Even in the best case the Mobile Money Tax would be costly for Ugandas Economy

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.
References 

Muthiora, B. and Raithatha, R. (2017). Rethinking Mobile Money Taxation. 20 October 2017. [Online] available at https://www.gsma.com/mobilefordevelopment/programme/mobile-money/rethinking-mobile-money-taxation/ (Accessed: 10, July 2017)
URN. (2017). Mobile money agents launch scheme to beat new tax. 4 July 2018. [Online] available at https://observer.ug/news/headlines/58079-mobile-money-agents-launch-plans-to-beat-new-tax.html (Accessed: 11, July 2017)

10 COMMENTS

  1. If the collected taxes were well spent, in service investments for the population, it would actually increase wealth of citizens, as their fellow Ugandans employed by government would have money to buy their goods and services….

    • I agree with Idara, USA runs on the taxes of its citizens. Taxes is a great way to fund government initiatives, it also makes the citizens accountable to how they spend their money.

      • Yeah that’s true , the uniqueness about mobile money system is its potential in financial inclusive though it’s unfortunate this is changing and I agree there is need for increased accountability and transparency by the tax authorities across the African continent

  2. Mobile Payment is a big deal in Africa. My experience of Mpesa in Nairobi showed me the possibility of how mobile payment can help us as Africans build a payment Localization in Africa and in turn provide jobs for youths in Africa. In my opinion, we can do better than always looking for ways to always ask for Tax.

    • Please help me to understand how Mobile Payment creates jobs for youths in Africa.
      The most efficient tax system I saw was in Hong Kong, world’s freest economy for 25 years and a population of 7.5 million, following a progressive tax rate system with five marginal tax brackets of minimum 2% to maximum 17%.
      Hong Kong as a free port, is a special economic zone of China with zero tariff, and it has been that way long before its return to China from Britain in 1997.
      Also, losses from business can be carried forward indefinitely to offset against future assessable profits until fully utilized. In 2011, Hong Kong actually paid back each resident about USD $1000 (Scheme $6000 HKD) due to its record USD $97 billion in reserve.
      When I sold my business in the U.S. in 2016, I was taxed at 50% while maximum loss deduction is was at 0.27%- Meaning that while the US government making record spending on Health Care (USD $3202 billion- with no Universal Health Care and ranked 29th among OCED countries), education (USD $620 billion with a ranking around 30th in the world vs Hong Kong consistently among top 5), and military defense (USD $613 billion), the IRS left small business owners to die while they are creating the most job opportunities and yes, most insurance coverage are carried by businesses not government.

      I would suggest strongly that African nations examine the efficiency of tax revenue usage and prioritize spending needs for their constituents. With S&P 500 corporations paying next to no tax, while small business owners and middle class income earners assume most of the tax obligations, it is a sure way to choke the life out of thriving business environment.

      Lastly, if a sales exercise tax is leveraged, the best way to make sure businesses are complaint is to implement a lottery system such as the one used in Taiwan if the culture itself is not hot on paying sales tax. In Taiwan consumers are told to always ask for receipts and every 2 months there would be drawing on the receipt number with high frequency of winning numbers. Alternatively, just make sure a reliable sales record tracking can be part of each business’s point of sales system.

  3. Very thoughtful article. I come from an era of cash and credit cards in the USA. As i think about nations that are using forms of mobile money I also try to reflect on the oft unseen gains of this system of handling day to day cash transactions. It seems, for many, the time that is not spent going to the bank or cashing checks can be time that is held “in pocket” for more work, increased family time or enhanced social and community life. I also wonder what particular nations Uganda has examined –perhaps there are models that don’t require so much taxation for the use and maintenance of the service? Great resource by the way, your blog and writings. Theodore Chelmow, Ph.D. M.Ed. M.A

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