Mobile money tax hike could increase poverty - civil society

Over the years, transacting through mobile devices has lifted several Ugandans out of poverty, and its convenient and secure for others like Mohamed Kimbugwe, an actor and a master of ceremonies, to send and receive money.

Kimbugwe says mobile money is "super convenient and time saving". He says clients can pay into his mobile money account and he can in turn wire the money to his bank account. He can also transfer money from his bank account into his mobile money account to settle debts or pay for services. 

However, all these benefits are likely to be eroded and more Ugandans are likely to be plunged into the depths of poverty if a new 1% tax on the value of money sent and received is implemented in the financial year 2018/19, the Civil Society Budget Advocacy Group (CSBAG) has warned.

Already, mobile money transactions are subject to a number of taxes. For instance, MTN the largest mobile money network operator charges at least sh1,000 for sending money to another user on the same network, and sh2,310 for a user on another network for amounts below sh50,000.

Government then levies an excise duty tax of 10% on the charges, which also extended to the user. This excise duty will be going up to 15% effective 1 July 2018. In addition to this hike, government will tax the money sent twice, both the sender and receiver will remit 1% of the value of the transaction.

Analysis by CSBAG shows that transactions worth sh50,000 and below will be degraded by at least 8% or sh3,975 if the new tax proposals come into force.

At a recent media briefing, Julius Mukunda, the CSBAG executive director said that data secured from MTN, the largest mobile money service provider in Uganda, indicated that 61% of its mobile money clients transfer less than sh45,000 or about $13.

He warned that is the new tax regime is effected, it will reduce the amount of money available to cater for basic needs.

He said: "Uganda risks having up to 35% of all Ugandans becoming income poor as the youth, women and men in this job market are likely to fall into poverty through reduction in transaction volumes and ultimately commissions."

In Uganda, one in every two adults accesses mobile money, according to a Findex survey of 2017; the survey also showed that mobile money has gained prominence among the poor where one out of five adults below the poverty line of $1.9 per day already use mobile money.

Mukunda said that the new taxes will also slow down the popularity of mobile money which has soared in recent years. He pointed out that Uganda mobile money account ownership rose from 35 % in 2014 to 51 % in 2017 of the total population.

Using Bank of Uganda data, Mukunda also noted that mobile Money transactions increased by about sh10 trillion from sh44 trillion in 2016 to sh54 trillion in 2017. He warned that these gains could be reversed if the taxman cracks the whip too harshly.

In 2015, nearly one in every two Ugandans had a mobile money point of service within 1km from their home as compared to only 16% or about two every 10 Ugandans who had access to a commercial bank branch within the same distance.

"Such evidence should be the basis as to why government should not frustrate operations of the mobile money facility, through imposing regressive taxes. Mobile Money is a scale-business, so that the more the volume increases, the more Telco operators can decrease price, which then lures additional users," Mukunda observed.

In the same vein, Timothy Akiiki, the post bank senior manager for strategy and partnerships said that much as government requires revenue to support economic development, it should instead explore other avenues since mobile money directly benefits the poor.

Fredrick Kawooya, the policy and campaigns manager at actionaid said that higher taxes on mobile money will deter Ugandans from saving with formal financial institutions and expose them to fraud and theft.

Using the words of the former British Prime Minister Sir Winston Churchill, Francis Kamulegeya the Country Senior Partner PricewaterhouseCoopers Uganda said that a country that tries to tax itself into prosperity is like a man standing in a bucket trying to lift himself up by the handle.