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Uganda’s Mobile Money Tax: A tax on redistribution?

July 11, 2018

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Uganda’s Mobile Money Tax: A tax on redistribution?

July 11, 2018

For nearly a decade now mobile money services have been seen as having the potential to transform communities in Africa by making it easier to save, access, and send money securely.  By the end of 2017, Uganda’s mobile money industry was handling transactions worth half of the country’s GDP.

 

Among other things, mobile money allows people to send money to one another securely and conveniently.  Vertical and horizontal gifts of assistance between friends constitute a critical social safety net in many African countries.  This is certainly how mobile money is used by many of my friends in Uganda.  People send money to help friends and relatives to weather crises like illnesses, deaths, food shortages and other losses.  Many with the means to do so use mobile money services to pay school fees for children from other families.  Sending this money via mobile money allows people to help with less hardship.  Using mobile money allows them to skip the substantial costs of time and money that would be entailed in transporting the money by hand and helps them to avoid risking theft in the process.  A 2008-2010 study by researchers with Innovations for Poverty Action found that rural households in Kenya who used mobile money experienced little change in consumption patterns when their family experienced a negative shock like an serious illness, while nonusers experienced an average drop of 7%.

 

With this in mind, the government’s implementation of a 1% tax on all mobile money transactions on July 1st raises a series of important questions with wide ranging implications. 

 

 

Ugandans are outraged over the tax.  The talk radio programs that have played in our car as we have sat in Kampala’s gridlock traffic over the past week have featured extensive critiques of the tax.  On July 5th Mobile Money dealers stormed parliament in protest and two were arrested.  The police blocked a protest originally scheduled for July 10th and broke up another on July 11th with tear gas and live bullets.

 

Many mobile money agents are sitting idle in their shops and there were radio reports citing a 60% drop in the number of transactions.  Some of my friends who have tried to send funds via mobile money since the introduction of the tax say that they will never use it again.

 

The tax came on the heels of another tax on all social media sites, also implemented on July 1st and a series of other new taxes on everything from fuel, to cooking oil, to powdered drink mixes like Tang.  While Ugandans’ opposition to the social media tax has drawn welcome international attention, the tax on mobile money has drawn far less notice abroad.  And while many have found ways to skirt the social media tax through the use of VPNs, the tax on all mobile money transactions -- which can mean that money is deposited, sent, and withdrawn may be taxed three separate times --may be far harder to get around.  Remittances sent through sites like World Remit that rely on mobile money networks will also be subject to this tax -- meaning that those on the receiving end may see substantial drops in what they might have otherwise received. 

 

Just what this tax will mean for networks of redistribution and mutual aid is yet to be seen, but those interested in these issues should be following this situation closely.  Given the known role of mobile money transactions in networks of redistribution and mutual support, how will this new tax effect the ability of family to pay hospital bills and school fees?  Will people be as likely to send support to those in need of cash to weather a temporary food crisis?  How will the knowledge that people (and taxi drivers acting as couriers) are now moving with more cash effect the crime rate?  Will families be brought closer together by in person visits or will they drift further apart as monetary forms of care become more difficult. 

 

Uganda absolutely needs tax revenue if it is to survive and the mobile money tax is a way of touching money earned in the informal sector that is otherwise invisible to the state.  Yet, few have faith that these taxes will be used for their benefit.  Like the infamous tea thrown in the Boston Harbor, this series of highly visible taxes on everyday necessities may have unforeseen consequences.  Further, where it constitutes a tax on redistribution, and thus on Uganda’s social safety net, this tax may create a whole new set of needs demanding state attention. 

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