The Ministry of Finance has backtracked on its decision to impose impose a 15% Withholding tax rate on commissions of agent bankers and mobile money agents, arguing that such a regressive tax will cripple the growth of the financial sector that is still struggling to expand its presence in the rural areas.
It should be recalled that the Ministry of Finance proposed to amend the Income Tax Amendment Bill 2023, to expand application of tax and make the Withholding Tax on commissions a final tax and further increase the rate from 10% to 15%, arguing that the tax will ease administration of tax by promoting voluntary compliance and increase revenue because it sought to widen the tax base.
In the proposed amendment, a telecommunications service provider who makes a payment of a commission for airtime distribution or provision of mobile money services shall withhold tax on the gross amount of the payment of the rate prescribed and a Financial institution that makes a payment of a commission for agency banking or to an agent banker to withhold tax on the gross amount of the payment at the rate of 15%, up from 10% that was only imposed on telecoms and financial institutions.
The Ministry of Finance stated the amendment arguing that the proposal was from the players in both the telecoms and financial institutions and will ease the administration of tax by promoting voluntary compliance and increase revenue because it seeks to widen the tax base and the tax withheld will or is not creditable.
Keefa Kiwanuka, Chairperson Parliament Finance Committee defended the proposal arguing, “Agency bankers are making some money and we ask ourselves whether it is a business and we agreed it is a business and as a business, we recommend that they should pay tax, just like any other business.”
However, the Committee’s recommendation was rejected by Muwanga Kivumbi (Butambala County) who authored a minority report reminding Parliament that the introduction of mobile money and agency banking in our economy was intended to ensure wide and extensive financial inclusion of all persons across the Country and ease business operations through smoothened transfers and payments across the board and taxation of the agents is overbearing and will drive some out of business thus defeating the intended purpose.
He said, “Many youths in this sector struggle to raise the rent for where they operate businesses and reside, plus other attendant costs. All these costs are covered by the little commission they earn from the transactions they handle. Imposition of tax on these people is not likely to do good to the economy.”
The Opposition instead proposed to have the tax imposed depending on given thresholds or be stayed for 3 (three) years to allow more people to enroll in this sector in order to ensure increased financial inclusion and ease business operations by all enterprises and individuals who earn a living on mobile money and agency banking.
During the consideration of the Income Amendment Bill 2023, Minister of State for Finance, Henry Musasizi conceded defeat and agreed to have the proposal deleted from the bill.
“Clause 25 has issues to do with collective investment schemes and the fact that we deleted it earlier, this one is also deleted,” said Musasizi.
