Telecoms, Bank of Uganda want mobile money tax scrapped

Telecommunication companies MTN and Airtel have asked government to scrap the new mobile money tax that came into effect last month due to the negative impacts it's having on the economy.

Starting July 1, 2018 government introduced a 1% tax on all mobile money transactions and Shs 200/daily levy on social media usage. Following public outcry and pressure, government has since tabled an amendment bill, Excise Duty Amendment Bill No. 2, 2018 to have the mobile money tax reduced to 0.5% and only limited to withdrawals. 

Appearing before the parliamentary committee on finance which is scrutinising the Excise Duty Amendment Bill, officials from MTN and Airtel said mobile money tax has had massive negative effects on the economy. 

Wim Vanhelleputte, chief executive officer of MTN Uganda, said there has been a drop in use of mobile money following the introduction of the tax. He said mobile money supports 5,000 Savings and Credit Cooperative Societies (Saccos) and taxing the business is a big risk. 

"Because we’re still a young new industry, so if you over tax a young industry you might end up killing that industry. So we need to find the right balance between taxes and growing the industry to its full potential. What is the full potential of the industry? Let us cross the border into Kenya, today in Kenya, Lyca and Mpesa are a whole new system of doing digital payments.

Today in Uganda we’re not there yet. We have the ambition to continue to develop mobile money to make sure people can use the mobile phone to do payments, payments, payments. They can go to the bar and pay for a coke using mobile money, they to the boda boda they can use mobile money to pay for the taxi," said Vanhelleputte. 

Denis Kakonge, the Airtel Uganda legal and regulatory director said since the introduction of the tax, the volume of their mobile money transactions has dropped by 33 per cent. He says the tax is not only discriminative but people have no option but keep the money in cash, which is risky. 

"We think that the taxation of the mobile money service which is still in its infancy, we’re not like Kenya. We’re still growing, if you tax it, it will reduce the uptake of the service and undo the positive contribution that mobile money has contributed which includes employment and making it easy for people to transfer money." he said. 

The telecoms concerns were backed up by Bank of Uganda officials who called the new taxes discriminative and unfair and risk retarding growth of financial inclusion. 

Bank of Uganda director of statistics Charles Abuka noted that although placing a charge on mobile money withdrawals would increase revenue, the tax is inefficient, uncertain and complex.

He explained that the mobile money levy goes against tax policy considerations that have traditionally guided the development of the taxation system. He further revealed that mobile money transactions declined by Shs 672 billion in the first two weeks of July 2018 when the mobile money tax came into force.

Abuka also said the 1 per cent mobile money levy on withdrawals is discriminative since it isn't applicable on withdrawals from the banks, micro finance institutions and Saccos, adding that equity suggests that taxpayers in similar circumstances should bear a similar tax burden.

"A student who receives school fees through mobile money shouldn't be taxed in the same manner as a business person who receives payment using mobile money platform in this sense the tax is not equitable," Abuka said.

He also warned that the tax could offer various avenues of tax avoidance and evasion including use of informal methods of sending money.

Abuka noted that government has already increased the excise duty on mobile money agents from 10 to 15%, which will also affect mobile money users. Abuka adds that on the financial inclusion agenda, the tax will deter the growth of access to financial services, which stood at 55% in 2016 up from 28% in 2010 due to the increased use of mobile money.

He says on average, mobile money transactions were valued at Shs 6 trillion (6% of GDP) in 2017/2018 and an increase of Shs 2 trillion in one year. The number of registered mobile money users stands at 23 million with 10 million of them considered active following their transactions in last three months. Abuka says there is still a high level of financial exclusion in rural areas.

"Unfortunately this tax is exacerbating the costs associated with provision of the financial services," Abuka said. 

Henry Musasizi, the parliamentary finance committee chairperson, said although Bank of Uganda says the proposal is unfair and discriminatory, parliament still needs to raise Shs 115 billion to support the budget.

The committee expects to handle the proposal within ten days and report back to parliament.