June 21, 2018     Winnie Watera     Blog
‘‘Ugandans should be happy; the taxes being collected will provide social services and this tax regime should please every citizen who wants to help finance the country out of poverty’’ said one MP after the heated debate in Parliament on the excise duty bill 2018 on 30th May 2018. A statement of altruism by the political elite of this country to say the very least, putting the country first. But when have taxes levied at the expense of a small tax base ever yielded any good?
The biggest controversy of the Bill stems from two services that are going to be taxed beginning July 1st, 2018; social media and mobile money, the former will attract UGX 200 daily when used while the latter will attract 1% of every amount transacted (payments, receiving, and withdrawals). These attempts are to augment the domestic revenue and fund the budget for the Financial Year 2018/19.
While a sizable number of Ugandans appreciate that government will now have at least more money than initially anticipated to run the country ‘efficiently’, others do not appreciate the laziness exuded by the revenue collecting body, URA and the responsible Ministry of Finance, Planning and Economic Development. After futile attempts to ensure revenue collection on other fronts like the informal economy which constitutes 80% of the economy at the expense of the 20% formal economy which pays taxes, they have resorted to the low hanging fruits: social media and mobile money which can easily be tracked and monitored but are also just used by a sizable number of the population.
A quick comparison on how much is lost through the untaxed informal economy and through illicit flows (UGX 2 trillion) with what will be gained from the tax anticipated in the current tax regime UGX 951 billion will show one that the priorities are questionable. This, coupled with the losses in tax exemptions to international conglomerates and imported merchandise (UGX 690 billion) and through corruption leakages (UGX 200 billion) paints a worrisome picture for Uganda’s revenue prospects. The unpopular opinion would be: even while the mobile money and social media services are being taxed, shouldn’t the other viable sources also be harnessed to increase the tax base?
The contexts in which the two taxes can be effective or not ought to be understood by the policy makers especially those in Parliament, URA and the Ministry of Finance, Planning and Economic Development.
In the case of mobile money, it revolutionized the financial industry in Uganda, not because it was fast or easy to use (the technology still troubles some individuals) but because it provided the much-needed financial inclusion that many Ugandans desired. The explosion of mobile devices in low-income societies in Uganda created a platform that had taken banks or the government years to figure out, on how to tap into the rural economies. Using mobile money was not a choice as the report of the Parliament Committee on Finance states, it was a necessity because there were no other alternatives, as banks were limited to urban settings and still are.
In addition, the catch of mobile for the ‘muntu wawansi’ was that this option was a lot cheaper than the others presented in the form of banks. Uganda ranks in 120th place out of 138 countries in affordability of financial services, according to the World Economic Forum Global Competitiveness Report (2016-2017). Although a small transactional fee is always levied, now with the 1% tax, this attraction wanes. Mobile money had also proven to be a useful saving technique by many Ugandans since the deposit has always been free, but the idea of paying excise duty to withdraw savings in addition to the charges makes the service less attractive. The tax will likely deter the use of the service even before we’ve realized its full potential, leading the burgeoning industry to slow down. A staggering UGX 44 trillion (approximately half of Uganda’s $25 billion GDP) was transacted through mobile money last year.
Social media, well, on top of its ‘lugambo’ as President Museveni says, also has its perks. It has eased communication, encouraged the use of ICT, and has helped promote businesses through adverts, etc.; gains now threatened by the new tax. Besides, voice calls and data bundles which attract VAT and excise duty as argued by the Committee are enabled through airtime purchases on which the VAT and excise duty will be levied. In simpler terms, one gets their requisite value be it for voice calls, data bundles or SMS within an airtime value purchased depending on which carrier they use. This excise duty also increases if the airtime purchase is via mobile money, a practice many people are now accustomed to. The taxes across the service value chain are unfair as they create a double or triple taxation scenario.
Thus, the piecemeal taxes the government has embarked on collecting are only economically viable in the short term. If the government yearns for a more sustainable tax regime, it ought to catch the big fish. It should streamline numerous small taxes which impose a high burden on citizens and reduce the use of tax exemption regimes because the money foregone could be spent on healthcare, education and infrastructure. The 20% of the formal economy paying taxes cannot be the government’s only saving grace.