Review mobile money, OTT taxes before turning to banks - CSOs

The Civil Society Organizations (CSOs) have urged the government to review existing taxes such as mobile money and over the top taxes before it considers the proposed 0.5% excise duty on bank cash withdraw channels.

Speaking at the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) head offices over the weekend, the CSOs said that recent government taxes have been more regressive than progressive.

They claim the trend has widened the inequality gap between the rich and the poor as taxes do not seem to ensure fairness and inclusiveness.

“We want to call upon the government to review taxes on mobile money withdraw and tell us how it is working. Let us evaluate some of the tax that we have that are ongoing especially for the ordinary citizen,” Sophie Nampewo a budget policy Specialist at Civil Society Budget Advocacy Group (CSBAG), said.

“For us to have more people avoiding the taxes, it puts us at a disadvantage as a country. Let us not look at the simple way of collecting taxes but the fairway of promoting taxes,” she added.

In 2018, the government passed a 0.5% tax on mobile money withdrawal and a sh200 daily tax on social media platforms such as Facebook, Twitter, WhatsApp among others.

Ugandans continue to avoid paying the OTT daily taxes, with taxman collecting a mere sh49.5b out of the projected sh284bn in FY 2018/19.  

The proposed 0.5% tax on all cash withdrawals has attracted condemnation from members of the public and the Uganda Bankers Association (UBA) as the ministry of finance considers its enforcement in the next fiscal year 2021/22.

According to the FinScope 2018 Survey, only 7% of rural Ugandans are banked compared to 24% of those residing in urban areas. The introduction of the tax according to CSOs may widen the existing gap.

“Such a tax will create a strong incentive to shift away from holding bank deposits to using cash which defeats the idea of promoting a cashless economy which the country is gradually growing into especially in the wake of COVID-19,” Jane Nalunga, executive director at SEATINI said.

According to John Walugembe, executive director, Federation of Small and Medium Entreprises, the move may serve to discourage the informal economy operations as economy agents will shy away from depositing their money in the formal commercial banks.

“We have been telling our members to join the formal sector. But the move is likely to derail our efforts. The proposed tax is likely to move people back to the informal sector since the tax is a disincentive to going formal,” he said. 

 Loss of jobs

The outbreak of COVID-19 saw several Ugandans lose their jobs as commercial cut costs. According to Nampewo, the tax may force banks to cut back on their staff as it will increase their administrative expenses.

“We have seen many banks cutting down on staff due to high administrative expenses. Banks make money out of the different transactions. If we are reducing the people undertaking transactions in the banks, we are reducing the amount the banks are making which means we are decreasing the amount of money for loans to invest,” she added. 

“This tax will increase the cost of savings but also for banks to have enough income to provide to investors. This in turn comes to reducing economic growth. Let us not promote this tax. We want to encourage financial inclusion but also support the banks to have more income,” she added. 

Nalunga: “The proposed 0.5% on withdrawals will discourage savings and many people will start putting money under the bed. This proposal will increase the burden through multiple taxations. We are cognizant of the fact that there is a revenue projected decline by sh116b. However, this move is likely to deepen rather than broaden the tax base leading to an increased tax burden.”

In 2020, COVID-19 transformed many businesses from the analogue mode to doing things in the digital mode, especially for business and investments. Whereas the proposal is aimed at promoting cashless transactions, it is likely to increase the cost of operation which could discourage its use.