Local civil societies led by the Civil Society Budget Advocacy Group (CBAG) will Thursday at Hotel Africana in Kampala launch a campaign against a proposed tax on mobile money transactions as stated in the budget framework paper for the financial year 2018/19, Eagle Online understands.
Of the financial year 2018/19 proposals, the finance minister Matia Kasaija has included a 1 per cent tax on the value of the mobile money transactions-targeting receiving, payments and withdrawals, as outlined in the excise duty bill.
But according to organisers, tomorrow’s event is expected to draw a considerable number of participants from the political cycles, civil society, media, students, academia and the members of the general public, who argue the new tax will increase the cost of sending and receiving money.
Particularly, they argue that the tax will negatively affect value chains in agriculture, access to energy, utilities and trade services. “Uganda could suffer a reversal of gains made towards financial inclusion,” reads part of a statement released by CBAG two days ago.
Uptake of mobile money services
They also state that the tax will reduce the uptake of mobile money services and adversely affect businesses, “which will have a negative knock-on effect across the economy.” “We also believe that taxing Mobile money is in real effect going to reduce the amount of money available to cater for basic needs like health and education,” they say.
The CSOs also fear that the will could make adoption of mobile money especially in lower segments much more difficult. “They In addition, Government and businesses 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,” they say.
They also say that effective tax on deposits, transfers and withdrawals could reduce the already low payments being received by the end users. Likely to be hit directly are government plans to use Mobile Money for payments to the elderly, the vulnerable and even refugees.
Frustrating financial inclusion
They argue that 48 per cent of the districts out of the 112 districts in Uganda lack access to any bank branch and ATM. They say mobile money transactions enable more efficient payments for goods and services, reduce the informal economy, create employment and protects vulnerable segments of society from financial shocks. The tax, they say will also negatively impact government’s financial inclusion agenda which is heavily reliant on digital financial services, and increasing access and usage of financial services among a majority of Ugandans at the lowest possible cost.
It is important to note that more than 10 million Ugandans have been able to access formal financial services because of mobile money. “Projections show that while farmers currently use mobile money to facilitate 53.5 per cent of their annual payments, imposing the 1 per cent transactional levy will see this number drop to just 5.9 per cent primarily to buy airtime and transfer money to friends and relatives. Higher value services such as paying school fees will become unaffordable,” they say.
Increased cost of doing business with Mobile Money
Taxing every mobile money transaction – sending, payment, receiving and withdrawing as proposed in the tax may discourage growth in mobile money transactions and ultimately result in a reduction in the velocity of money in the economy. A reduction in the velocity of money will hamper economic activity and ultimately slowdown economic growth as mobile money agents could see their costs go up when they send money back and forth to maintain floats, they warn.
Slowing down of Uganda’s digital financial services
The activists say that the proposed tax is likely to slow down the use of digital payment channels which could impede on government transparency initiatives in revenue collection. They reason that because payments using mobile money leave a digital trail, its use had significantly reduced reporting and other administrative costs of NGOs, government, businesses and other players. “We have observed service providers like UMEME and NWSC close majority of their cash offices in favour of mobile money,” they say
Frustrating financial inclusion
The ta CSBAG says, will negatively impact government’s financial inclusion agenda which is heavily reliant on digital financial services increasing access and usage of financial services among a majority of Ugandans at the lowest possible cost.
“It is important to note that more than 10 million Ugandans have been able to access formal financial services because of mobile money. Projections show that while farmers currently use mobile money to facilitate 53.5 per cent of their annual payments, imposing the 1 per cent transactional levy will see this number drop to just 5.9 per cent primarily to buy airtime and transfer money to friends and relatives,” they argue.
Increased cost of doing business with Mobile Money
They say that taxing every mobile money transaction – sending, payment, receiving and withdrawing as proposed in the tax may discourage growth in mobile money transactions and ultimately result in a reduction in the velocity of money in the economy. They add that a reduction in the velocity of money will hamper economic activity and ultimately slowdown economic growth as mobile money agents could see their costs go up when they send money back and forth to maintain floats.
“Curbing this float rebalancing behaviour will result in significant liquidity challenges across mobile money networks hence affecting the profitability and long-term viability of the more than 60,000 mobile money agents in the country. This will have a negative knock-on effect in rural areas where withdrawals are the dominant mobile money activity,” the CSO’s say.
