Last week, President Yoweri Museveni clarified that the 1 per cent tax on mobile money was a miscommunication. He said the correct rate of tax is 0.5 per cent. Taxation expert Francis Kamulegeya responds to the questions raised by President Museveni about the mobile money tax.
When you post or send communication on social media platforms like Facebook or whatever, is it free or do you pay?
No, it is not free. Before you can post or send communication on social media platforms like Facebook or Whatsup, you need an internet connection. This internet connection is provided by the telecom companies and other internet services providers (ISPs). The telecom companies and ISPs have different packages they offer to users in form of mobile internet data bundles for different prices. For example, MTN has internet data bundles that cost as little as Shs250 for 15MBs per day, to high-end unlimited internet premium monthly data bundles of Shs330,000 per month. For every Shs100 that we pay to telecom companies or ISPs to access the internet, Shs30 goes to the government as tax. This is the 12 per ccent excise duty and 18 per cent VAT.
It is important to note that the telecom companies and ISPs do not own the social media platforms that government is targeting. Likewise they do not provide the content nor do they control what is published on these social media platforms. They are simply a conduit providing access to these platforms. It may be true that after paying the telecom company or the ISP and getting access to the internet, one is then able to enjoy access to Over-The-Top services free of charge. But to access that free service, one has to pay first.
Do you send mobile money for free or do you pay?
You do not send mobile money for free. You pay for the service. For example, when you send Shs1 million you are charged Shs2,000 as the sender, if you are a registered user. To withdraw the Shs1 million from your mobile money account from a mobile money agent, you are charged Shs19,800. So the total charges for sending and receiving in this example would be Shs21,800.
If you pay, whom do you pay?
Out of the Shs21,800 you are charged by the telecom company in the example above, 15 per cent is tax that you pay to the government. This means out of the Shs21,800 deducted from your Shs1 million, the telecom company keeps Shs18,956 as a charge for providing you with their mobile money platform and the government takes Shs2,844 from you as tax in form of excise duty.
Do you pay in dollars or local shillings?
You pay in local shillings. The mobile money companies are required by law to publish as well as display their charges in Uganda shillings at their mobile money agents. If you are one of the 22 million Ugandans who have mobile money accounts you will have noticed these charges displayed at your local mobile money agent.
If you pay in local shillings, do the ones you pay, most of whom are foreign companies, take money out of Uganda in local shillings or in dollars?
There are no foreign companies licensed to provide mobile money services in Uganda. All the telecom companies licensed to provide mobile money services are Ugandan companies. These companies are incorporated and registered in Uganda. They are regulated by both the Uganda Communications Commissions (UCC) and the Bank of Uganda. It is true majority of these companies are owned by non-Ugandan citizens. We call these people foreign investors. We invited these foreign investors to come and invest in our country when we liberalised the telecommunications sector in Uganda over 20 years ago.
When the foreign investors came to invest, they brought their money into Uganda in form of dollars. They brought dollars either directly as cash for investing into Uganda or as plant, machinery, equipment in form of telecom towers, mobile switches and so on.
One of reasons Uganda has been very successful in attracting Foreign Direct Investment is because we allow foreign investors to take their money out of Uganda. This is what we are telling investors all the time. However, before they take the money back to their foreign countries, we make sure we retain some of it. In fact for every $100 a foreign investor makes in Uganda as profit, the government takes $45. This is in the form of corporation tax of 30 per cent on the profits made by the investor and 15 per cent on the dividends the investor takes out of Uganda.
If it is dollars, who earned those dollars?
The investors take the money out of Uganda in form of dollars. We all agree that taking Uganda shillings to South Africa or India would not make sense. In any case, they did not bring shillings when they came to invest. Who earned the dollars? The investors. They provided services to us Ugandans. We paid them for the services. They made a profit. Government took 30 per cent of these profits in form of corporation tax. Government took another 18 per cent and an additional 12 per cent of whatever the investors charged us for their services, in form of VAT and excise duty respectively.
