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NGOS CONDEMN BANK CASH WITHDRAW TAX, CALL ON M7 GOV’T TO REVISE GENEROUS TAX HOLIDAYS 4 INVESTORS

By Mulengera Reporters

A group of CSO leaders have this Sunday converged at SEATINI offices in Ntinda where they addressed a news conference sharing and justifying their reservations about the Finance Ministry’s proposal to impose an excise duty of 0.5% on all bank transactions involving customers withdrawing cash from their accounts. The proposed tax will be applicable to those transacting through ATMs, agency banking and over the counter. The motive ostensibly is to increase tax compliance, boosting domestic revenue mobilization and promote cashless transactions while deepening e-commerce.

But at their Sunday news conference in Ntinda (addressed by FRA’s Agnes Kirabo, CSBAG’s Sophie Nampewo Njuba, Federation of SMEs’ John Kakungulu Walugembe, SEATINI’s Jane S Nalunga & Oxfam Uganda’s Joseph Olwenyi), the CSOs leaders and private sector representatives made their case against the proposed tax which they dismissed as retrogressive for inappropriately seeking to tax the rich and poor equally. They demanded for a more progressive tax regime that taxes the rich more and vice versa. 

They attacked the government’s declared objective of deepening e-commerce which they said can’t be achieved through merely applying tax instruments that will push people into e-banking which is a very small component of e-commerce. That instead, if it’s indeed genuine about deepening e-commerce, the GoU should address factors constraining internet penetration, availability, access and affordability. That in a country where internet penetration stands at mere 24% with only 10.6m people being active internet users, you can simply not achieve e-commerce in a significant way. Government must also address cost-related constraints because, at 1GB costing $2.67, the Ugandan internet is simply the most expensive even by the EAC standards. The CSO bosses illustrated this with figures showing how much is charged in Rwanda, Kenya and Tanzania. The NBI, which is like a road through which internet travels or is made availed or accessed, only covers 39 out of 121 districts. With all these constraints, the CSOs bosses concluded, Uganda is still very far from enjoying full benefits of e-commerce.

They asserted that with the National Budget Framework Paper estimating a Shs116.5bn reduction in tax revenue collection by URA during the FY2021/2022, they understand why the government is nervous and desperate about the plummeting opportunities and the shrinking taxable economic activities and transactions but there are better ways and options which aren’t being explored enough. 

They gave examples of these options through which the GoU can boost its domestic revenue mobilization strategies including fast-tracking the ongoing renegotiations aimed at expanding the taxable opportunities that keep being foregone as a result of the very generous tax holiday package Kampala keeps offering foreign investors (FDIs) in order to keep projecting itself as a more competitive destination for investments coming through Multi-national companies. It’s true the Finance Ministry is in the process to renegotiate existing Double Taxation Agreements between Uganda and the Netherlands government and also between Uganda and Mauritius but progress has been slow. Hence appropriately using their Sunday news conference, the CSOs and private sector leaders called on government to amplify and expedite those negotiations so that a lot of tax revenue can be realized.

And this is how it works; because Mauritius and Netherlands are tax havens, permitting businesses to make income without attracting tax liability on the same, many multi-national companies wishing to do business or bring FDIs to Uganda ally with companies which are domiciled in these two tax haven countries. Such companies will sponsor the incorporation of a subsidiary company in Uganda into which they (parent company) become majority shareholders whose dividends (or even royalties and interest) won’t attract any tax liability. The CSOs are rightly saying that its such tax revenue collection leakages that the regime of Gen Museveni should be quick to fix in order to boost revenue collection especially in these COVID19-constrained times as opposed to seeking to double tax the already overburdened poor Ugandans through the imposition of the 0.5% excise duty on cash withdraws which commercial banks naturally will pass on to their customers. 

Agnes Kirabo and SMEs’ Mayambala argued that imposing the 0.5% additional tax will only further constrain banks to the extent of laying off more Ugandans from jobs because the e-banking, which the GoU claims to be seeking to expand, naturally shrinks job opportunities for Ugandans. Kirabo said there will be no economy to write home about once more Ugandans become unemployed, a thing that leaves them with no disposable income and purchasing power to buy stuff from grocery shops and other businesses off which the GoU already collects plenty of money in taxes. The CSOs leaders also justified their resentment towards the proposed tax on grounds that the very bank users who the new tax targets are already being taxed through the banking system. That a salary earner already pays PAYE off their remuneration besides the other applicable taxes imposed on commercial banks.

In the joint statement read out by SEATINI Country Manager Jane Nalunga, the CSOs urged the government to strengthen its regulatory framework in order to build capacity to be able to sufficiently tax large e-commerce platforms like Amazon, Alibaba, Jumia, Uber, Facebook, Google and others which make a lot of business/killing off our economy without attracting adequate tax liability for the billions they subsequently make out of our economy. “These continue to be outside our tax bracket because of the weak regulatory framework we have in place,” Nalunga stated. That as opposed to being helpful, the proposed tax will reverse all the gains being envisaged under the country’s National Financial Inclusion Strategy for the period 2017-2022. The strategy aims at removing obstacles and barriers limiting access to formal financial services.

 Referencing on the FinScope Survey report of 2018, the CSOs leaders asserted that the proposed tax will further constrain, as opposed to boosting, uptake of banking services in this country where only 11% (2,089,952) of the population was banked as of 2018. It simply means 89% of the Ugandan population have nothing to do with banking services and the CSOs fear that with the new proposed tax getting implementing, the already miserable figure of the banked population will only shrink further.

This isn’t good at all in an economy where the government is in the next 1q2 months planning to domestically borrow up to Shs2trn which commercial banks must mobilize through taking up deposits from those saving. Yet the same will naturally become constrained and prohibited or discouraged by the new proposed tax which the CSOs are calling on government to abandon. The same FinScope report indicated that actually more than 50% of Ugandans with financial means to have or mobilize any savings prefer to keep their cash informally (in their houses) as opposed to keeping the same with banks and the proposed tax can only be an additional disincentive to such people.

A clearly irritated Agnes Kirabo implored the GoU to leave Ugandans alone because they are financially constrained enough already due to CODI19-related consequences. She also spoke of millions of adults who have since lost all their income earning opportunities and are now total dependents on those few relatives who are still lucky to access any income-earning opportunities. Kakungulu said the proposed tax will fatally affect his more than 100,000 SMEs member organizations which are already hurting having to compete with government to access and borrow the same credit available with the commercial banks. 

CSBAG’s Sophie Nampewo argued against the proposed tax because it would reverse all the cautious progress the Central bank has been making towards expanding or growing the fraction of the country’s population that is banked. ”This tax,” she said, “is very unhelpful because it will increase the cost of saving while keeping many would-be savers and bank customers away,” she said adding that a strengthened banking sector is critical to the GoU’s efforts to locally mobilize financing for investments which is the only way through which more jobs can be created and more taxes realized for the government to finance the provision public goods and social services. The CSOs leaders present expressed optimism that the government will realize the unsuitability of introducing the new proposed tax and abandon the same to allow the already constrained citizens some breathing space. (For comments on this story, call, text or whatsapp us on 0705579994, 0779411734, 0200900416 or email us at mulengera2040@gmail.com).

 

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