Ugandan banks opposed to proposed withdrawal tax

Ugandan banks through their umbrella body, Uganda Bankers Association (UBA) is set to petition the central bank to block the proposed taxation of cash withdrawals from banks.

The proposal has drawn condemnation across sections of the public after the ministry of Finance Planning and Economic Development wrote to governor Bank of Uganda seeking views on the matter. UBA says it was wrong for the ministry of Finance not to involve the bankers since they are the ones who would implement the decision. 

Instead, the ministry chose to talk to the regulator, the Bank of Uganda. Interestingly, Uganda Communications Commission (UCC) as the regulator of the telecommunications sector was invited for the discussions along with the telecoms, which was not the case with the banking industry.

The meeting was also attended by the Uganda Revenue Authority (URA). The letter to the governor, among other things, wants the central bank to avail data on the types of withdrawals that are made over the counter and via automated teller machines (ATM) for purposes of determining the tax.

The UBA says the services are already charged several taxes that amount to 15 per cent and the burden of these is all largely transferred to the clients, making banking costly for the consumer. UBA executive director Wilbroad Owuor says they will make an official reaction, which includes writing to the Bank of Uganda about their view on the proposal, especially because they were not consulted.

The current taxes are charged on withdraws irrespective of the amount. For example, if a bank charges a customer Shs 1,000 for withdrawing cash, the government takes a total tax amount of Shs 150 making the total cost to the customer Shs 1,150.

This time around, the proposed tax will be charged on the amount the customer will be withdrawing and could vary with the amount being withdrawn. While the ministry of Finance says the move will encourage cashless transactions like mobile and electronic banking, the proposal has drawn threats from sections of the banking public to withdraw all their savings and find other alternative means of keeping it.  

“Mobile money withdrawals are subject to 0.5% excise duty but on the counter, agents and ATM withdrawals are not subjected to the same kind of tax”, the minister’s letter signed by the acting secretary to the treasury, Patrick Ochailap, adding that this would encourage cashless transactions, promote e-commerce, and improve tax compliance in addition to raising revenue.

Finance minister Matia Kasaija denied knowledge of the plans to introduce such a tax.