What you need to know:
- The taxes, among them mobile money tax, banks claim, impact digital inclusion thus reducing uptake of digital financial services.
Commercial banks have asked Uganda Bankers’ Association (UBA) to lobby government, particularly Bank of Uganda and Ministry of Finance, to consider removing or reviewing digital taxes.
The taxes, among them mobile money tax, banks claim, impact digital inclusion thus reducing uptake of digital financial services.
“Lobby for removal of user taxes on mobile money and internet access, to attract more users thus increase both digital and financial inclusion,” banks say in details contained in the proposed regulatory reforms in the banking sector.
The removal of such taxes, they claim, will lower the cost of popular digital financial services, many of which government plans to use in the transformation of Uganda’s financial services from cash-based to a cashless economy.
In July 2018, government implemented the 1 per cent Mobile Money Tax, inviting a near collapse of the mobile money sector, whose growth had been one of the highest.
However, the tax was subsequently revised to 0.5 percent after mobile money transactions dropped by almost 60 percent within three months after its implementation.
Around the same time, government had also implemented over-the-top (OTT) tax, which analysts said would impact access to internet - the dominant driver of financial reach and inclusion.
The tax has since been scrapped due to its poor performance and replaced with a 12 per cent levy on data.
OTT, Uganda Revenue Authority told Parliament in 2019, had been one of the worst performing taxes due to existing and available overlaps that many Ugandans had chosen to use to circumvente it. However, in raft if proposals commercial banks, under Uganda Bankers Association, say taxes on mobile money and internet access are negatively impacting financial inclusion due to the high cost “of access to digital platforms such as mobile money and WhatsApp banking.
“[The taxes] are hindering innovation and digital products development. This works against both government’s financial inclusion strategy and commercial banks’ conduct of business through digital means. Such taxes need to be removed or reviewed,” banks note.
Government, under the National Financial Inclusion Strategy 2017-22, has been seeking to include every Ugandan in the formal financial value chain as a way through which the economy can be formalised.
In a 2018 survey conducted by Financial Sector Deepening Uganda it was found that out 18.6 million adults in Uganda only 7 percent in rural areas are banked compared to 24 percent in urban areas due to high cost and value for money related-issues.
Financial access and inclusion has relatively been driven by mobile money, especially in rural areas, but taxes are threatening one of the sectors that is providing a foundation for a revolution in Uganda’s financial sector.
Digital services taxes elsewhere
According banks government should pick best priactices in other countires such as
. UK levies a 2 percent Digital Service Tax on gross UK-generated revenues of large businesses providing social media platforms, search engines, and online marketplaces. It is not an access tax on end-users.
. In 2020 Kenya introduced withholding tax on digital marketplaces. Since it a withholding tax, providers can offset it thus not affect the cost of access by service user.
. In France the Digital Services Tax is levied as a standard 3 percent tax on the revenue of digital companies providing advertising services, selling user data for advertising purposes, or performing intermediation services.
. In Benin and Cameroon both countries have repealed taxes that had been imposed on mobile phones and mobile payments.