Bank of Uganda (BoU) officials have advised government to drop the controversial mobile money tax on grounds that the tax is neither fair nor equitable.
Recently, Finance minister Matia Kasaija re-tabled the Excise Duty (Amendment) (No.2) Act, 2018 that now seeks to amend the Excise Duty Act, 2014 to limit the taxable mobile money transactions to withdrawal and to reduce the duty payable to 0.5% from 1% of the value of the transaction.
While appearing before the parliamentary committee on Finance, Economic Planning and Development, BoU officials headed by Charles Abuka, director of Statistics, said that government should drop the proposed mobile money because “the new tax will deter growth of the country’s financial institutions.”
“The tax (mobile money tax) is neither neutral nor equitable between like forms of business activities. The same tax doesn’t apply to withdrawals from banks or microfinance institutions or SACCOs. In this sense, neutrality also entails that the tax system raises revenue while minimizing discrimination in favour of, or against any particular economic choice. This implies that the same principles of taxation should apply to all forms of business, while addressing specific features that may otherwise undermine an equal and neutral application of those principles,” Abuka said.
Abuka said that there are a number of broad tax policy considerations that have traditionally guided the development of taxation systems which include; neutrality, efficiency, certainty and simplicity, effectiveness and fairness as well as flexibility. Abuka thinks that the mobile money tax does not pass the tests.
“In the context of the tax on mobile money withdrawal transactions, what comes to mind is the basis of this tax. Already, the excise duty charged on mobile money agents was increased from 10% to 15% effective July 2018 and this in essence will be passed on to the beneficiaries of mobile money services through higher mobile money charges. A distortion and the corresponding deadweight loss, will occur when changes in price trigger different changes in supply and demand than would occur in the absence of tax,” he said.
BoU’s Abuka also noted that this new mobile money tax will not lead to increased revenue collection as projected by government.
“Indeed, the value of mobile money transactions declined by Shs672bn in the first two weeks of July 2018 compared to the first two weeks of June 2018 in part following the announcement of the Excise Duty (Amendment) Act 2018 introducing a tax of 1% of the value of the transaction that would apply on mobile money transactions,” Abuka’s said.
He added that even though the proposed bill reduces the tax to 0.5% and limits it to withdrawals, it is still not neutral, fair, equitable and has the additional dangers of retarding growth of financial inclusion.
“A student who receives school fees through mobile money should not 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,” he added.
