BOU: Mobile money tax is a bad law

Bank of Uganda has told Parliament that the recently introduced tax on mobile money transactions is a bad law that is likely to cripple the economy.

Appearing before Parliament’s committee on Finance, Planning and Economic Development that is scrutinizing a government bill to amend the tax law, the Central Bank’s director for statistics Charles Abuka said, the tax is neither neutral nor equitable between like forms of business activities.

“Already the Excise Duty charged on mobile money agents was increased from 10% to 15% effective July 2018, and this in essence will be  passed on to the beneficiaries of the mobile money services through higher mobile money charges,” Abuka said.

He told the MPs that this is will lead to a deadweight loss which will trigger different changes in supply and demand that it would occur in the absence of the tax.

“The same tax doesn’t apply to withdrawals from banks or microfinance institutions or SACCOs,” Abuka said.

He told the MPs that in taxation, neutrality entails that the tax system raises revenue while minimizing discrimination in favour of or against any particular economic choice.

“The same principles of taxation should apply to all forms of business while addressing specific feature that may otherwise undermine an equal and neutral application of those principles,” Abuka said.

LOSSES

He revealed that the mobile money transactions had declined by Shs 672bn in the first two weeks of July when implementation of the mobile money tax was effected compared to the first two weeks of June.

Abuka said; mobile money had helped in responding to government’s financial inclusion agenda which is aimed at getting more people to access financial services that are appropriate and effective in improving their lives.

“The average monthly mobile money transactions were valued at Shs 6trillion which is 6% of GDP in 2017/18. The number of registered users currently is estimated at 23 million people which is 62% of the population, imposing additional tax on mobile money has a great danger of undermining this progress,” Abuka said.

He said that even the revised 0.5% tax on mobile money withdrawals poses additional dangers of retarding growth of financial inclusion.

“Maintaining and accelerating growth requires the right policies. Uganda’s impressive growth over the last two decades has been driven by decisions of the past. Future growth will be driven by decisions we make today,” Abuka told the lawmakers.

Two weeks ago, the State Minister for Planning David Bahati told journalists at the Uganda Media Centre in Kampala that in the first two weeks of the implementation of the tax, government had collected more than Shs 5bn from mobile money transactions.

However, Bank of Uganda’s presentation before the parliamentary committee painted a different picture.