As an advocate for the reduction of African governments dependency on foreign aid to shore up national budgets, I think this is a positive, albeit slight flawed strategy for Uganda to take.

For starters, I have to thank the EU countries who decided to pull their support for Uganda over corruption charges. The result, is what we saw yesterday as the national budget was announced. Uganda was forced to look inward and get creative about how to collect taxes from it’s own citizens.

“Its very unfortunate that Ugandans are being squeezed both ways,” Simon Mpagi, a mobile phone money transfer agent, told the Reuters news agency from his retail shop in Kampala.

“They steal our taxes and donor money… leaving public services to near-collapse and now when donors get angry and cut them off, then they come to us and punish us again by raising taxes to grab even the little income we struggle to make.”

But this now creates what I would like to term as the double-edged sword of progress. On one side, it forces this country of 34 million to figure out how to become independent, relying on it’s own resources to raise capital for the national budget.

On the other, it goes right after the people who need a leg up the development ladder by cutting off their toes while they are just getting to their feet. Mobile money in Uganda is an economic accelerator. It is by far the most efficient method of banking people in remote villages who might never have access to banking infrastructure. It also plugs them in the country’s emerging digital economy, where everyone in the country is able to perform commercial or banking transactions in situ.

Creative tax collection is fine and good, but I think kneecapping a very nascent social innovation with a 10% fee tax places undue burden on the very people who rely on it for their survival. Uganda’s informal sector absorbs over 3 million people [PDF, p5] who can’t find jobs in the formal sector. Additionally, Uganda’s education system adds 30,000 graduates every year. A slim minority find jobs in the formal sector. That might seem like a small number to some experts, but it statistically significant next to the 17 million of the country’s population of 34 million under the age of 15, who haven’t entered the labor force. Yet.

Technology is rarely a single-edge sword. This instance is just another example. The government has long faced a problem of how to formalize the informal sector for the purposes of collecting taxes from as many individuals as possible. Chasing down unregistered individual street traders to pay their tax is simply inefficient. Mobile money (for registered and unregistered users) offers the government an opportunity to do it’s job more efficiently. The only way to avoid paying this tax is to go back to moving cash by hand. Unfortunately, with most of the country moving towards a digital economy, it is not a trend that’s going to reverse itself any time soon.

My only complaint is that the 10% levy is extremely high and could come back to bite them. I would have been happy with a 1-3% levy at the outset, rising incrementally over time. This would give mobile money an opportunity to establish itself as a viable service delivery mechanism where everyone benefitted.

Right now, it just looks like the government is greedily punishing innovation (and those whose lives are positively impacted by it), in order to make up for it’s failure to clean up its own house of corrupt politicians who caused the foreign to be cut. This single act of accountability probably would address the budget short fall. But then again,I suppose it is easier to make others pay for your sins.

Now. Going after diaspora remittances? Way to stoke the fires Diaspora discourse on “taxation without representation”. This isn’t going to be pretty. Bati Kosovo over at the Uganda Diaspora Desk is going to be busy. More on this later.

via BBC News – Uganda to tax mobile money transfers.

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