The civil society organisations have advised government against taxing mobile money platforms, arguing it will do “more harm than good”, hence defeat the policy of financial inclusion.
For the financial year 2018/19, the finance ministry proposed to include 1% tax on the value of transactions (receiving payments and withdrawals) on mobile money.
“We believe that imposing a 1% tax value on mobile money transactions will do more harm than good especially for the vulnerable poor who have greatly adopted this digital finance service,” said Julius Mukunda, the executive director of Civil Society Budget Group (CSBAG).
“We should not abrogate the canons of taxation, key of which is equity and fairness. We should not collect revenue at all costs,” he told reporters in Kampala.
The civil society groups are instead advising government to increase excise duty from 10% to 17.5% on withdrawal fees, which according to them, will generate sh122b compared to sh33b expected revenue from 1% transaction tax and the 15% proposed excise duty.
“It would, however, contribute to averting numerous dangers and economic losses that are bound to arise because of going ahead with the current proposal,” they said.
The civil society, under their umbrella CSBAG, proposed that government should tax interest income on mobile money subscribers’ account balances, as it will encourage savings and promote income distribution.
They pointed out that in the worst-case scenario, of the 3% treasury bill interest, government can collect sh5b from interest income on various users mobile money accounts.
Henry Kimera, the chief executive officer of Consumer Education Trust, acknowledged the contribution of mobile money to financial inclusion as it enables efficient payment of goods and services.
He said nearly half of Uganda’s districts lack access to any bank branch and automated teller machine (ATM) and therefore, there is heavy reliance on mobile money.
“This tax will negatively impact on government’s financial inclusion agenda, which is heavily reliant on digital financial services, increasing access and usage of financial services among the majority of Ugandans at the lowest possible cost,” Kimera said.
He said the move may discourage growth in mobile money transactions and ultimately result in a reduction in the velocity of money in the economy.
Carol Namagembe, the programme manager of CSBAG, said civil society is not against taxation as expanding revenue base collection, but the principle of fair taxation should be followed.