SIRONKO – Taxation is the means by which our government, its organs, or the taxing authority impose or levy a tax on its citizens, its visitors, and residents living in its geographical boundaries. Taxes are levied in almost every country of the world primarily to raise revenue for government expenditures. The money raised from taxation supports the government and allows it to fund its budget. Governments impose charges on their citizens and businesses as a means of raising revenue, which is then used to meet their budgetary demands.
In The Wealth of Nations (1776), Adam Smith argued that taxation should follow the four principles of fairness, certainty, convenience, and efficiency. Fairness, in that taxation, should be compatible with taxpayers’ conditions, including their ability to pay in line with personal and family needs. Maybe that explains why the Government is planning to introduce a new levy on bank withdrawals.
Our print and media houses have written extensively about a leaked letter by Patrick Ocailip addressed to the Governor Bank of Uganda. Patrick Ocailip is the deputy secretary to the treasury in the Ministry of Finance and economic planning. The letter was allegedly seeking the Governor’s “opinion” on the proposal to tax bank withdrawals. The same letter requested bank of Uganda to avail him with data for the past three financial years on all categories of withdrawals for their further review and determination. Was the letter really seeking an opinion or was asking for information to help the Ministry of Finance to implement a decision already taken.
It is alleged that Patrick Ocailip’s letter was a brainchild of a budget consultative meeting at the Ministry’s offices held on 05th February 2021 and involving different stakeholders.
One of the pertinent issues on the table were that the Ministry of Finance was concerned that whereas withdrawals on mobile money are taxed at 0.5% excise duty, commercial bank withdrawals at the ATM, counter, and agency banking are not subjected to the same which can be interpreted as discriminatory and defeats the principle of fairness.
What is not clear is the criteria that were used to identify those in attendance. It appears the government had hatched a plan to introduce another tax on telecom operators who raised a complaint on commercial banks.
I am left with no option but to conclude that telecom companies together with UCC tabled the proposal to tax bank withdrawals just because they were a conduit through which government was collecting money on mobile money and social media and found it necessary to push the same burden to commercial banks.
Whether this was the complaint of telecoms, the tax proposal if considered by the government will fall on the back of bank customers and the reason is to create fairness in the tax regime.
Fairness is the concept in sociology, law, and generally in society, that something should be equal and not be a contradiction to accepted standards. It’s related to justice in both the legal and sociological sense. Fairness is also treating others equally or in a way that is considered right or reasonable. Fairness can mean sameness where everything is kept equal by being the same.
Guess who was in attendance, Officials from Ugandan Revenue Authority, Uganda Communications Commission, telecom operators, and Bank of Uganda. It is clear that commercial banks were not invited and therefore were not represented yet the proposal had a lot to do with the banks and their customers. After their deliberations, it was proposed that Uganda Revenue Authority should explore taxing of cash withdrawals, from commercial banks which tax is collected at the source every other time a customer withdraws money.
Commercial banks may not see this as a problem for now, after all the tax will be picked from the customer who withdraws money but in the long run, the banks will equally feel the pinch. When the hunter runs to shoot without warning, the birds must learn to fly without perching.
Initially, I thought the purpose of the tax was to encourage a cashless economy but clearly, the intentions are sinister. Let Ugandans not forget that to withdraw also includes transfers of money from one account to another. I therefore think the tax will create a double taxation when one withdraws money from their bank account into their mobile money account and later transacts or withdraws the same before a mobile money agent but who told the Government that the country can become rich by milking its citizens to the borne.
Countries all over the world depend on tax collection to develop and to fund communal projects and objectives. However, this is usually curtailed by corruption and bad decision in planning for the country by the powers that be. The prevalence of poverty in developing countries demands that countries like Uganda should improvise internal revenue generating projects to supplement, or better still, ultimately significantly reduce dependence on foreign funding. This way self-sustaining economies can be achieved. One such internal revenue-generating mechanism and perhaps the most commonly used, is taxation. The purpose of taxation is nothing less of increasing the contribution of tax revenue to Gross Domestic Product, and consequently, a means of reducing the gap between the rich and the poor.
