Tax owners of tinted cars instead of taxing cash withdrawals

The proposal to tax customers who withdraw cash over the counter by the Ministry of Finance may be counterproductive. One would be forgiven to

The proposal to tax customers who withdraw cash over the counter by the Ministry of Finance may be counterproductive. One would be forgiven to say it penalises people who formalise their business by transacting through banks.

The proponents of the over-the-counter cash withdrawal tax give two key points:

  1. To discourage cash transactions. They say Uganda’s economy is besieged by money laundering as has been the case where Police display large dollar cash usually in the US $100 bills with some criminals somewhere in a home. It is a fact that many people are beneficiaries of proceeds of crime like trading in human parts, prostitution, drug trafficking, corruption, and political bribes.
  2. Mobile money tax is successful despite taxes on withdrawal fees. The argument is mobile money transaction volumes have continued to increase despite several charges and taxes on the cash withdrawals.

The above arguments are wrong. I will respond to the points raised.

  1. The proceeds of crime are currently handled under Uganda’s Anti-Money Laundering Law. Indeed, any criminal wants to legalize their ill-gotten wealth by having the money put into the banking system. Any criminal who gets a lot of cash from criminal activities like corruption and or human trafficking, or any other illegality, focuses on making the ill-gotten wealth appear legal. The best way is to get their cash in the banking system. Others buy property at high prices and sell them at small amounts, which usually explains the real estate market erratic pricing.

The proposed taxes on cash withdrawals are bad for the government. Instead, the government should consider taxing huge cash deposits over the counter which would mean such a person did not earn money through a structured business and therefore may not have paid income tax on the cash being deposited. Besides, taxing huge cash deposits would further make it difficult for money launderers since banks would ask for the source of the money before depositing it, and reporting the cash to the authorities since it attracts tax. Any money already on the bank account other than through cash deposit would have been directly transferred there by another taxpaying entity which means it has already been subjected to tax.

  1. Our national planners need to know the operating modalities of mobile money. The increase in mobile money transactions is attributed to the convenience mobile money gives customers. Indeed, the transaction volumes of mobile money are due to people transferring money from their bank accounts to pay bills like utilities, food, or school fees. The mobile money charge is a “convenience” charge. Instead of driving to the supplier to pay them, it is convenient for a working person to transfer money from their bank account, pay a food vendor in the nearby market, who then pays a Boda Bodaman to deliver the order to the customer. Such is convenient and time-saving to all concerned and it adds value to all people involved along the supply chain.

If the “convenience” value to the MoMo users remains higher than the mobile money charges and taxes thereon which are paid by the customer, mobile money transaction volumes shall continue to increase year-on-year.  So, what convenience does someone going to the bank to withdraw cash offer? There is nothing other than discouraging genuine businessmen from keeping their money in the bank.

Our planners and policymakers need to remember too that the huge flow of MoMo cash is from the middle working class in towns to their families and parents back home. The people who send the money to add the transaction costs and the expected taxes such that their beneficiaries receive the net amount. Because it saves someone a trip by sending money rather than driving to the village, they are willing to do so albeit at the attendant cost. As explained, the “convenience” value is higher than the costs involved. However, when it comes to taxing cash withdrawals, there is no “convenience” value and that is why such is a very unpopular proposal.

My suggestions.

Today, I share one tax idea to help government make money while achieving a national security objective of keeping Ugandans secure.  Indeed, the Government of Uganda spends a big percentage of the national budget on national security. Instead of taxing cash withdrawals at bank counters, the government should tax car owners with tinted glass cars. And increase the penalty for any car without number plates caught on the road.

Tinted cars may hide criminals just like cars on the road without number plates.

What do you think about my proposals?

In addition to encouraging people to bank their money and enable credit extension, the government will fix national security issues. That is the objective of tax policies.

Copyright Mustapha B Mugisa, 2021. All rights reserved

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