In March 2024, the government through the Ministry of Finance, Planning, and Economic Development presented a national budget totaling UGX58.34 trillion for the 2024/25 financial year —presenting an increase of the national budget from UGX52 trillion allocated in the FY2023/24.
The budget emphasizes the full monetization of the Ugandan economy through agriculture, industrialization, expanding services, digital transformation, and market access.
Taxation impact on payment systems
Two key tax bills are set to reshape the landscape for payment service providers. The first bill, an Income Tax (Amendment) Bill, introduces a 10% withholding tax on commissions paid to payment service providers, including banking agents and other financial service agents.
The second bill proposes a 0.5% Excise Duty on the value of cash withdrawals through payment systems like financial institutions and microfinance deposit-taking institutions.
Expert insights and implications
In a press conference this week, tax experts from Ernst & Young Uganda shed light on the implications of these tax amendments. The company’s Senior Tax Manager; Mr. Robert Mbaziira, highlighted the government’s focus on leveling the playing field for agents in the financial sector, including agency banking.
“When it comes to this amendment, the government is targeting the likes of Yo Uganda!, Pay Bill, Ezeepay, and Wave, among others. But most importantly, it also covers the agency banking sector,” said Mbaziira. “It’s been brought into alignment with the other agents, such as the insurance agents, advertising agents, and mobile money agents recently.”
“So, it is possible that now the government perceives that the agency banking space has grown. But then also they might want to create an equitable playground for all the agents and that will explain the reason for the 10% withholding tax,” he explained.
Muhammed Ssempijja, former Country Managing Partner at Ernst & Young Uganda, emphasized the government’s need to broaden the tax base while ensuring fairness in revenue collection.
“There is some budget constraint,” said Ssempijja. “The government is also looking at what else can we bring into the tax net. So some of the measures are generally looking at evening out the playing field, look at where else can we create more revenue, and some of the areas which have been exempted before, we see them slowly and slowly getting into the tax net,” Ssempijja explained.
Impact on service delivery and sector growth
Prosper Ahabwe, Associate Director on Tax at Ernst & Young Uganda, raised concerns about the 0.5% tax on withdrawals at agent banking points. “People will be hesitant to use these payment system platforms because a 0.5% fee is applied to withdrawals becomes a significant expense for users.,” Ahabwe said.
Ahabwe added that the tax increases the price of the service that is being provided and could impact the demand or the ability of customers to take up the service.
“There is a cautious balance between the growth and generation of revenue for supporting the government’s budget for the year. So the government has to look at a rate or a tax that will not be paid to the growth rate of a sector,” noted Ahabwe.
While these tax proposals aim to bolster the country’s revenue base, stakeholders in the Fintech sector must be aware of the potential implications on operations, customer behavior, and overall industry dynamics.
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