On Tuesday this week, the Ugandan Ministry of Finance and cabinet agreed to make revisions on the previously implemented mobile money tax. The revisions included lowering the tax from 1% to 0.5% as well as levying this on withdrawals only.
I am very pleased that @mofpedU & #Cabinet accepted to reduce the tax frm 1% to 0.5% & to Levy it On Withdrawals ONLY, Meaning that If I send MM & transact digitally e.g to pay utility bills, school fees or use my e-wallet to pay for any other service NO tax. #CashlessEconomy https://t.co/a5hB6xTAQZ
— Frank K Tumwebaze,MP (@FrankTumwebazek) July 17, 2018
Previously, the said tax was levying a 1% charge for depositing, sending, purchasing and withdrawing money. As long as you were using the mobile money system. This implied that one had no incentive to get rid of cash. Even when they did, there was no incentive to spend that money with mobile.
However, the recent move by the government has been welcomed by many. Especially those working on solutions that need a cashless economy as an ideal condition to succeed.
There’s no doubt cash is still the king in Uganda as pointed out by a report released by Jumia earlier this year. But, the mobile money tax was going to make it even impossible for people to throw away their much-loved cash.
Although the new tax doesn’t offer an incentive to export cash into the mobile money system, at least it doesn’t penalize one for using mobile money to transact. In fact, one converts their cash into mobile money, it penalizes you for wanting to turn it into cash again.
As Frank Tumwebaze noted, if you “send MM [Mobile Money] & transact digitally e.g to pay utility bills, school fees or use my e-wallet to pay for any other service [there’s] NO tax.”
Allan Rwakatungu, the co-founder of Xente – one of the startups that would relish a cashless economy – wrote that: “This is much better and forward thinking. When we encourage a cashless economy we shall broaden our tax base. I am happy about this.”
Also read: These are the Ugandan startups in Hangzhou participating in Alibaba’s eFounders Initiative
At the beginning of this year, MTN Uganda started a campaign aimed at getting people to start using mobile money for making payments. What they essentially did was subsidize anyone who used mobile money instead of cash.
For example, I bought a movie ticket for UGx. 5000 less than I would if I had used cash. Such incentives were making it easier and cheaper to transact using mobile money rather than cash.
Yet, the government had thrown them out of the window in an overnight.
Additionally, the recent ban on the use of airtime scratchcards will also give a boost to using mobile money for transactions.
This is because airtime is a something used widely in Uganda. Therefore, forcing all to buy airtime using mobile money is a great step towards preparing them to make payments for other things using mobile money.
As it has been, most people have been using mobile money for sending and receiving. In some cases, payment for utility bills has been another popular use case for the mobile money.
However, to achieve a cashless economy, we need merchants and retail shops to start accepting cashless transactions. That’s when we shall achieve mass adoption of such solutions. And I believe these are great strides towards that.