News Column

New Excise Hikes Uganda Bank Charges

September 1, 2014

The 10% excise duty levy on bank charges and transfer fees that was announced in June is making banking expensive and giving cause for customers to re-think their options.

Commercial banks have hiked their banking charges and in the process many business people are beginning to feel the pinch.

Emmanuel Kikoni , the Executive Director of Uganda Bankers Association said last week the banks had no choice but to comply with the law.

He said the duty to collect tax places a heavy responsibility on banks which increases their operational costs which have to be covered.

Kikoni said while the 10% Excise Duty is collected by banks as agents of the government, the tax should be paid by the consumers of bank services.

Kikoni said the objective of attracting deposits in banks may be defeated despite their efforts to carry out financial literacy to create awareness throughout the country.

So, banks will collect the tax from the customers and remit it to URA every 15th of the month. URA granted a dispensation to banks to make the first remittance on July 31, 2014.

Gideon Badagawa, the Executive Director of Private Sector Foundation Uganda said when a bank incurs high costs, that cost is transferred to the clients. This he said can lead to higher interest on loans and bank charges making it expensive for people to use financial institutions.

"If I don't want to borrow then I would rather not deposit. I would rather not work with the bank. People will continue keeping their money in the mattresses," Badagawa said.

"Once people are not depositing it will mean banks will have little money to lend. If deposits are low, banks will find money elsewhere expensively. This will make borrowing expensive. Capital is going to be expensive which means it will be costly to do business in Uganda," Badagawa said.

Badagawa thinks it was a weak adjustment for government to think they can broaden tax base without making it easy to attract investment. He said the new levy is having a negative impact on the banking and business fraternity.

He advises that what government needs to do is put in place the right infrastructure, laws, regulations and skills from which investors can tap into to employ people and create a natural expansion of the country's GDP.

Everst Kayondo, the Chairperson Kampala City Traders Association (KACITA) Uganda said considerable money remains unbanked.

He said if government makes it expensive for those who are already banking then it will discourage those who are not yet using banks.

This means that potential customers will have to choose between the risk of keeping their money in the house or taking it to the bank.

Kayondo said, "This is discouraging people who are thinking of going to the banks, because even those who have many bank accounts have started closing down some or merging them because it's expensive to manage a bank account."

"Much as they are looking for taxes, this might work negatively against them and instead of getting what they wanted they will end up getting little or nothing," he said.

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Source: AllAfrica

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