Ugandan Government Cautioned Against Double Taxation
CPA Joseph Gonzaga Kalinda, a Certified Tax Advisor and member of the Institute for Certified Public Accountants of Uganda (ICPAU), in a statement, has called upon the Government to drop the proposal of introducing a tax on cash withdrawals from banks.
He says taxing cash withdrawals amounts to double taxation, impeding financial deepening and affecting the savings and credit cooperative societies, among other businesses.
With the low statistics on the banked adult population, currently standing at less than three million people, the proposal is likely to impede financial deepening and its entire objectives. People will decide to keep money at home in bags, pots, below the beds and the like. The move will reduce money in circulation, reduce demand and as a result impact performance of businesses. This, in turn, will reduce profits and, as such, taxes to be collected.
Taxing cash withdraws amounts to double taxation. The money deposited in banks is through salaries or business proceeds. As the research shows, 81% of the population uses banks for savings after paying taxes such as Pay as You Earn and Income Tax.
Taxation of cash withdraws against the taxation principles of equity and fairness. Tax should only be collected when someone earns. Withdraw of cash from a bank is a residual process after earning has occurred and has already been subjected to appropriate taxation.
Through a Budget Consultation letter dated February 9, 2021, written by Patrick Ocailap, the deputy secretary to the Treasury, to the Governor Bank of Uganda, the finance ministry shows that it was proposed in their consultative meetings that they explore taxation of cash withdraws from commercial banks at 0.5% on the counter, agency banking and ATM withdraws just as it is with Mobile Money withdraws. The aim is to encourage cash-less transactions, promote e-commerce, and raise additional revenue, Ocailap said.
However, Kalinda says that this targeted taxation is to a group that is already in the tax bracket, more certainly. It will, therefore, not capture the targeted informal sector. Taxing the same group of people demoralizes and also reduces disposable income as well as new investments. The move will erode profits for forex bureaus, SACCOs and money remitters who frequently need to withdraw money to serve their clients. Many of the people being served by this financial services sector do not have bank accounts but again need their services.
According to the 2018 Financial Sector Deepening Uganda report on banking, the number of Ugandans without bank accounts or some form of structured and legal financial services currently stands at 89% or 16.5 million of the 18.6 million adult population in Uganda.
This implies that only 11% of the adult population in Uganda has accounts or uses legal, financial services, which indicates a need to continuously develop banking services that meet customers’ needs across all age groups.