Taxing mobile commerce, especially mobile money, is not only regressive but unhelpful to the economy, according to a new study.
The study titled: Impact of mobile money taxation in Uganda, authored by PHB Development in partnership with UNCDF, indicates that taxing digital financial services is unhelpful to the economy, given current payment and transaction settlement trends.
In June 2018 government imposed a 1 per cent tax on mobile money before revising it to 0.5 per cent amid an outcry from Ugandans. Therefore, while examining the 0.5 per cent tax, preliminary findings of the study indicate that the tax is problematic in many ways, limiting government and programmes such as achieving a cashless economy and financial inclusion.
Presenting preliminary findings of the study, Mr Pall Kvaran, the PHB Development associate consultant and Ms Laura Bierer, also a consultant with PBH Development, said the tax could have forced a number of users to migrate to better alternatives such as agent banking instead of consolidating gains to achieve better results.
The study highlighted that the tax is unfriendly to people involved in large transactions, noting that this limits growth and hinders innovations.
However, according to the report a number of respondents said they have no alternative but to use mobile money notwithstanding the tax.
“It [tax] makes it expensive to use mobile money but I have no choice,” the study quotes one of the respondents, noting that the service is largely used for small transactions while those with large ones have opted out.
The study also noted that a number of respondents had said that the 0.5 per cent tax was unreasonable with at least six out of 10 saying it is high, especially in regard to large transactions.
The shift has supported growth of agent banking, whose monthly transactions had by June 2020 grown to Shs2.5 trillion, representing a 171 per cent growth since 2019.
The study also indicates that the 0.5 per cent tax on withdrawals is regressive and has a negative impact on the formalisation of the economy, which as a result, keeps outs hundreds of users, especially in agriculture.