The impact of New Taxes on you!


The government has introduced new taxes and increased rates of existing ones, including for cooking oil and motorcycle registration.

But there has been public outcry, especially against the Shs200 tax on social media use.
The government, among other reasons, says its move was forced by the need to enhance and amend taxes on telecommunications services and to introduce others on cooking oil and on motorcycles at first registration.

But what do these taxes mean for the ordinary taxpayers? For social media, users will have to part with Shs200 daily to access Skype, WhatsApp, or Facebook, either for voice calls or texting.

“This will ensure that when the performance of the service is completed or paid for or the invoice is issued, excise duty is due and payable irrespective of whether the service is used,” reads part of the Committee report adopted by Parliament on Wednesday.

The taxes will be charged for the amount of business done for the services. This means the charges are not merely about using but for as long as your WhatsApp and other social media platforms are kept active on one’s phone.

For mobile money, the one per cent tax applies on every transaction; depositing, withdrawing, and sending money.
A report by MPs on the Committee of Finance, Planning and Economic Development, adopted on Wednesday imposes the obligation on telecommunications service operators providing data for accessing over the top services to account for and pay excise duty on access of ‘over the top service’”.

The taxes in figures
“A person providing an excisable service becomes liable to pay excise duty on that service on the date of provision of the service. This is meant to clarify when a person providing an excisable service becomes liable to pay excise duty,” the MPs recommended.

The government plans to raise up to Shs115 billion from mobile money transactions and another Shs240 billion from Social media use.
The government says it targets Shs240b from social media, implying that it projects to collect the tax from only 10,000 subscribers.
But the Shs240b projection leaves unanswered questions regarding government’s commitment to declare revenue collections.
For cooking oil, the charge of Shs200 per a litre would mean that a 20-litre jerry will fetch Shs4,000 tax.
This will now mean a litre of cooking oil, which currently costs Shs7,000 is likely to shoot up to Shs10,000 or higher according to Mr Albert Mbaine, the managing director of Global Taxation Services Ltd.

This new burden will definitely be shifted to the final consumer of the good.
Mr Mbaine argues that the new levy on cooking oil and mobile money are the worst tax regime he has witnessed and will push many people out of business.

“The most unfortunate challenge is that people do not see where the money goes, our service sector is limping,” he said.
Mr Mbaine also said the tax on mobile money is discriminatory to low income earners since those with huge incomes will not feel the pinch.
He also said those who load smaller data bundles will be charged unfairly as they will have to pay equal taxes on the service with those who use huge data.

Mr Henry Musasizi (NRM, Rubanda East), who also chairs Parliament’s Committee on Finance, told Daily Monitor yesterday that social media was taxed because it does not operate from Uganda.

“The tax intends to capture the service accessed through this Internet Service Providers rather than have it freely available,” he said.

Mr Musasizi dismissed fears of double taxation and said taxation comes with growth levels.
“I am an advocate of financial inclusion, but at the same time, when these services spread across the country, they imply growth, which will definitely attract taxation,” he said.

Mr Musasizi said globally, people are opposed to taxation but it is the only way government can render services to its ever growing population.

What 1% new tax on mobile money transactions means

The pinch. According to the proposed enhanced salary scale for civil servants, a post primary science teacher will earn about Shs1.4m a month.
After deducting income tax and NSSF, the teacher will have a net income of about Shs1m.

If the teacher opts to receive her salary into a mobile money account, government will take 1 per cent or Shs10,000.
Remember this salary has already been subjected to different taxes such as Pay As You Earn. That will leave you with Shs990,000.

Assuming you use your mobile money account to pay your child’s school fees of Shs400,000, government will take yet another 1 per cent of the same money which is an equivalent of Shs4,000.

And in the event you use the balance left to pay for any other bill such as Yaka government will subject a 1 per cent transation on any other transaction you conduct of the money.

If she transfers the balance on her mobile money account into her savings account with her local Sacco, again government will take another 1 per cent of that money.

This taking of 1 per cent will continue until there is nothing left to tax. This proposed new tax of 1 per cent is different from the fee that mobile phone companies charge you for using their mobile money platform. It is a new tax that government is proposing to charge you for using your mobile money account.

Current charges. Currently, if you deposit Shs1m on your mobile money account the mobile phone company does not charge you a fee to deposit. When you send the Shs1m to another customer who is registered on the same network the mobile phone company charges you about Shs1,500.

If the other party withdraws the cash you have sent them from their mobile money account, the mobile phone company charges him or her a fee of Shs12,500.
The total fee charged by the mobile phone company is Shs14,500. Out of this, government levies an excise duty tax of 10 per cent.
This is going up to 15 per cent effective 1 July 2018. This means out of the total Shs14,500 collected from you as mobile money charges the government takes 15 per cent which is Shs2,175 as excise duty.
This new tax will only apply to mobile money transactions. It will not apply to you if used your bank account to conduct all the transactions ferred to above.

Likewise it does not apply to other alternative money transfer services such as Western Union or Moneygram.
Most importantly, it will not apply if you closed your MTN or Airtel mobile money account and used M-Pesa with Safaricom. On the face of it, the tax appears to be discriminatory as it will only apply to mobile money transactions.
It is also a form of double and in some cases triple taxation as the money being subjected to the 1 per cent tax was already taxed at the time of being earned from your employer.

The tax does not appear to be equitable as it is levied every time you transact using your mobile money account.
Principle of taxation. One of the basic principles of taxation is fairness and neutrality. This principle demands that taxes should not favour any one group over another and should not be designed to influence individual decision making.
The tax appears to be penalising Ugandans who opt to use mobile money services as opposed to the traditional commercial banking services. It also appears to be designed to discourage Ugandans from using mobile money services.
This is because if you were to deposit, make a payment, withdraw or transfer money using your bank account, this tax will not apply to you.
The tax also violates the basic principle of equality which requires people in equal circumstances to be treated equally.
Based on my example above, two post primary science teachers earning the same salary will be taxed differently depending on whether one uses their mobile money account or bank account.
On the basis of preliminary consultations and discussions I have had it is possible that this tax could be a violation of Articles 21 and 43 of the Constitutional.
Right, we need to widen the tax base to include all people earning from certain economic activities but there must be another way to do this.
There are about 24 million people who use mobile phone services. Out of these, 88 per cent are subscribed to mobile money services, translating into about 22 million people.

The above figure is nearly three times the number of people in Uganda who hold a bank accounts. Uganda has about four million bank accounts. In the year ended December 31, 2017 mobile money transactions are estimated to have been in excess of ShS54 trillion, which represents more than half of the country’s’ gross domestic product.
This is an abridged version of an article by Francis Kamulegeya first published in Prosper Magazine.

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