Government is proposing a new tax on mobile money transactions. According to the tax proposals contained in the Excise Duty (Amendment) Act 2018, “A tax of 1% of the value of the transaction will apply on mobile money transactions on receiving money, making payments and withdrawals of money”.
If this proposed new tax is passed into law by Parliament, it will mean that with effect from 1 July 2018, government will take 1% of the value of your money every time you use your mobile money account. This means that when you receive money in your mobile money account, government will tax 1% of it. When you deposit money on your mobile money account government will take 1% of it. When you withdraw the same money from your mobile money account, government will again take another 1% of the same money. This tax will always apply every time you use your mobile money account whether you are paying your child’s school fees, paying your Yaka bills, or sending money to pay your parent’s medical bills in the village.
I will illustrate the impact of the proposed new tax with an example. According to the proposed enhanced salary scale for civil servants, a Post Primary Science Teacher will be earning Shs 1,495,225 a month. After deducting income tax in form of Pay As You Earn (PAYE) and NSSF, the Teacher will have a net take home pay of about Shs 1,000,000 a month. If the teacher opts to receive her salary directly into her mobile money account, the government is proposing to take 1% her salary. This additional tax of 1% will be equivalent to Shs 10,000. Remember this salary has already been subjected to tax in the form of PAYE. That will leave her with Shs 990,000 in her account.
Assuming she uses her mobile money account to use pay her child’s school fees of Shs 400,000, government will take yet another 1% of that money which is Shs 4,000. This is Shs 4,000 she could have used to buy her child a dozen of exercise books which is one of the school requirements. If she used some of the balance left on her account to pay her Yaka bill, the government will take another 1% of the money. If she transfers the balance left on her mobile money account into her savings account with her local SACCO, again government will take another 1% of that money. This taking of 1% will continue until there is nothing left to tax.
This proposed new tax of 1% is different from the fee that mobile phone companies charge you for using their mobile money platform. It is a new tax that government is proposing to charge you for using your mobile money account. Currently, if you deposit Shs 1,000,000 on your mobile money account the mobile phone company does not charge you a fee to deposit. When you send the Shs 1,000,000 to another customer who is registered on the same network the mobile phone company charges you about Shs 1,500. If the other party withdraws the cash you have sent them from their mobile money account, the mobile phone company charges him or her a fee of Shs 12,500. The total fee charged by the mobile phone company is Shs 14,500. Out of this, government levies an excise duty tax of 10%. This is going up to 15% effective 1 July 2018. This means out of the total Shs 14,500 collected from you as mobile money charges the government takes 15% which is Shs 2,175 as excise duty.
This new tax of 1% on the transaction value will only apply to mobile money transactions. It will not apply to you if you were to use your bank account to carry out all the transactions I have referred to above. Likewise it does not apply if you were to use other alternative money transfer services such as Western Union or Moneygram. Most importantly, it will not apply to you if you decide to close your mobile money account with MTN or Airtel and open an M-Pesa mobile money account with Safaricom. This is because it will only apply to mobile money transactions carried out on mobile money platforms of the local Uganda mobile phone companies.
On the face of it, this new tax appears to be discriminatory as it will only apply to mobile money transactions. It is also a form of double and in some cases triple taxation as the money being subjected to the 1% tax was already taxed at the time of being earned from your employer. The tax does not appear to be equitable as it is going to be levied every time you use your mobile money account to carry out a transaction.
One of the basic principles of taxation which a government is supposed to consider when designing or implementing a tax system is fairness and neutrality. According to this principle taxes should not favor any one group or sector over another and should not be designed to interfere with or influence individual decision making. The proposed new tax of 1% on the value of mobile money transactions appears to be penalizing Ugandans who opt to use mobile money services as opposed to the traditional commercial banking services. It also appears to be designed to influence or discourage Ugandans from using mobile money banking services. This is because if you were to deposit, make a payment, withdraw or transfer money using your bank account, this 1% tax will not apply to you.
This proposed new tax also violates the basic principle of equality which requires people in equal circumstances to be treated equally. Based on my example above, two post primary science teachers earning the same salary will be taxed differently depending on whether one uses her mobile money account or her commercial bank account. On the basis of the preliminary consultations and discussions I have hard with my friends in the legal profession, it is possible that this proposed tax could be a violation of Articles 21 and 43 of the Constitutional of the Republic of Uganda.
I agree we need to widen the tax base and bring in all persons engaged in any kind of economic activity into our country’s tax net so that they too can make their fair contribution to the financing of our country’s budget. But there must be another way to do this.
There are about 24 million people in Uganda who use mobile phone services. Out of these, 88% are registered for mobile money services and have mobile accounts. This means that there are 22 million people in Uganda who have mobile money accounts. This is nearly three times the number of people in Uganda who have bank accounts.
Mobile money transactions in the year ended 31 December are estimated to have been on excess of Sh 54 trillion. This represents over half of the Country’s’ Gross Domestic Product (GDP). The rapid increase in mobile money use in Uganda where the population is largely rural has enabled the previously unbanked citizens of Uganda to have access to basic financial services. Mobile money has been a major driver of financial inclusion in Uganda. Currently, more than 66% of adult Ugandans are using mobile money services.
This new proposed tax is one of the many tax proposals that are currently being discussed and debated in Parliament. Now might be a very good time for you to speak to your Member of Parliament if you are one of the 22 million Ugandans who have a mobile money account.
As for the Honorable Members who are currently considering the merits and demerits of this new tax, you may find some inspiration the following quotation made by Sir Winston Churchill back in 1904.
“I content that a country that tries to tax itself into prosperity is like a man standing in a bucket trying to lift himself up by the handle”
Let us not kill mobile money. Let us encourage the use of mobile money to promote financial inclusion. Let us also use our mobile money accounts to pay tax.
By Francis Kamulegeya
Chartered Tax Adviser and Senior Partner
Tel: +256 (0) 312 354 400