Interview. There has been uproar this week after taxes slapped on mobile money transactions and social media platforms went into effect on July 1. The government has been forced to revise mobile money taxes while ministers have been locked in a blame game. Solomon Arinaitwe talked to Julius Mukunda, the executive director of the Civil Society Budget Advocacy Group (CSBAG).
You recently conducted a study about the issue of taxation and new taxes. What did find out?
We did a study on the impact of the new taxation measures and we wanted to understand how the tax on mobile money transactions will affect the economy. In our study, we found out that about 60 per cent of the people who transact on mobile money transact between Shs5000-Shs45,000. This is an indication that the mobile money platform is being used by ordinary people who earn below Shs50,000. And so it is not true that mobile money is for the rich, it is for the poor.
We also found that mobile money penetration was far greater than commercial bank penetration and financial inclusion. In fact, it was realised that people preferred to use mobile money than banks because mobile money is easily accessible and not very complicated to use compared to commercial banks.
We also did a modelling to understand what would happen if the tax was increased. We found that if this tax was introduced, 50 per cent of farmers who are using it would drop out. We also found out that if they introduced this tax, more than 50 per cent of mobile money agents would lose their jobs.
But we also found out that government was not likely realise the Shs400b it was looking for from mobile money because people would shun the use of mobile. When we got that study, we started the campaign to educate the policymakers that the mobile money proposal that was being brought by the government was very regressive because it would affect the poor and hurt the economy because incomes of the people would have been affected.
So if your study found out that the taxes on mobile money would have grave consequences for the economy, what did you propose as a solution?
We came up with alternatives. We said that if the government is very desperate to get money from platforms such as mobile money, we agreed that every person should pay a fair share of the tax. We agree that the government needs money to deliver services. We came up with three alternatives. We said do not tax deposits, tax withdrawals. But also reduce the tax from one per cent to 0.5 per cent.
We also proposed taxation on the float in banks because there is Shs800b in banks. If you want to open a mobile money account, you have to deposit some money. There is that float which is currently not earning a single coin. We as aid if the government can tax the interest earned from that float, it would generate a lot of resources. Furthermore, we said that increase the Excise Duty from the proposed 15 per cent to 17 per cent.
All that was going to generate more money than what the government is proposing. The government needed to do that then. We are very happy that after seeing the outcry in the country, government has agreed that deposits should not be taxed and withdrawals should be taxed by 0.5 per cent which I think is a good thing.
However, we still think that you do not need to tax a payment system. A payment system is a system that facilitates the movement of money from one point to another. If you only tax mobile money and you leave commercial banks, it is discriminatory because the current law excludes commercial banks. We are saying that the government should scrap the whole thing and we start a new debate regarding budget financing.
Fundamentally, the argument from the government is that sectors which are under-taxed should be taxed because, for instance, the budget for 2018/19 is Shs32 trillion and its only realising Shs17 trillion from taxes. That sectors such as mobile money should be taxed in order to raise the tax revenues. Does this make sense?
That’s our proposal. For example, agriculture contributes more than 20 per cent of GDP but it contributes only one per cent to our revenue generation because there are so many exceptions in agriculture which are unnecessary and we are losing more money.
For example, why would you tax a kiosk person on a street and you do not tax a person who has brought a truck full of animals to an abattoir? Why would you tax a salon person and you refuse to tax someone who has 200 cows and is producing 2,000 litres of milk per day?
There are disparities in our taxation system that some rich people are not paying their due tax and the very ordinary person who is very poor is paying a tax. If we can fix that loophole, I can tell you that we can generate more money and avoid taxing platforms like mobile money.
So you propose taxes on agriculture?
I support taxes on agriculture 100 per cent but it is dependent on what you are taxing because if you want to tax subsistence farming, then again you are killing the very existence upon which people live.
But if you say you are going to tax rich farmers, if you own 200 cows and you produce 2000 litres of milk, let us get VAT out of that. That is not bad.
Mukunda’s Take on Key issues
One of the President’s obsession raising tax: GDP ratio from 14 per cent to at least 18 per cent
Of course, we have the potential to raise our tax: GDP ratio by even 23 per cent. But more than 50 per cent of our economy is informal because we have not been able to bring everybody into the taxation bracket and it is because bringing people in the taxation bracket means that you need to know who are they, what they do and where they are from.
For example, right now everybody claims to be a farmer but that is not the case. A farmer is registered, a farmer is known what they are going to produce and a farmer is known what kind of inputs they will need.
Secondly, the informality is also because people have feared to join the banks, but they are on mobile money. The mobile money platforms help us to track the people who are on mobile money in terms of registrations so that we can know what they do and where they get the money from.
On agreeing that the government needs to do more in tax collection but disagreeing on the sources
I agree that the government needs to do more in collecting taxes, but I disagree on the mode of selection. Let us look at the social media tax. You are proposing that everybody should pay Shs200 daily. But you are proposing that a student who depends on the parent should pay Shs200, a professor who earns Shs5m should pay Shs200 and a MP who earns Shs30m should also pay Shs200.
That’s unfair and regressive because the assumption is that everybody is earning the same amount of money. Government should have said that anybody who is suing social bundles, no tax on it. Those not using social bundles, tax them.
But also, make the tax within a service. The tax should not be on WhatsApp but maybe data or airtime. You just cannot stamp a tax on the use of a service which promotes rights like freedom of expression, speech and access to information.