Government is proposing a new tax on mobile money transactions. According to the tax proposals contained in the Excise Duty (Amendment) Act 2018, “A tax of 1 per cent of the value of the transaction will apply on mobile money transactions on receiving money, making payments and withdrawals of money”.
If this proposed new tax is passed law by Parliament, it will mean that with effect from 1 July 2018, government will take 1 per cent of the value of your money every time you use your mobile money account.
This means that when you receive money in your mobile money account, government will tax 1 per cent of it.
When you deposit money on your mobile money account government will take 1 per cent of it.
When you withdraw the same money from your mobile money account, government will again take another 1 per cent of the same money.
This tax will always apply every time you use your mobile money account whether you are paying your child’s school fees, paying your Yaka bills, or sending money to pay your parent’s medical bills in the village.
What it means
I will illustrate the impact of the proposed new tax with an example.
According to the proposed enhanced salary scale for civil servants, a post primary science teacher will earn about Shs1.4m a month.
After deducting income tax and NSSF, the teacher will have a net income of about Shs1m.
If the teacher opts to receive her salary into a mobile money account, government is proposing to take 1 per cent or Shs10,000.
Remember this salary has already been subjected to different taxes such as Pay As You Earn. That will leave you with Shs990,000.
Assuming you use your mobile money account to pay your child’s school fees of Shs400,000, government will take yet another 1 per cent of the same money which is an equivalent of Shs4,000.
And in the event you use the balance left to pay for any other bill such as Yaka government will subject a 1 per cent transation on any other transaction you conduct of the money.
If she transfers the balance left on her mobile money account into her savings account with her local Sacco, again government will take another 1 per cent of that money.
This taking of 1 per cent will continue until there is nothing left to tax. This proposed new tax of 1 per cent is different from the fee that mobile phone companies charge you for using their mobile money platform.
It is a new tax that government is proposing to charge you for using your mobile money account.
Currently, if you deposit Shs1m on your mobile money account the mobile phone company does not charge you a fee to deposit.
When you send the Shs1m to another customer who is registered on the same network the mobile phone company charges you about Shs1,500.
If the other party withdraws the cash you have sent them from their mobile money account, the mobile phone company charges him or her a fee of Shs12,500.
The total fee charged by the mobile phone company is Shs14,500. Out of this, government levies an excise duty tax of 10 per cent.
This is going up to 15 per cent effective 1 July 2018. This means out of the total Shs14,500 collected from you as mobile money charges the government takes 15 per cent which is Shs2,175 as excise duty.
This new tax will only apply to mobile money transactions. It will not apply to you if used your bank account to conduct all the transactions ferried to above.
Likewise it does not apply to other alternative money transfer services such as Western Union or Moneygram.
Most importantly, it will not apply if you closed your MTN or Airtel mobile money account and used M-Pesa with Safa.
The author is a senior partner with PwC.