Banking sector aims horse-kick at proposal to tax withdrawals

ECONOMY | The government intends to impose a 0.5 percent levy on all cash withdrawals made through ATMs, agent banking, and over-the-counter transactions, among other channels.

In details contained in the Excise Duty Amendment Bill, 2024, government is proposing that effective July, withdrawal of cash provided through payment system or agent banking but do not include withdrawal services will be subjected to a 0.5 percent excise duty.

Stakeholders in the banking sector are opposed to the tax and argue it will be counterproductive and increase the cost of financial and payment services for Ugandans.

They have warned that a levy on withdrawals will discourage people from making deposits, while those who get paid in the banks might turn to withdrawing all their cash and keep it with them.

“Tax proposals affecting the banking sector deserve thorough consideration as they have far reaching implications for both financial institutions and the broader economy," Robin Bairstow CEO, I&M Bank.

"We are committed to engaging with stakeholders to ensure that tax reforms promote a vigorous banking sector while positively contributing to Uganda’s economic prosperity."

Economist and tax expert Trevor Lukanga Bwanika led the debate under the theme,“Impact of tax proposals on the banking sector and the economy’,’ specifically on the proposed tax reforms and their possible effects on various enterprises at the Golden Tulip Hotel in Kampala.

The event was conducted in cooperation with the ACI Financial Markets Association.

“Taxes like VAT will affect everyone because once this tax is established, the cost of goods and services will be higher. The EFRIS is not an amendment, rather it has existed; it is simply being used by URA to collect VAT from everyone who is VAT registered,” Bwanika said.

The proposed tax will be an additional to the current arrangement in which financial institutions have been charging Shs2,500 on a transaction conducted through agent banking in addition to a 15 percent levy against the value 0f Shs2,500 bank charge surcharged a customer.

According Kampala Associated Advocates, the tax proposal will make loan recoveries more expensive in a way that is bound to increase the burden on borrowers, who will take the heat for the newly-imposed VAT.

The banks will transfer the burden of the 18 percent VAT to the borrowers, and many loan agreements will be drafted to provide for such a position.

This will unnecessarily burden already distressed taxpayers, the effect of which will increase the non-performing loans, given that 18% of the said loans will become income to the government at the expense of the taxpayer.

The proposed amendment is clearly telling the taxpayers, “pay your loans, or if you fail and the bank sells your property, you will incur an additional 18 percent VAT”.