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Tax on bank withdrawals is a bad idea

Customers inside a banking hall

Customers inside a banking hall

The ministry of Finance, Planning and Economic Development wants to tax cash withdrawals from banks.

In a February 9, 2021 letter to the governor, Bank of Uganda, the deputy secretary to the Treasury, Patrick Ocailap, suggests that if this proposal gets the much-needed parliamentary nod of approval, it will encourage cashless transactions.

The secretary also claimed that it was not fair that transactions on mobile money attract a 0.5 excise duty yet the bank withdrawals are not subjected to the same tax. On the surface, this looks like a punitive tax. It is punitive because apart from generating revenue for government, account holders are being punished for keeping their money in the bank.

Although it is not yet law, Ugandans have cause to worry given our legislative history. The over the top tax (OTT) or tax on social media started with a letter from President Museveni to the minister of Finance nudging him to tax the gossipers!

Eventually, this became a bill and later amidst street protests and subtle resistance from telecommunication companies, this tax got the parliamentary nod.

We cannot be sure that this time round MPs will have their wits about them. Adam Smith, a political economist and former Scottish customs officer explained in his book, The Wealth of Nations (1776), the four principles of taxation. And these principles have been a useful guide to many robust tax systems in the world.

These are: fairness, certainty, convenience and efficiency. Having been a customs officer, he knew what economic hardships were imposed by the unfair tax system. By fairness, Adam Smith meant that taxes should not be imposed arbitrarily. The tax should not conflict with the taxpayer’s ability to pay given his or her personal needs.

The unfairness is also in the fact that some of the money for instance salaries or some other transactions are already subjected to some tax such as Value Added Tax (VAT), Pay as You earn, and even dividends attract tax. This is more than double taxation.

From the tone of this letter, it appears that government is only interested in collecting taxes irrespective of whether that action erodes the taxpayers’ disposable income!

The government too appears not to mind whether there is a likely negative impact on savings in the bank. If people resort to keeping their money in pots or under the beds, the banks’ loans may become expensive as banks too may have to borrow in order to lend, instead of using depositors’ money.

This is a typical case of milking a cow without feeding it. The country is saddled with many hardships including bad loans brought on the outbreak of the Covid-19 pandemic. It is even worse that the high taxes seem to shoulder the huge money-gobbling public administration than the social amenities such as hospitals and affordable schools. The idea of adding another tax is ill-conceived.


0 #1 kabayekka 2021-02-17 04:49
The ministry of Finance, Planning and Economic Development wants to tax cash withdrawals from banks.

This money loaded ministry of NRM programmers is unfortunately becoming a Frankenstein monster as Information Technology develops better this world!
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0 #2 Galiwango Raymond 2021-03-02 13:28
The deductions are already in place; on 2/2/2021 I was charged 250 for a withdraw of 30k, then on 16/2/2021 another 250 for a 100k withdraw.

It is painful given this is money that is used to fuel kidnapper vehicles.
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