Most Ugandans now send and receive money via mobile phone networks

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.