Controversy over Uganda mobile money taxes

As the Ugandan government scrambled to play down the storm raised by the introduction of taxes on social media and mobile money, there were contradictory statements by government officials and agencies about how the percentages were arrived at.

Investigations by The EastAfrican reveal that if the Excise Duty (Amendment) Act followed proper procedure, the process would have been clearer.

As it stands, the introduction of the tax has caused confusion, especially over mobile money transactions.

No concrete data was available to assess the impact of the tax on mobile money transactions by the close of the first week. Meanwhile, telcos and large mobile money dealers reported a more than 60 per cent drop in usage.

On Thursday, Junior Finance Minister David Bahati said some Ush62 trillion ($16 billion) is transacted through mobile money annually and the government wanted to tap into it for additional revenue.

However, it is still not clear how it escaped the government that the same money would be subjected to four different charges (one per cent each for depositing, sending, receiving and withdrawing) without necessarily adding value.

The Uganda Revenue Authority and the Cabinet have since removed charges on deposits.

The president, ministers and other agencies have contradicted one another over the one per cent charge.

A mistake

Finance Minister Matia Kasaija was at pains to explain how the one per cent charge made it into the Excise Duty (Amendment) Act 2018, which he signed.

On Tuesday, he said the Cabinet had agreed to charge 0.5 per cent, but his colleagues used his absence from the country to change the tax.

At the same time, State Minister of Finance for Planning David Bahati issued a statement saying that the Cabinet had agreed on a tax of 0.5 per cent. He had presented the Excise Duty Bill in Parliament on April 3.

Officials in the Ministry of Finance say they are now revising the law.

“By law, he is the owner of the budget so we are doing everything to meet the president’s demands,” said Jim Mugunga, the spokesperson for the Ministry of Finance, Planning and Economic Development.

This follows President Yoweri Museveni’s statement that the one per cent excise duty on money paid, received or withdrawn using mobile money was a mistake.

“The one per cent was a miscommunication. The actual figure was 0.5 per cent, half of one per cent. That is what we should debate on the mobile money,” he said.

There are also questions about whether parliament scrutinised the Bill before passing it into law. Before the tax came into force on July 1, it had gone from the Ministry of Finance, to the Cabinet for approval, and then to parliament.

Some MPs claim that Deputy Speaker Jacob Oulanya overruled protests against the Bill and allowed it to sail through by a vote of acclamation. In addition, the budget committee ignored protests from experts and the public.

Sources told The EastAfrican that President Museveni, Mr Bahati and technocrats in the ministry let the one per cent charge into the draft hoping that a debate in parliament would create room for a compromise, at which time the minister would concede to the 0.5 per cent charge. But when parliament seemed not to notice, and protests from a few MPs and civil society groups focused on the tax in general, Mr Bahati let it pass as it was.

Telcos’ misgivings

Telcos and mobile money dealers who were consulted before the Bill was passed into law had protested the tax in general, only agreeing to an increase in the excise duty on mobile money charges as this was to be passed on to the end user.

The telcos argued that the government risked losing even the taxes they had been getting, as the 15 per cent duty on charges was easy to avoid as customers would use mobile money vendors to send money directly, cutting out person-to-person transactions. Since deposits are free, the telcos and government would both lose out.

The government’s solution to this projected loss of tax revenue was to introduce the 1 per cent excise duty on the value of transactions, but this was opposed by the telcos and dealers.

Several meetings were held in April and May between Prime Minister Ruhakana Rugunda, Mr Bahati and other Ministry of Finance officials and telco dealers, who warned that the taxes would kill their business.

Norman Batuma, chairman of the MTN Dealers Association, confirmed that the meetings were held but would not give details. He said that their warning to the government that the tax would kill mobile money was coming to pass just a week into its implementation.

“The one per cent excise duty on mobile money drains money from mobile money. If nothing is done, this business will be extinct in the next six months,” he said.

Mr Batuma said the value of transactions declined by 60 per cent.

Sanjay Tanna, a former MP and now an MTN dealer in eastern Uganda, said over-the-counter deposits and person-to-person transfers had been hit hard.

“People are no longer depositing. More people are withdrawing their money because of the uncertainty,” he said.

An official at MTN, the biggest player in the mobile money market, said that in another week, there would be a clearer picture.

According to the 2018 Finscope report, Ush63 trillion ($16.3 billion) is transacted through mobile money in the country annually. Until 2009, only 28 per cent used financial services.

In less than a decade, mobile money has been credited for expanding financial inclusion to 50 per cent of young people and those in the informal sector with 78 per cent Ugandans above the age of 16 using the services.

Dealers have reported different scales of loss. Sam Otada, the former MP for Kibanda who is an MTN dealer for northern Uganda, said customers had stopped using the service.

Mr Tanna, a major supplier of float for mobile money, said deposits had dropped by 20 per cent.