I pay my daughter's university tuition fees in Pounds. I have to earn money first here in Uganda and in shillings, and then use my hard earned shillings to buy Pounds from banks and forex bureaus and then send the money to United Kingdom. It is my money. I earn it by working for my employer, who pays me a salary in Uganda shillings.
Debating 0.5 per cent tax
First of all the rate of tax according to the excise duty Amendment Act 2018, that was assented to by HE the President and signed into law on June 21 is 1 per cent and not 0.5 per cent. That is the current law. That notwithstanding, the current debate is not on the rate of tax. It is on the logic, rationale and principal of the tax itself.
The problem with this tax is that it is taxing the movement of money. Taxing the movement of money discourages trade and commerce. It discourages the formalisation of the economy. It interferes with financial intermediation.
It undermines the progress and successes made in the country in respect of financial inclusion. It hurts the poorest most, and this is already evident on the basis of the impact the tax has had in just five days. It will result in massive loss of employment, both direct and indirect employment in the mobile money sector. It will discourage people from using mobile money services. It will increase the cost of doing business in Uganda.
There are still conflicting messages about who it applies to, when it applies and who should be paying the tax. The new Excise Duty Amendment Act 2018 states: "1% excise duty tax will apply on mobile money transactions of receiving, payments and withdrawals"
So when exactly does this mobile money tax apply?
Does it apply to receiving payments on mobile money accounts? If yes, receiving from who? If I transfer money from my bank account to my mobile money account, I'm receiving money from myself? I'm I required to pay the 1 per cent or the proposed new 0.5 per cent reduced mobile money tax?
If I receive my salary from my employer on my mobile money account, do I pay the 0.5 per cent mobile money tax? If yes, why should I pay this tax yet my salary has already been subject to Pay as You Earn and taxed at 30 per cent? If I opted to receive my salary direct into my bank account, there will be no mobile money tax of 0.5 per cent. So is this a tax on income or a levy / penalty for using mobile money?
Applying o.5% tax
1. The tax also applies on payments made using mobile money
What kind of payments? The law, in its current form, does not exempt any payments from the tax. It does not matter whether you are paying tax to the URA, remitting employees' contributions to NSSF, paying school fees for your children, making contributions to a relatives funeral costs (mabugo), or paying your tithe in Church. The law is so broad, indiscriminate, punitive and illogical. It is so illogical that the URA has now also realized it. That is why the Commissioner General had to issue a clarification early this week that the 1% tax will not apply to the payment of any taxes using mobile money platforms. This makes sense, as it avoids payment of tax on tax. However, this position is not supported by the law, in my view, on the basis of the current wording of the law.
If payment of tax is exempted, payment of NSSF contributions should also be exempted. Paying SACCO contributions should also be exempted, especially considering that SACCOs are exempt from tax. Contributing mabugo to bury a loved one should also be exempted from this tax. Paying school fees should also be exempted. There are so many exemptions that would need to be considered, so the only option is to abolish, scrap and abandon this tax. Government should consider other options to raise the badly needed tax revenue to finance the budget.
2. We are now told that the tax will only apply on withdrawals from mobile money accounts
Withdrawals by who? If I pay school fees by mobile money, is the school expected to pay the 0.5 per cent tax when withdrawing the school fees from its mobile money account to buy beans and maize flour to feed the school pupils? If the answer is yes, what is being taxed here? Is it the withdrawal of money, or the spending of the money? If the tax is only on withdrawals, is the government's intention to discourage people from withdrawing money from their mobile money accounts? Is this a sneaky way of encouraging digital money and discouraging use of cash? These are all pertinent questions and Ugandans deserve answers.
Mobile money tax
Mr Francis Kamulegeya says the issue is not the rate but the principle. This is an issue of mis-taxation. You are taxing the wrong thing, taxing the wrong people and taxing them at the wrong time. He urges the President and Members of Parliament to abolish this tax immediately and consider other options.
Francis Kamulegeya is a UK trained Chartered Tax Adviser and Certified Public Accountant.