URA, BOU Root for Lower Cost of Mobile Money to Boost Revenues

The Bank of Uganda and the Uganda Revenue Authority have appealed for more government and private sector policies that will lead to the reduction in the cost of digital transactions.

They say the current costs of mobile money, mobile banking and other digital or electronic transactions are too high and are affecting the progress of financial inclusion in the country.

On his part, Michael Atingi-Ego, Deputy Governor, BOU says that for example, the mobile money transaction costs affect the poor more because the platforms are dominated by movers of small transactions.

According to him, while there has been good progress in the financial inclusion courtesy of mobile financial services, the cost regime is unfair to the poor, who also contribute most of the tax revenues from the sector.  

He was speaking at a conference in Kampala on the theme: Reshaping the Tax System to Support the Financial Sector Development Strategy. The five-year strategy by the Ministry of Finance, Planning and Economic Development aimed at enhancing financial deepening and inclusiveness also targets growing the use of digital money to support the move to a cashless economy.

URA Commissioner General John Musinguzi Rujoki says the government and the private sector can do a lot in supporting revenue collection and management if they adopt more digital solutions.

He gives an example of EFRIS (Electronic Fiscal Receipting and Invoicing System) which allows a company to file details of a transaction to URA instantly using an electronic invoice or receipt, making it easier, cheaper and more transparent. 

He however, says that it is still being resented by sections of the targeted business, but that that is expected.  

The tax is levied on the transaction as a percentage of the fees charged for moving money, which fees depends on the volume being moved. This means the higher the fee charged, the more the tax paid.

The government has in recent year come under criticism for making taxation policies that make communication and financial services costly. These include the controversial introduction of the tax on mobile money transactions which was later limited to withdrawing of cash, following heavy criticism that it was discouraging business.

Uganda Manufacturers Association Policy Analyst Muzamir Mabirah says there is need to cap the amount of money that financial services providers including banks and mobile money companies, should charge, among other measures.  

One of the causes of the high costs of mobile transactions is the transfer of money from one platform to another, which also varied from provider to provider. 

The increase in the number of service providers over the last one and a half years of the National Payments Systems Act, is yet to lead to a significant fall in the costs. 

DG Atingi-Ego said when a National Payments Switch becomes operational, it will help streamline the costs of transaction between networks.

Moses Kaggwa, the director Economic Affairs at the Ministry of Finance, explains that the national switch will help in monitoring transactions as and when they occur and enable URA to tax them promptly.

According to him, this, as well as the expected reduction in the cost of transferring cash, will lead to increase in revenue collections.

On why the introduction of the national switch has taken long, the deputy governor said after developing the idea, it has to go through processes including those under the national procurement laws, consultations with other stakeholders including the World Bank as well as benchmarking with other countries. He said the bids to develop the switch system should open before the end of this financial year.

Rujoki, the URA CG said even with the growing digitization and how it is helping revenue collections, a big section of the economy, the informal sector, remains the hardest to tax because mainly of lack of records. 

This means they cannot be tracked, yet they are big contributors to the economy, according to him. 

However, Victoria Sekitoleko, a former agriculture minister and now head of the women in agribusiness, said the informal sector will for long remain inadequately taxed because it is dominated by agriculture.  

Agricultural activities are largely exempted from income taxes, and even where they are supposed to pay taxes, URA does not reach them.

Sekitoleko reasoned that the government agencies responsible for the taxation sector should develop a system targeting agriculture and then conduct consultations and sensitization of the sector on how it can be brought into the tax net.

UMA’s Mabirah supported the proposed connection of a person’s identity data connected or attached to their bank details, and in turn, be accessible by URA at any time. This, according to him, would make it easier for the revenue body to get more people into the tax-paying group.

Kaggwa said the move to establish connectivity between the banking system and the identity registration agency, NIRA was frustrated by those opposed to it after it was leaked to the media.  

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