Abuka noted that although placing a charge on mobile money withdrawals would increase revenue, the tax is inefficient, uncertain and complex. He explained that the mobile money levy goes against tax policy
The mobile money tax risks retarding growth of financial inclusion looking at its discriminative and unfair nature, according to Bank of Uganda.
Charles Abuka, the BoU Director of Statistics disclosed this while appearing before the Finance Committee of Parliament that is scrutinizing the excise duty amendment, bill no 2. 2018, which seeks to reduce the money tax from 1 percent to 0.5 percent.
Abuka noted that although placing a charge on mobile money withdrawals would increase revenue, the tax is inefficient, uncertain and complex. He explained that the mobile money levy goes against tax policy considerations that have traditionally guided the development of the taxation system.
He also revealed that mobile money transactions declined by Shillings 672bn in the first two weeks of July 2018 when the mobile money tax came into force.
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Abuka also said the 1 percent mobile money levy on withdrawals is discriminative since it isn't applicable on withdrawals from the banks, micro finance institutions and Saccos, adding that equity suggests that tax payers in similar circumstances should bear a similar tax burden.
"A student who receives school fees through mobile money shouldn't 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," Abuka said. He also warned that the tax could offer various avenues of tax avoidance and evasion including use of informal methods of sending money.
Abuka noted that Government has already increased the excise duty on mobile money agents from 10 to 15%, which will also affect mobile money users. Abuka adds that on the financial inclusion agenda, the tax will deter the growth of access to financial services, which stood at 55% in 2016 up from 28% in 2010 due to the increased use of mobile money.
He says on average mobile money transactions were valued at Shillings 6 trillion (6% of GDP) in 2017/2018 and an increase of Shillings 2 trillion in one year. The number of registered mobile money users stands at 23million with 10 million of them considered active following their transactions in last three months. Abuka says there is still a high level of financial exclusion in rural areas.
"Unfortunately this tax is exacerbating the costs associated with provision of the financial services," Abuka said. Henry Musasizi, the Finance Committee Chairperson, said although Bank of Uganda says the proposal is unfair and discriminatory, parliament needs to raise Shillings 115bn to support the budget.
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The committee expects to handle the proposal within ten days and report back to Parliament.