Mobile money is an electronic wallet service that allows users to store, pay bills , send and receive money using their mobile phone. Mobile money can be used for money transactions and money agents facilitate payment of bills, salaries, school fees, purchase of goods and transfer of money to family and friends.
Initially, Individuals who use mobile money services are faced with taxation that includes Value Added Tax (VAT), mobile sector specific taxation such as excise duties on airtime usage and direct mobile money tax on transfer fees charged by telecommunication companies.
In addition to the above taxes, the Ugandan Parliament passed a new tax on mobile money transaction contained in the Excise Duty (Amendment) Act 2018, “A tax of 1 per cent of the value of the transaction will apply on mobile money transactions on receiving money, making payments and withdrawal of money.”
Impact on consumers
The common denominator for regional mobile money taxation, regardless of the percentage, is its regressive nature i.e. disproportionately affecting low-income earners. Since the mobile money excise is charged on transfer fees, the tax is a larger share of the cost for smaller transfers. It imposes a larger burden on poorer consumers ie whether you are paying your child’s school fees, paying your Yaka bills, or sending money to pay your parent’s medical bills in the village.
Mobile money services are also used as a source of saving and as such mobile money taxation is a major threat to financial inclusion across East Africa. Financial inclusion efforts seek to ensure that all households and businesses, regardless of income level, have access to and can effectively use the appropriate financial services they need to improve their lives.
Mobile money accounts are a means through which those who do not have accounts at formal institutions make day to day transactions, safeguard savings and pay for recurring expenses such as school fees. The increased cost of transferring money as a result of taxation is bound to force many to scale down the use of the services and this will affect the overall integration of households into the financial architecture.
Besides, the platform provides employment to many people who now have to contend with earning less commissions and overseeing less transactions. This is because mobile money use has dropped since the introduction of these new tax measures according to recent media reports (URN, 2018).
In the Ugandan case in the previous weeks, the government has panicked to draft an amendement to reduce the the tax to 0.5 % and removal of taxes on all deposits but even in this case the impact on consumers and SMEs is greater.
In conclusion, there is an urgent need to bring on board all key stakeholders in the decision making and policy design process of mobile money taxation. This includes telecom companies, government, small and medium enterprises and consumers. This will ensure that stakeholder concerns are accommodated in the taxation regime as government seeks to increase domestic revenue.