Members of Parliament on the Forum on Public Finance Management and the Greater North Parliamentary Forum of Parliament have warned government to slow down on Mobile Money tax lest it sinks the country into untold disaster.
The MPs addressed journalists on Wednesday May 9 at the Members’Lounge in Parliament.
The MPs acknowledged government efforts to expand the tax base, through efforts like mobilsing domestic resources like Tax Registration Expansion programme, the Tax Identification Number (TIN) mobilization drive, e-tax portals, cargo tracking among others.
Among the FY 2018/19 proposals, the Finance Minister proposed in Clause 6 of the Excise Duty amendment Bill 2018, to amend Schedule 2 and substitute Item 13 (f) to include 1% tax on the value of the transactions (receiving, payments and withdrawals) on Mobile Money.
This tax would increase the cost of sending and receiving money which will negatively affect value chains in agriculture, access to energy, utilities and trade services, and Uganda could suffer a reversal of gains made towards financial inclusion.
Mr John Baptist Nambeshe, MP for Majinya in Mbale Municipality said the proposal is a risk for Uganda which may destroy the zeal of Ugandans doing business as it could degenerate into high level of crime such as money laundering. Given the level of corruption in the country and impunity, there is need to explore other options.
He added that it frustrates the financial inclusion whereby 41% and 48% of districts out of the 112 in Uganda lack access to any mobile money and ATM respectively.
“The positive externalities of mobile money also spill over into other sectors, such as agriculture, healthcare and education. In short, there are strong incentives for the state to support the growth of mobile money, the opposite of what an excise duty is typically designed to achieve,” Mr Nambeshe said, adding that this tax will in a bad way impact financial services increasing access and usage of financial services among majority of Ugandans at the lowest possible cost.
Mr Gaafa Mbwatekamwa, Mp for Kasambya County, added that this tax is going to hurt the poor and vulnerable by increasing fees that could make adoption of mobile money especially in lower segments much harder.
“Using the MTN for example, the highest proportion of mobile money transaction users-6% of transaction is less than Shs 45,000. In addition, government and business will not be spared the impacts since delivery of bulk payments to the lower income segments in a timely and cost efficient manner through mobile money could be affected,” Mr Mbwatekamwa said.
According to Roland Kagindi Mugume, Mp for Rukungiri Municipality, the tax will increase the cost of doing business with mobile money. Taxing every person receiving and withdrawing as opposed to a tax may instead discourage growth in mobile money transactions and ultimately result in a reduction in the velocity of money.
“A reduction in the velocity of mobile money will harm the economic activity and slow down the economy growth as mobile money agents could see their costs go up when they send money back and forth to maintain floats,” Mugume said.
The Members proposed that government increase excise duty from 10% to 17.5% on withdrawal. This would generate Shs 122bn which is 33bn below the expected revenue from the 1% transaction tax and the 15% proposed excise duty. It would however contribute to a numerous dangerous and economic losses that are bound to rise if the current tax is proposed.
Mbwatekamwa warned the Minister of Finance to desist from presenting the tax in Parliament but first address the concerns and loop holes they have observed or else they will embarrass him.
The MPs are looking for 320 signatures and already they have 116 to oppose the tax when it comes into the House. The MPs believe that there is a tremendous opportunity that exists in regard to distributing to mobile money subscribers the interest rate that commercial banks generate from the accounts for instance,, Shs 800bn. This will not only generate savings but also promote income distribution.
Ojara explained that much as they appreciate the minister’s proposals and efforts to raise revenue, they are sure that imposing a 1% tax on the value of MM transactions will do more harm than good especially to hurt the poor who adopted this digital financial service.