BY BERNARD BUSUULWA
Uganda’s cell phone money tax has resulted in underperformance in excise duty collection on cell phone money transactions for the past three years as consumers have avoided the service altogether, which is hard lessons for policy makers and the telecommunications industry.
The tax was introduced in July 2018 to expand the tax base and generate more tax revenue needed to fund large infrastructure projects, as opposed to expensive overseas trade credits, which come mainly from China.
The initial enforcement of a one percent tiered excise tax on sending, receiving, withdrawing, and depositing mobile money left many mobile money customers angry after suffering high user fees for various transactions.
For example, a mobile money transfer of $ 150,000 ($ 41) incurred a transaction fee of $ 5,000 ($ 1.40) compared to $ 1,000 ($ 0.28) for the were levied before the tax was introduced.
Although the excise tax rate was adjusted to 0.5 percent in September 2018 and limited to withdrawals, many consumers have abandoned the mobile money platform for large transactions and opted for either cash transactions or agency banks, which charge lower user fees.
Preliminary results of a study by the UN Development Fund show that 62 percent of all users surveyed reject the mobile money tax.
The study found that the total value of mobile money transactions went from $ 7 trillion ($ 1.9 billion) in May 2018 (pre-tax) to $ 4 trillion ($ 1.12 billion) in July Fell in 2018, shortly after the introduction of the excise tax rate of one percent.
But a quick review of the tax measure in September 2018 brought the total value of mobile money transactions to $ 6 trillion ($ 1.68 billion) in November 2018, reflecting resurgent customer interest in response to lower taxes.
Mobile money transaction tax revenue was $ 160 billion ($ 44.8 million) for fiscal 2018/19, up from a target of $ 120 billion ($ 33.6 million).
In contrast, mobile money transaction tax revenue in 2019-20 was $ 100 billion ($ 27.9 million), up from a target of $ 160 billion ($ 44.8 million). The tax collections posted through mobile money transactions also recorded a deficit of 36 percent between October and November 2020, according to the Ministry of Finance – a result of the penalty tax regime and the negative effects of the Covid-19 lockdown measures, which have affected several sectors.
“The heavy use of online banking services during the lock-up period has encouraged banks to make large money transfers and utility payments possible for their customers free of charge. As a result, the mobile money tax has become a nuisance to financial inclusion efforts and harmed many poor people, ”said Jet Tusabe, Tax Director at BDO Uganda.
Despite strong public complaints against the mobile money tax, the government is ready to maintain this tax measure, said Patrick Ocailap, deputy state secretary in the Ugandan Ministry of Finance, Planning and Economic Development.
Muhammad Ssempijja, tax partner at Ernest and Young Uganda, called for the tax to be abolished.
“The government should have examined the long-term growth potential of mobile money transactions and its impact on economic growth, and should have abolished the tax,” he said.