In June 2018, the government introduced a new tax of one percent value on all Mobile Money (MM) transactions which appeared as a way of penalizing Ugandans who opt to use mobile money services as opposed to traditional commercial banking services.
However, later alone after a sharp drop in MM usage, it was reduced to 0.5 percent of value on only withdrawals. Although the total value of transactions have been recovered since the introduction of tax, there is are concerns that the levy negatively impacts the poor and the formalization of the economy.
The preliminary findings conducted by the United Nations Capital Development Fund (UNCDF) in partnership with PHB Development have shown that Ugandans are slowly adopting agent banking leaving mobile money technology due to a lot of money lost in transactions.
While presenting the findings via webinar on Wednesday, Páll Kvaran a research associate from PHB said the 0.5 percent tax on mobile money has negatively impacted the transactions. Kvaran said that majority of the public is aware of the tax.
For example at income level; 98 percent of people transacting more than Shs1m are aware of this tax whereas 74 percent of those transacting less than Shs100,000 are also aware of it. In urban areas, 98 percent know about it while in rural areas 78 percent are aware of it.
However, even though a majority of the public is aware of the tax, only 30 percent mobile money agents, can explain its details and how it’s applied.
“62 percent of the public believe that the mobile money tax is not reasonable. While interviewing mobile money agents, a lot of them have said that they have lost businesses due to taxes. The people who used to cash out big amounts of money stopped cashing out at MM agents. They now use agent banking to avoid tax,One agent of Mobile money agent told us, ” he said.
Other respondents alluded that they switched to the banking system because of the expensive tax. Withdrawals in banking are cheaper than mobile money withdrawals.
The findings again show that most high-income earners and urban people have started using agent banking however the lower-income earners end up paying the majority of the tax.
Data from the Uganda Revenue Authority (URA) have also shown that in June 2020, the monthly value of the agent banking transactions stood at shs2.5 trillion having grown by 171 percent the year before however, the total value of mobile money transactions dropped by around Shs1 trillion months after the introduction of the tax.
Mr Kvaran added the findings indicate that the tax is highly regressive: the lowest income group may end up paying most of it, while higher income groups move to alternatives.
“Hundreds of thousands of payments in agriculture is not digitized as a result of the tax, leading to decrease the formalization of the economy.”
Chris Lukolyo, the Digital Country Lead at UNCDF urged that there is a need for the government to revise some policies to enable digital financial inclusions in Uganda.
“Mobile Money taxation is now looked to be a barrier to the growth of digital financial inclusion. Taxation is not necessarily a good thing or a bad thing because the government does need revenue to provide public services and so we as a UN agency take a very neutral position to encourage an open discussion about this….because we need to create a conducive environment for the people to take up these services,” Mr Lukolyo said.
“We took on this study to find out what are the themes out there, therefore what we hope to do is to have engagements with different policymakers and have an in-depth discussion,” he noted, adding that the engagements will take place with different key ministries and authorities to make sure that there is a balance between financial inclusion and revenue generation.
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