taxing to prosperity
The new tax is one of the many tax proposals that are currently being discussed and debated in Parliament.
Now might be a very good time for you to speak to your MP if you are one of the 22 million Ugandans who have a mobile money account.
To the MPs, you might find some inspiration in Sir Winston Churchill’s quote that he said in 1904.
“I content that a country that tries to tax itself into prosperity is like a man standing in a bucket trying to lift himself up by the handle.”
Let us not kill mobile money. We ought to encourage its usage to promote financial inclusion.
Francis Kamulegeya is a chartered tax adviser and senior partner at PwC