This tax on bank withdrawals should not surprise Ugandans as a matter of fact, it is being proposed as part of the long term plan to make Uganda self reliant and be able to finance a bigger percentage of its budget. It is intended that budget for the financial year 2021/2022 should be increased internally. To achieve this plan, about half of these taxes were planned to come from direct taxes, another portion from non-tax revenues including fines and bank charges and the list goes on and on. To me, a decision has been taken awaiting implementation.
I therefore get surprised that the Ministers of Finance are busy convincing and confusing Ugandans that no taxes can be imposed without the approval of Parliament. Which Parliament are the line ministers talking about, if it is the parliament of Uganda irrespective of their political affiliation? To me, this is a done deal. Who said our parliament can fail to approve such a juicy proposal from which they will increase their salaries and get money to buy motor vehicles at the beginning of their term of office.
The whole plan by the ministry of finance is self defeating and could have far reaching consequences on discouraging Ugandans from doing business. The saying that a penny saved is a penny gained could push many to go back to the Ugandan ways of keeping money in holes dug under the bed as a scheme to evade this tax yet to the ministry of finance, the proposal to tax cash withdrawals from banks is part of the central bank’s plan to drive Uganda into a cashless economy with a direct benefit of promoting e-commerce, improving tax compliance in addition to raising revenue to fund the national budget.
The central bank should have begun by enticing Ugandans to build trust in the financial institutions. They had of recent asked commercial banks to harmonise fees charged at Automated Teller Machines, a discussion that is yet to get implemented. According to the 2019 Bank of Uganda annual report, local cash payments rose above the annual average of Shs423 billion to close at Shs544 billion. The growth represented an increase of 20 per cent from Shs455b recorded for the year ended June 2018. This means that cash payments, which for a longtime have been one of the most popular forms of payment in Uganda, are still a popular choice among end-to-end low cost payments and I believe the plan is closely associated with the global effort to wipe out money laundering.
The fear by the Central Bank that achieving a cashless economy would take longer than planned may have been the basis for this tax and from the look of things; it will be achieved by force as over 75 per cent of payments in Uganda are still made through cash and large sums of money are still kept in people’s homes.
However, some of us who understand taxation will not take such decision lightly. For the employed, salaries are paid through bank accounts after taking off so many taxes including a 30 % pay as you earn yet those in the private sector are charged 5% toward NSSF of the employee’s gross salary. It means that when an employee receives salary on a given bank account, all deductable taxes are removed at source and for those of us who are Christians, we again have to part with a 10% on a monthly basis to give the Church. If one cannot evade tithe, the introduction of this new tax will leave you with nothing to take home.
The question on every one mind is why should the government impose a tax on already taxed money?”It is heart breaking that government is hatching such a plan when Ugandans are just recovering from Covid-19. I do not know why this Government cannot resist the temptation of taxing new innovations whenever they see some money starting to flow into the hands of the ordinary person. These plans are only good for the developed countries and should never be copied by the Uganda .Revenue Authority lest we discourage Ugandans from using banks.
It appears we have not learnt anything from past experiences. The taxation on mobile money and internet in form over the tax (OTT) particularly received cold reception among Ugandans. In the long run, it has led to a significant decline in the usage of both platforms. The Government decision to reduce the initial tax on mobile money from 1% to the current 0.5% on withdrawals did not change the perception of the consumer.
To me, there is need for the Government to rethink its priorities and come up with proper friendly allocations to sectors that bring income into the hands of Ugandans from which taxes can be collected and recycled again into the hands of Ugandans. We could also come up with harsher measures against corruption and avoid allocating money to the wrong projects like the construction of roads in Congo when our road network is in a sorry state.
We cannot continue importing everything and exporting nothing to the outside world. In a country where telecom companies, car bonds, construction companies and banks are owned by foreigners, it means a lot of our money including taxes are repatriated to countries where we export nothing or very little. Let us also consider reducing the cost of Administration and injecting more money in the agricultural sector, Uganda can survive on the present taxes without introducing new one. I can only equate this plan to a farmer who milks his cow all the time without feeding it and without considering the plight of the suckling calf.
The writer, Rogers Wadada is a Lawyer, Researcher and a politician.