{"id":4155,"date":"2021-02-12T18:16:34","date_gmt":"2021-02-12T18:16:34","guid":{"rendered":"https:\/\/www.africa-press.net\/uganda\/?p=4155"},"modified":"2021-02-12T17:15:50","modified_gmt":"2021-02-12T17:15:50","slug":"taxing-bank-withdrawals-will-be-harmful-to-economy-bou","status":"publish","type":"post","link":"https:\/\/www.africa-press.net\/uganda\/all-news\/taxing-bank-withdrawals-will-be-harmful-to-economy-bou","title":{"rendered":"Taxing bank withdrawals will be harmful to economy – BoU"},"content":{"rendered":"

Africa-Press<\/a> – Uganda<\/a>. <\/strong><\/span>Taxing cash withdrawals from banks will be detrimental to the economy, Bank of Uganda has said.<\/p>\n

This comes in the wake of a February 9 letter in which government is seeking guidance on a proposal imposing a tax on bank withdrawals.<\/p>\n

In a response to emailed questions yesterday, Dr Adam Mugume, the Bank of Uganda (BoU) executive director research, told Daily Monitor the proposed move will negatively impact deposits and penetration, which continues to be below average.<\/p>\n

\u201cTaxing cash withdrawals would be detrimental to the economy. It could impact growth of deposits in the banking system. In other words, it will encourage [informal] individuals saving in pots or under mattresses to avoid taxation,\u201d he said. In the letter signed by Mr Patrick Ocailap, the Treasury deputy secretary, the Ministry of Finance expressed intention to introduce taxes on cash withdrawals from bank tills, agency banking and Automated Teller Machines (ATM), requesting Bank of Uganda to avail data on different categories of withdrawals since the 2017\/18 financial year for further review and determination.<\/p>\n

Sources with the Finance Ministry yesterday told Daily Monitor the proposal is to introduce a 0.5 per cent levy on each transaction, the same rate charged on mobile money withdrawals.<\/p>\n

The figure, sources said, was proposed based on the already existing mobile money levy with the Finance Ministry seeking a uniform tax on all formal withdrawals.<\/p>\n

The proposal, which according to government, will encourage cashless transactions and promote e-commerce and improve tax compliance in addition to raising revenue, had been reached last week in a budget consultative meeting between Ministry of Finance, Uganda Revenue Authority, Uganda Communications Commission, telecom operators and BoU.<\/p>\n

Yesterday, Mr Ocailap told Daily Monitor the proposal was one of the many routine actions during budget consultation processes, which was awaiting the Central Bank\u2019s input to be incorporated together with those of commercial banks.<\/p>\n

Mr Richard Yego, the Agent Banking Company of Uganda chief executive officer, yesterday disputed claims that agent banking and other bank transactions were not taxed on withdrawals, noting there was already a 15 per cent Excise Duty levied across all channels of withdrawing through the bank.<\/p>\n

\u201cIt is not true that there is no tax being paid. It will be detrimental to the economy because we are pushing people to start carrying money in bags. Driving cashless is beyond discouraging the use of cash. There needs to be an enabling environment,\u201d he said.<\/p>\n

Public against proposal<\/b><\/p>\n

The letter has raised a storm among a cross-section of the public with many arguing it is unfair and a form of double taxation.<\/p>\n

Mr Ramathan Ggoobi, a Makerere University Business School lecturer and an economist, said the proposal was a faulty suggestion that will discourage the unbanked from joining the banking system.<\/p>\n

\u201cMoreover, that would be double taxation because most banked individuals pay Pay As You Earn (PAYE) and corporation taxes. Taxing withdrawal of their net income when they have already paid tax on the gross income is double taxation which is illegal,\u201d he said.<\/p>\n

However, Daily Monitor understands that technocrats within the Finance Ministry are proposing the option of placing a threshold onto the taxable income, for example, withdrawals above Shs20m, which is envisaged to eliminate most average salary earners, pension and gratuity payments.<\/p>\n

Mr Peter Kawumi, the Financial Technology Service Providers Association of Uganda chairman, said the proposal if realised, is likely to cause long or medium term shocks and regressions to the progress so far made.<\/p>\n

\u201cIt might set us back because it will slow down the interest in participating in formal financial services. We are hoping that it does not come to pass,\u201d he noted.<\/p>\n

Impact of taxes on digital transactions Mobile money transactions, according to data from Bank of Uganda, experienced a sharp fall after government slapped Excise Duty on the service in 2018.<\/p>\n

Mobile money volumes, according to a 2018 report, dropped from Shs866b to Shs475b in July, following implementation of the 1 per cent tax on all mobile money transfers, which was later revised to 0.5 per cent.<\/p>\n

Introduction of the tax saw customers shift to agency banking, which the government is now also seeking to tax.<\/p>\n

\u201cA levy on mobile money contributed a deficit of Shs30.4b which can be explained by the fact that high value clients withdrew their funds from agency banking,\u201d then URA Commissioner General Doris Akol, said while releasing the half year results in the 2019\/20 financial yearURA noted that MTN had experienced a 36 per cent drop in mobile money transaction due to the levy on mobile money.<\/p>\n

The same fate is feared to befall the banking industry.<\/p>\n

Additional reporting by Ismail Musa Ladu<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"

Africa-Press – Uganda. Taxing cash withdrawals from banks will be detrimental to the economy, Bank of Uganda has said. This comes in the wake of a February 9 letter in which government is seeking guidance on a proposal imposing a tax on bank withdrawals. 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