Small businesses call for end to digital gadget taxes

KAMPALA, Uganda — Ugandan small and medium enterprises are demanding an immediate end to taxes on digital gadgets to lower costs and accelerate national digital transformation. The call was made at a high-level Micro, Small, and Medium Enterprise Digital Economy dialogue in Kampala, where business leaders argued that contradictory government policies are impeding economic growth.

John Walugembe, president of the Federation of Small and Medium-sized Enterprises, said the nation’s MSMEs contribute more than 70% of the gross domestic product and employ over 90% of the population. Despite this, digital adoption remains low, with a 2023 federation study finding the rate to be between 32% and 33%. Walugembe noted that limited digital literacy, a widening digital divide and poor access to digital devices are the primary hurdles.

Walugembe stressed that the cost of gadgets is a major deterrent. “It is impossible to advocate for digital transition when MSMEs lack the basic tools required to make that shift,” he said. He pointed directly to government policy. “The excise duty on mobile phones is self-defeating,” Walugembe said. “Digital transformation cannot happen without cheap mobile phones, especially smartphones. The starting point must be for policymakers to allow smartphones to enter the country tax-free.”

He identified digital literacy as the biggest underlying issue, noting that even MSMEs using smartphones often use only basic functions, missing out on opportunities for marketing and client engagement. Walugembe called for policy execution over creation, stating an independent review might find less than 20% of existing policies are actually implemented. He urged collaboration, adding that the business environment is “riddled with contradictory policies.” He also requested the reopening of the social media platform Facebook, calling it an “important marketplace for many MSMEs,” and suggested adjusting high charges on mobile money transactions.

“If we are serious about the digital transformation agenda, we need to make painful policy changes and adjust measures that may generate short term revenue but are detrimental to our long term goals,” Walugembe said.

Richard Ndahiro, regional technical specialist for Eastern Southern Africa for the United Nations Capital Development Fund, supported the focus on affordability and utility. Ndahiro said the primary gap in digital adoption lies in the “business value proposition and relevance of solutions.” Solutions that increase income, such as those that improve access to finance or better market reach, are the most impactful. “Once a business sees an increase in income, spending 100,000 shillings on a smartphone is no longer an issue,” he said.

Ndahiro acknowledged that while device accessibility is slowly improving, the dominant challenge will eventually shift to “capability — that is, whether MSMEs have the skills to use digital services effectively to improve their businesses.” “If we do not train them now, it will be too late in five years,” he concluded.

Michael Niyitegeka, the executive director of Refactory Academy, agreed that skilling must improve. “Training must go beyond the basics, offering bespoke tech solutions that address the real-world complexities MSMEs face, such as navigating multiple internet platforms for payments, Canva and other services,” he said.

James Beronda, the director of Uganda Communications Universal Service and Access Fund, or UCUSAF, called on stakeholders to collaborate. “If we are doing digital literacy training for small businesses at UCC, and FSME is doing the same, why do we work in silos, yet we can leverage each other’s strength for greater impact,” Beronda said. In a separate discussion, a speaker on artificial intelligence cautioned that the technology is an “automation of the pattern of your system.” “If you’re doing rubbish, it will give you rubbish,” she said.