At the beginning of July 2018, Uganda ushered in an unprecedented tax regime, imposing a 1% levy on the value of some Mobile Money transactions. Uproar. Around the same period, Financial Sector Deepening Uganda (FSDU) released the findings of the FinScope 2018 survey. The survey measures the state of financial inclusion in the country – the adults of 16 years and above. The findings tell several stories but one still stands out. Mobile Money.
According to the survey, at least 56% of all adults use Mobile Money. The total adult population is estimated to be 18.6million. So that means at least 10 million Uganda adults use Mobile Money. In 2013, the last FinScope survey, the estimates were that at least 34% of the adult population was using formal non-bank methods – the largest contributor being mobile money. This is good progress.
FinScope 2018 highlights that the majority of Ugandans use mobile money to send and receive money. In essence, the service facilitates transactions for urban and rural populations. This is only just the start of what mobile money services can achieve.
Let’s define financial inclusion first.
Financial Inclusion as “…individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.”
From that definition, mobile money is an enabler of transactions and payments. It also enables savings and loans but that percentage is still low compared to the rate of use. If 56% of the adult population is using mobile money, then what percent of the same population uses the service to borrow or save money? 46% of adults borrow money and interestingly, only 2% use the mobile money options for borrowing. Banks are at 3%. Additionally, 54% of adults save using mobile money, higher than the 12% in banks.
The president recently proclaimed that the 1% tax on mobile money transactions – including getting a loan – was a mistake and should have been 0.5%. Still, the justification for another layer of tax on these transactions is rather odd. Already within the mobile money charges, there is tax embedded. This money is paid by users and collected by the telecom company on behalf of the government.
The 1% the government has imposed only serves to derail the progress made towards financial inclusion. The economy is still yet to reap the full benefits of mobile money. The charges, for some, still remain high.
On top of paying tax, included in the mobile money charges, now there is another tax paid on the same transaction. The tax has gone on to affect the micro-lending environment. For instance, if a customer borrows Shs110,000 from MTN’s Mokash, there will be an automated 1% tax deduction off the money to be received. The customer receives borrowed funds that are 1% less. The same customer will, however, be expected to pay back the full loan amount – including the amount deducted for tax – plus the interest on the loan (8%).
Going back to the definition of financial inclusion, with this tax, we are not exactly providing “affordable financial products.” We are still a long way from providing affordable financial services to Ugandans. If we are riding on the fact that mobile money is convenient, we might need to rethink that because people might be priced out of using the services.
Mobile money is an enabler of financial inclusion but we are still a long way from attaining inclusion. We’ve now made two steps back from the progress that had been made.