By Nathan Were
In a country with a paltry Savings to Gross Domestic Product at 20%, average annual lending rates above 20% for banks and as high as 60% for microfinance finance institutions [MFIs] and sluggish growth – the last thing that Uganda should be moving towards is taxes and more taxes.
The most recent manoeuvres to compel banks to provide customer account details and transactions and additional tax on mobile money work towards undermining our efforts to drive financial inclusion – foundations that we have built for many years.
Just last year, the country launched its first financial inclusion strategy that seeks to lower financial exclusion to 5% by 2022 – with such manoeuvres we are going to take several steps back after making several gains over the years.
For many years we have convinced the informal sector and rural folks to move money from the bush, pots, pillows to the financial institutions – today, we are slightly above 7.4m bank accounts and 22m mobile money users according to recent statistics.
It has not been an easy journey as some have raised concerns of privacy, security and safety especially given the turbulent times in the late 90s and early 2000 as banks either collapsed or got shut down by the central bank.
The last 15 years or so have seen a return to relative stability in the banking sector and with more people using banking services.
If URA succeeds in its quest to obtain customer bank details, we shall not only see a mass exodus of people moving their money out of banks and stopping to use them all together, but it could have serious implications for the stability of the banking system.
In any case, we should be encouraging more people to use financial services and increase our deposit base which could potentially help lower the cost of credit as many financial services providers now have to rely on external borrowing to fund their loan book – the reason some of the lending rates in MFIs are as high as 60/70%.
Savings is an important driver of investment and as we push for manoeuvres that kill the incentives to save, we are destroying people’s ability to invest.
Two years ago, government slapped tax on mobile money which increased transaction fees – today; we are paying more than 10% in fees on the amount being transacted. As a result of these increased fees, we have been struggling to get smallholder farmers and others segments to accept mobile money as a form a payment.
A 2016 CGAP study indicates that a paltry 10% of smallholders have access to a bank account and less than 20% have a mobile money account.
Current efforts to bring farmers into the financial system could be undermined with more taxes on mobile money.
Our efforts to get farmers have a digital history through digital payments – an important basis for designing financial solutions they need to improve production and productivity are starting to pay-off but might collapse as the service gets even more expensive with the new proposed taxes.
URA needs to re-examine this move and the wider implications it will have on the stability of the banking system, the push to drive savings and impact on investment.
The challenge is that the tax body has focused its tax collection efforts on a small group it can easily reach and whenever it registers short-falls it moves to slap more taxes on the same group as opposed to looking broadly at other segments that do not pay taxes.
Other than front-load an already burdened citizenry with taxes at the expense of decimal service delivery, the government needs to re-examine its expenditure patterns and rid of excesses.
People are already struggling to meet the bare minimum; more taxes will just kill them.
Mr. Were works to advance the financial inclusion agenda in Africa.