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The East African : Sep 22nd 2014
44 The EastAfrican BUSINESS SEPTEMBER 20-26,2014 Anxiety among Uganda p≥ofessional bodies as tax exemption sc≥apped By BERNARD BUSUULWA The EastAfrican A DECISION taken by Uganda’s Tax Tribunal to scrap income tax exemptions enjoyed by the Institute of Certified Public Accountants of Uganda (ICPAU) has unsettled members and set a legal precedent that could affect incomes collected by other professional bodies. The Tax Appeals Tribunal A mobile phone user. Picture: File G≥owth of mobile money and phone apps to unleash digital ecosystem A ccording to IBM’s estimations, the full replacement of physical cash transactions with electronic payments could unlock over $4.13 trillion in fresh revenue. Although it is unlikely that cash will go away entirely, just replacing 25 per cent of today’s cash transactions could translate into over $1 trillion in new revenue for the payments value chain. This incremental revenue has a rare characteristic: As opposed to the friction created by incumbents defending themselves from disruptors, no one monetises transactions in cash at an industrial level so replacing cash would not trigger aggressive competitive reactions — simply put, cash doesn’t fight back. By now no one should be sur- prised to learn that mobile network operators (MNOs) have taken the lead in monetising this massive mobile money opportunity. What may surprise some, however, is the recent acceleration of this market both in terms of the number of users and frequency of transactions in some markets. There are over 200 million registered users globally. MNOs have leveraged a set of unique assets to do this: Massive client bases at all socio-economic levels, dense physical agent networks — required for the conversion of cash to electronic value and vice versa —and the tight control they have over the content and services offered on basic devices. For banks and other parties interested in mobile money, these are pretty high barriers to entry and it would take a longtime and lots of money to replicate them. But the numbers at the begin- COMMENTARY ALBERTO JIMINEZ “By now no one should be surprised to learn that mobile network operators have taken the lead in monetising mobile money opportunity.” ning of this article assume that emerging markets consumers will continue to behave like they do today. The reality is that the digital ecosystems spurred by app stores and trends like the ever growing sharing economy, will further accelerate the number of digital interactions these consumers conduct; changing their lives, just like they have changed ours in developed markets. Only two years ago I used to hail taxis almost daily in New York and pay in cash at the end of the rides, but today I mostly use one of the apps on my phone for both hailing and paying for this same service. This natural evolution of mo- bile money ecosystems requires a significant transformation in the underlying platforms behind these services. Now the needs of the users of these platforms — consumers at one end, and digital ecosystem players at the other — require enterprise-grade platforms: The ones that work every time, all the time, and offer a wide-range set of connections to the rest of the ecosystem to quickly grow the relevance of a mobile money service in the life of the consumer. This is the very definition of what cloud technology can deliver. Highly scalable, always available, flexible platforms that allow immediate provisioning of core services and API-based connections to the rest of the ecosystem, including billers and anyone else that needs to collect funds from consumers in exchange for goods or services. A mobile money service delivered from the Cloud has the ability to increase the number of use cases by scale factors in short periods of time. The possibilities in health care, education, transport, media & entertainment, and government services just to name a few industries, are endless. But the final, and potentially larger, opportunity is the value that data can unlock for businesses in mobile money platforms. Besides the voice service provided by MNOs, the rest of behaviours and commercial interactions of consumers exclusively using cash is simply unknown to businesses. Our digital footprint in developed markets is large and it allows commercial enterprises, across industries to understand us as consumers and tailor their products and services so that they become essential in our lives. Mobile Money can enable businesses to do the same for billions more. The w≥ite≥ is IBM’s p≥og≥amme di≥ecto≥ fo≥ Mobile Payments (TAT) ruled about two months ago that income tax exemptions enjoyed by ICPAU in the past were illegal because they are not provided for under Section 21 of the Income Tax Act of 1997, according to sources at the Uganda Revenue Authority (URA). This followed a case filed by ICPAU challenging the taxman’s decision to levy income tax on its revenues, with the institute claiming it is a non-profit organisation focused on training students seeking to attain core qualifications in accountancy. In contrast, the taxman argued that ICPAU’s activities had evolved over time and subsequently changed its character to an educational institution engaged in enrolling students, administering exams and awarding qualifications. 1,752 The members of Certified Public Accountants of Uganda Following the removal of income tax exemptions granted to schools, colleges and universities in this year’s budget proposals, URA officials argued that the institute was liable for income tax under the existing law. Income tax is applied on business, property and employment earned by taxpayers during the financial year. Categories of income tax include corporation tax, which is charged at 30 per cent against profits earned by companies and partnerships, withholding tax charged on payments for goods and services and Pay As You Earn levied on employee salaries. In its ruling, the tribunal cited clauses in the Income Tax Act that offer exemptions to selected local and foreign organisations, diplomatic missions and officers of the Uganda Police Force and Army. Under Section 21, institutions that include Bank of Uganda, East African Development Bank, World Bank, International Monetary Fund, African Development Bank, European Investment Bank and the French Development Bank (AFD) among others are exempted from income tax in Uganda. This list excludes local professional bodies and associations, the tribunal noted. Directly exempted “The tribunal ruled that ICPAU should pay income tax because it is not directly exempted by law. The Institute’s operations have gradually changed into those of a school that registers students and conducts examinations and is therefore liable to income tax. This ruling will also affect other local professional bodies that have traditionally benefitted from income tax exemptions,” said Protazio Begumisa, URA’s Commissioner for Audit and Compliance. However, the Institute’s leadership remains divided on whether to appeal the tribunal decision. Other professional bodies likely to be affected by this ruling include the Uganda Institute of Banking and Financial Services, Uganda Law Society and Uganda Institute of Professional Engineers. Data compiled by ICPAU shows the number of registered members grew by 139 to 1,752 at the end of December 2013. The total number of students pursuing Certified Public Accountants courses increased by 1,783 to 8,350 during the same period. In comparison, the total number of students pursuing Accounting Technician Courses (ATC) rose by 51 to 1,823 in December 2013. Late registration Students enrolled on the CPA programme are currently charged registration fees of Ush100, 000($38) and annual renewal fees of Ush85, 000($32). Examination fees for level one students stand at Ush70,000 ($26) per paper for normal registration while late registration carries a fee of Ush105,000($40) per paper. Students enrolled on the ATC programme are charged registration fees of Ush90,000 ($34) and annual renewal fees of Ush85,000 ($32). Examination fees for level one students enrolled on this programme stand at Ush45,000($17) per paper for normal registration and Ush67,500($26) per paper for late registration.
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