Why the flip-flop on Mobile Money tax

Sunday October 28 2018

A customer withdraws money from a Mobile

A customer withdraws money from a Mobile Money agent in Kampala. PHOTO BY ABUBAKER LUBOWA  

By Stephen Kafeero

People using mobile money platforms across the country have lost at least Shs10.8b following confusion surrounding charges on Mobile Money transactions since July when the tax became effective.

The biggest loss, however, is in the would-be revenue government is not collecting due to the apathy created by the tax.

By August, a month after the tax had been introduced, mobile money transactions had declined by Shs672b in the first two weeks of enforcing the tax, Bank of Uganda and telecoms reported.

Within the same period, telecom giant MTN Uganda, has reported a 30 per cent decline in revenue since the taxes became effective.
It is this and the politics of popularity of the measure that observers and analysts say has caused confusion among decision makers on what to do with the tax.

The confusion
Close to five months since the implementation of the tax started, it remains unclear on which transactions the tax is levied.
Initially, the tax was to be levied on money received, payments, and withdraws by users.

But there has been flip-flopping on this by both the telecom companies and government officials, leaving more questions than answers on the tax.

The controversy has also since shifted from the relevance of the tax, which dominated debate prior to its passing by Parliament and consequent assent by President Museveni, to whether telecoms should be charging 1 per cent or 0.5 per cent.

Last year, a study by a Makerere University-based think tank, the Economic Policy Research Centre (EPRC), revealed that on average Shs18b is transacted daily through the Mobile Money service in Uganda.

Government, therefore, collects at least Shs180m per day from the Mobile Money transactions at the 1 per cent tax rate, it is controversially collecting from every user. At the 0.5 per cent rate passed by Parliament, at least Shs90m is collected every day. From July when the tax was first enforced, this translates into at least Shs10.8b in the last four months.

Money vs politics
President Museveni had initially shifted the blame on Parliament, blaming the House for passing the controversial tax in a way, he said, was an error.

Subsequently, on July 13, President Museveni, in a statement, ordered that those who had paid the 1 per cent mobile money tax be refunded as the 1 per cent levy was passed by Parliament and signed by him in error.

The President’s statement, which was not backed by an amendment in the law or a policy, was largely ignored except for Airtel Uganda that reportedly refunded one of the taxes collected from its customers.

“I signed the law with the error because we could not delay the other measures. However, Parliament, when it reconvenes, will be requested to correct it. The ones whose deductions had been made on the basis of 1 per cent should have their money reimbursed,” Mr Museveni said in a statement posted on his social media pages.

Even after Parliament amended the Bill on October 3, President Museveni is yet to make public his decision on it.

Depending on when it was forwarded for his consideration, the President may have time or may be running out of the same but for the mobile money users, each passing day without a decision by the incumbent implies a loss of revenue.

The telecoms also cite the absence of the presidential assent to the Bill passed by Parliament as a basis for their continued levying of the 1 per cent tax rate on mobile money users even as they admit the tax has had huge negative impact on their business operations.

The telecom companies say they have opted for a safer option of continuing to deduct the tax from customers until a final decision from the President is effected.

But in the 24 days since October 3 when Parliament amended the tax from 1 per cent to 0.5 per cent, users of the platform have lost at least Shs2.1b because President Museveni has not assented to the amendment.
So, why the dilly-dallying even when the Mobile Money tax has caused a strident uproar from the general public and other stakeholders?

Critics of the tax argued, at the time of its introduction, that it would have a very negative impact on the development of the platform.
It is this outcry that observers say has thrown government officials, especially President Museveni, into the proverbial English case of wanting one’s cake and eating it too.

The tax from the onset was unpopular and the President Museveni-led Executive has had to balance the need for the accruing tax dollars against the anti-tax public opinion.

Finance minister Matia Kasaija was the first to take the lead on this. Less than a week after the tax was passed by the House, Mr Kasaija told journalists that it was different from what Cabinet and the ruling NRM party caucus had initially agreed upon.

