Africa Opinions

Uganda’s Innovative Financing Approach Paid off With Two Successful Micro-levies.

Aiming to create new stable revenue streams in the context of global economic insecurity and growing development needs, the government of Uganda innovated in 2013 by implementing two micro-levies on Mobile Money transactions and incoming international calls. The approach has rapidly paid off, generating more than US$106 M in additional revenue for the State in only one year.

In May 2018, a World Bank report emphasized the urgent need for Uganda to increase domestic revenues mobilization to stay in its development course and maintain its fiscal stability. The same year this report was published under the title “Financing Growth and Development”, Uganda’s revenue-to-GDP ratio was around 14 percent, compared to 18 and 16 percent for Kenya and Rwanda respectively. While the revenue collection performance of the Ugandan State was significantly better than the average 11 percent recorded in the recent decade, the government of the country was looking for ways to further improve it.

Among other means, the implementation of very small taxes, aka micro-levies, targeting highly globalized and fast-growing sectors, had been previously considered and studied. In 2013, the government decided to go ahead with this innovative financing strategy, which was deemed less impactful on the population than the usual and most sensitive option of increasing fuel taxes.

More than US$106 M in additional revenue after just one year

Since 2013, micro-levies have been applied to two important market segments of the telecom sector in Uganda: Mobile Money (MM) transactions and wholesale international call services. The first one was a 0.5% levy collected on mobile money withdrawals, which represents only one dollar for every 200 dollars worth of transactions. While this amount may seem marginal and almost invisible to the consumers, it can create substantial revenue given the size of the mobile money market. Indeed, the total value of Mobile Money transactions in Uganda reached a staggering US$19.5 billion in 2019.

The micro-levy on incoming international calls (excluding calls from Kenya, Rwanda, and South Sudan) operates in the same way: thanks to a very small charge of 0.09¢ per minute of international call, the government has been able to collect more than US$8,500,000 in 2019. Overall, by levying micro-taxes on both MM transactions and international telephone traffic, the Ugandan State has generated an estimated US$106 M in new revenue streams the same year. This additional financial resource strengthens the ability of the country to finance its development and improve the daily life of its citizens, particularly those most affected by the economic impact of Covid-19.

Collateral Benefits of the Innovative Approach

The innovative financing approach implemented by the Ugandan State is also innovative in terms of the technological means used to collect and control the new revenue streams. Complex telecom and transaction metrics systems, integrated with fraud management, billing and big data components, have been put in place to ensure that every shilling is accounted for. These technologies also enable the relevant authorities to enforce compliance and transparency across the telecom and MM ecosystems. This, in turn, improves the government’s ability to mobilize revenue from these vital sectors, generating more financial resources to address socio-economic development needs.

Enhanced Domestic Revenue to Achieve Development

Tax is an important source of domestic revenue for a government, and central to spurring growth and opportunity for Uganda to attain its development goals”, said Rachel Sebudde, a World Bank senior economist. “Without it, citizens would not be able to have good roads, or access to quality and affordable health care and education”, she added. This statement highlights the multiple investment opportunities that exist in Uganda. In the short term, the additional revenue created through innovative micro-levies could also enable the government to mitigate the economic impact of the Covid-19 pandemic. In the long term, these micro-levies could fall within a general framework of improving the Ugandans’ quality of life and enabling the country to acquire the necessary infrastructure dedicated to education and health.

Maxime Overlack, graduate of the Economic Warfare School (EGE), is a French cybersecurity consultant.