How the mobile money tax will not build, but cripple the economy

MOBILE MONEY TAXATION

By Ian Mutibwa

RAISING REVENUE- Parliament has recently passed the Excise Duty Amendment Act, 2018 and among other introductions, is the 1% tax on mobile money transactions. For clarity for the dear reader, this law is to the effect that one is taxed when they send, receive and withdraw money on their mobile devises.  

Many tax experts and other concerned citizens have be-laboured to graphically explain how the new tax will lessen the drive for financial inclusion and the different tax ethos/principles the tax violates. 

However, I would like to look at the same tax in light of the ripple effect on the economy. The Ugandan economy is/was predominantly run by businesses that are cash based. With the invent of mobile money, the cash society was somewhat phased out and the use of mobile money became the norm. The cashless economy had taken root.

In many instances, business such as consultancies, schools, restaurants, hotels opened up mobile money payment platforms, remittances from abroad also came by way of mobile money and there was little cash involved.

As a matter of fact, the odd man out was the person who transacted with cash and was not registered for mobile money. The mobile economy was growing rapidly and it covered the banked and the unbanked alike.

One could easily make payment to their supplier many miles away reducing speed on transactions and easing business transactions to remote areas in Uganda. With this, the economy in Uganda blossomed. There are currently over 22 million subscribers registered for Mobile Money. It is safe to say that the platform has become instrumental in bringing Ugandans into the formal banking sector. 

Statistics have showed that mobile money transactions have now reached Shs 54 trillion almost half of the national GDP meaning mobile money is no longer just an informal transaction. In fact, about 43% of Ugandan adults have access to, and 26% actively use, mobile money accounts.  

However, with the new tax, there is triple taxation of the transactions on mobile money. How then does this affect business generally and the economy? 

Many persons who are not regular users of mobile money may be indifferent and think the new tax will not affect them, but far from it.

I shall take a few examples; Bills and utilities payments (UMEME, NWSC) and the School fees payments. With the new tax, where one is paying/topping up for YAKA, they will be charged for depositing the YAKA money on their account, they will be charged for paying the YAKA money onto the UMEME account and UMEME will be charged for receiving the said payment on their account.

You need to remember that companies are here for profit and as such, what UMEME would ordinarily do is to pass on this tax to the customer to bear. In turn, anyone who then pays for their YAKA, will face the heightened fee.

Many of us remember the days of queuing up to pay for power at the defunct UEB offices or in the banks? With the new tax, I fear that this may return and become the new normal. The banked person shall then be faced with the long bank queues for paying these utility bills. This in turn wastes time and of course time and money are twins.

The long school fees lines are also a question of the past. There was a time when Stanbic Bank at Charm Towers/UCB would attract a line up to the Jinja road roundabout as it was then (present day Jinja road traffic lights/ Kitgum House). These were parents and students lining up to pay school fees.

With invent of mobile money, you can now pay school fees by a click of the button in the comfort of your living room or office. In addition, the regular thefts of the money by "clever" persons from students who had come to bank but wanted the "panya" to pay was no more. How would the situation be like when the tax on mobile money transactions is implemented? The return of the long queues and thefts is my immediate guess.

I could go on to talk about the rural farmer who was paid through mobile money and such payments are now too expensive for him as they have to suffer 3% tax on receipt and another 3% where they have to pay school fees for their children. The cash economy returns.

The question therefore, is what happens to the vibrant mobile money/cashless economy? The tax in my opinion shall affect and may cripple many businesses and in turn the desired benefit of tax to develop the country may actually lead to negative development. Whereas a cashless society may have demerits, the merits outweigh them and the URA may have better records with a cashless society. Let us not kill it before it reaches its maturity.

In my opinion, this tax needs to be revisited so that the tax on mobile transactions is charged but not to kill the economy.

The writer is the head of tax, banking and finance at Signum Advocates