Mr Kasaija’s comments briefly helped to swing public opinion in favour of the Executive and also cooled the flaring tempers over the tax.

Mr Kasaija said Cabinet had recommended a 0.5 per cent tax on Mobile Money, but said he was surprised that Parliament approved a different rate of one per cent, which he was not aware of. He said the change happened when he was out of the country.

First forward and Mr Kasaija is compelled to apologise to the House before being allowed to table a motion for the amendment.

Bank of Uganda has since, also, dropped its tough stance against the tax. The Central Bank had opposed the tax on grounds that it is discriminatory and is likely to affect financial inclusion. It supported the cut from 1 per cent to 0.5 per cent.

The Secretary to the Treasury, Mr Keith Muhakanizi, who is also the Permanent Secretary in the Ministry of Finance, perhaps captured best the government quandary on the tax.

While President Museveni had directed a refund to those whose money was deducted as a result of the confusion, Mr Muhakanizi was unambiguous, telling the would-be beneficiaries to forget any refund as the money had been collected legally and had been spent already.

“The ministry spent the money on services enjoyed by Ugandans, there is no refund because it was also collected legally,” Muhakanizi said, adding that the Finance ministry followed the law.

Tough options
Should President Museveni assent to the Bill, government will have to forego almost half of the Shs118b it projected it would collect from the tax by the end of the current financial year.

By taking his time, it is argued, President Museveni is making calculations on at least two things. Buy enough time for the tax collector, Uganda Revenue Authority (URA), to collect as much money from the tax. Or wait out the public to give up on the tax and introduce changes, if any, in the next financial year.

So far, the first option has been achieved by creating misunderstanding around the tax.

The other possibility is President Museveni rejecting the Bill passed by Parliament with a proposal to suspend the tax pending further review.
This option, sources say, would be a golden goal for both the President and MPs who have come under fire in their respective constituencies because of the tax.

A departure from common practice, legislators across the political divide, this week, raised concern that President Museveni was taking too long to sign the Bill they passed three weeks ago into law.

The legislators argue their constituents continue to be exploited yet they passed an instrument to lessen their tax burden.

What is standing in between the above measures and their implementation is, sources say, the fear to create a precedent where people would mount an aggressive campaign against a particular tax or policy and government would be obliged to comply.

But some changes provoke more attention than others, in part due to the vast uncertainty involved in making predictions about the future.


Betrayal of social contract: In a paper: ‘How will recent taxes on mobile money affect East Africans?’, published on July 12 , EPRC researchers argue therein that the mobile money tax is “regressive” and “disproportionately” affects low-income earners.

“The mobile money tax betrays the social contract between citizens and government. It is universally agreed that citizens pay taxes to their government and in return, the government provides quality services to the people. However, the tax assessed on citizens has to be fair, adequate and transparent. The introduction of this tax was hurriedly passed by Parliament without adequate consultation of stakeholders which is necessary to effect stakeholder buy in and ultimately consensus.”

Unemployment: In another paper: ‘New Insights on the Impact of Tax on Mobile Money Value Transactions’, the Civil Society Budget Advocacy Group (CSBAG), observes that the tax has led to unemployment, increased chances of money being transported through untraceable means, and affected the welfare of the people employed in the Mobile Money business, including reducing their purchasing power due to reduction in their commission.

“It has also been observed that the gains of financial inclusion brought about by Mobile Money are likely to be eroded by the extra taxes.

As noted earlier, a significant number have decided to abandon the mobile money service since the tax was introduced. Much as it is said that some people will opt for the commercial banks, this will not be financially inclusive for all the citizens as commercial banks do not have a good footprint to reach rural clientele across the country,” they observe.

Recommendation: The coalition recommended that government drop the tax and resort to other sources of revenue that have less damaging effects on the citizens and the economy since the extra Mobile Money taxes are counterproductive.