Mobile Money and social media taxes may do more harm than good

William G. Naggaga 

By William G. Naggaga

It is often quoted that there are two things one can’t escape, namely, taxes and death. Ever since human kind organised itself into governable communities or governments, payments of taxes became mandatory.

Why do governments levy taxes?

Principally to carry out functions that serve the people, including infrastructure development, education, health, security and military, scientific research and all other services expected of it by the public. The government also needs taxes to run itself. Taxes are sometimes imposed to alter prices or affect demand, but even then, it gives money or revenue to the “Exchequer’’.

While taxes are mandatory, it is important that they are fair and equitable and the government has a cardinal obligation to account to the citizenry how the people’s money has been spent.

Government’s transparency and proper utilisation of taxes as seen in service delivery encourages willingness of tax payers to part with their cash and reduces tax evasion and tax avoidance.

If the people feel that their ‘tax dollars’ are recklessly spent by government, they will be more reluctant to pay and resist any attempt to increase the tax burden.

A country like Norway, which has one of the highest tax regimes in the world, has also the most free services given to the population, including but not limited to education, medical, childcare, generous pensions for the elderly and subsidised or free public transport.

A child born in Norway has a bright future ahead of him with nearly everything taken care of by the State.
Such a child will grow up into a diligent taxpayer knowing that his/her children and others to follow will enjoy the privileges and comfort that he and his parents have been blessed with.

So those who say people in such countries don’t complain about paying taxes the way Ugandans do, should learn the obvious. Most of our citizens do not benefit from taxes paid to government, which are routinely squandered by corrupt officials or spent on conspicous consumption of the elite, including our highly pampered MPs.

There are commonly two categories of taxes - direct taxes, payable from earnings or profits and indirect taxes, which are imbedded in goods and services one consumes.

In one country, I believe it was Mexico, they carried out an innovation by abolishing personal income taxes like Pay As You Earn (PAYE) arguing that it would increase disposable income and spur consumption and hence increase collection of indirect taxes.

The abolition of PAYE indeed did not cause any net loss in tax revenue since consumers did as expected! The extra consumption generated more employment and buoyed the economy. It was a bold and clever. It showed that there were ingenious ways of making people pay more taxes perhaps without even realising it.
In the Financial Year 2018/19, Uganda government proposed a raft of new taxes, the most controversial being the Mobile Money tax of 1 per cent on deposit and withdrawal of money and the daily social media tax of Shs200.
But following an outcry from the public, the Mobile Money tax has been reduced to 0.5 per cent and limited only to withdrawal, but the social media tax was maintained.
Neither taxes were necessary and are tantamount to double taxation of the users of these services. Mobile Money use has caused a financial revolution in Uganda and resulted financial inclusiveness, bringing rural people into the money economy.
The velocity of circulation generated by Mobile Money is now estimated at more than Shs60 trillion per annum, about twice the total budget of Uganda.

The speed at which money can be moved from New York, Kampala or Mbarara to Nakapiripirit, Buliisa or Bududa is indeed revolutionary. Gone are the days of middlemen who ‘short-changed’ poor natives of money sent to them by relatives abroad and in urban areas.

Mobile Money has done an invaluable service, especially in the hard-to-reach areas and in areas that have no commercial banks. It has also forced banks to style up and get out of their comfort zone.

Imposing new taxes on it may have negative consequences including prevention of introduction of new products or services that would strengthen the financial system.

The extra taxes of Shs110 billion expected from this new tax is nothing compared to the potential damage to this relatively new financial innovation.

Mr Naggaga is an economist, administrator and retired ambassador. gnaggaga@yahoo.com