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Mobile money and folly of taxing a platform for poor

If you need a sign of how desperate government has become in its hunt for tax revenue, then page seven of the Excise Duty (Amendment) Bill, 2018, should give you strong clues, writes JEFF MBANGA. 

Narrow in its attempt to widen the tax bracket and somewhat lazy in its preference to go for the low-hanging fruits, the Excise Duty amendment bill is a strong example of how little the government appreciates the crucial concepts of financial deepening and the benefits of financial technologies.

Let’s cut to the chase: the government has looked at the million-dollar market of mobile money transactions and decided that the tax revenues it was earning from there are not enough.

To add to its pound and flesh, government plans to introduce a new tax charge of 15 per cent of the fees on all transactions and one per cent of the value of transactions. Just so you know, government was already earning 10 per cent on mobile money transactions and 12 per cent in excise duty on airtime.

Let us, for a brief painful moment, try to understand the rationale behind government’s thinking in increasing taxes on mobile money transactions.

The mobile money industry is now worth more than Shs 40 trillion (just over $11 billion), which is nearly a half of Uganda’s gross domestic product. At the current level, the mobile money industry, which is a year shy of making a decade in Uganda, is way bigger than the total asset base of the country’s banking industry. 

So, to government, there is so much money floating around the mobile money market, it feels a need to tax the industry more.

The second probable thinking behind government’s strategy is that the public is so hooked on mobile money that they have no choice but to absorb whatever painful tax prescription that the state administers on the industry.

To show how mobile money is at the centre of financial transactions for most Ugandans, it is important to look at a March 2018 report titled ‘Under Pressure? Ugandans’ opinions and experiences of poverty and financial inclusion’ by Sauti Za Wananchi, which is part of Twaweza, a non-profit organisation.

The report found that two out of three citizens use mobile money services. The same survey also found that most of the respondents were satisfied with the mobile money services.

The third suggestion – and this might sound a little wild but what the heck – is the probable need for government to slow down the pace at which the mobile money industry is growing so that it can do some bit of catching up in how to regulate it.

With more money being shifted from bank accounts to mobile money accounts, Bank of Uganda finds it hard to stimulate interest rates in the market. Bank of Uganda manages short-term interest rates by assessing the amount of money available for banks to meet their capital reserve requirements.

Now, if the banks are witnessing lower deposits because the public prefers mobile money services, meeting their reserve requirements becomes a challenge, and ultimately makes life hard for Bank of Uganda’s policies to be felt in the commercial bank credit market.

Then there is the little matter of Financial Intelligence Authority, which has task of tracking any illicit funds coming through Uganda’s financial system. Stopping any dirty money from moving within the mobile money system is still a challenge for the FIA.

Both Bank of Uganda and the Financial Intelligence Authority need new tools to deal with the fast-evolving mobile money industry and, right now, both those two appear to be a couple of laps behind.

So, to government, an additional tax to the mobile money industry should not hurt, right? Wrong!

Among its tax proposals, the one per cent charge on the value of the transactions will be felt and could reduce on the number of people who use mobile money services. This will be a step back in Uganda’s attempt at financial inclusion.

For example, to parents who had started enjoying the relief of paying school fees in the comfort of, say, their sitting rooms, a return to the long queues in banking halls appears to be their next option.

It is going to be cheaper to jump on a matatu in order to collect money than incur the high charges that the ministry of Finance is proposing.

For the poor in rural areas, the charges will eat into their disposable incomes and harden their already miserable lives.

Away from the emotional sentiments, the new tax proposals carry a chicken-and-egg narrative: does government generate tax revenues so that it can develop other struggling sectors such as health and education, or does it let the mobile money industry carry on with the gains it had made such as making funds available in the market?

It is important to note that the mobile money industry has evolved from just being a platform for sending and receiving money to also becoming a crucial short-term credit market with easily-accessible unsecured loans.

The simple solution would be for government to drop its new tax proposals for the mobile money industry and think of new creative ideas.

There is a growing global debate over the need for government to levy a tax on the revenues that multinationals make, instead of charging tax on the income. Multinationals such as MTN have been found to be structured in a way where they cream off some of their income made in Uganda and shift it to low-tax jurisdictions in Mauritius, where they have subsidiaries, in order to reduce their tax bills.

Maybe instead of taxing the mobile money platform, the ministry of Finance should consider this for the big telecom firms as a way of reducing the impact of tax avoidance schemes. It is best to tax the rich and give the poor a break.

jeff@observer.ug

Twitter:@jeff_mbanga

Comments

0 #1 Ugthinker 2018-04-23 12:15
Our tax system is so warped up itself, then the overzealous corrupt tax officers.

I have been taxed out of import business which I was doing as a side business by the away. One wonders how government benefits from taxing traders out of business!

But that’s Uganda for you, people have jobs they have no business idea about and are unquestionable. Revenue officers are like small gods of some sort. It’s not helping anyone not even our captors.
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0 #2 RonaldK 2018-04-23 18:55
I don't see any logic...why?..most transactions are just payments...not income. e.g i transfer 1m from my bank account to mm wallet...any gain here?.

If i withdraw same 1m using ATM...no tax there...transfer to MM wallet...then 1% tax...?. So i will try as much as possible to minimize MM transactions...except where it is cost effective.
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