Ugandans to continue paying 0.5% mobile money tax as Treasury drops cut plan

Kampala. Ugandans will continue paying a 0.5 percent tax on mobile money withdrawals after the Ministry of Finance dropped proposals to halve the levy and spread it across the wider digital payments ecosystem, in a move likely to keep the cost of cashing out high and sustain pressure on digital financial inclusion efforts.

The decision effectively maintains the current tax structure, which has been widely criticised by mobile money operators, civil society actors and consumers for increasing the cost of transactions and discouraging the use of digital payments.

Under the rejected proposal, the tax burden would have been shared across the financial value chain, with both banks and mobile money providers each contributing 0.25 percent. The reform was also expected to apply to transfers from bank accounts to mobile wallets, in what stakeholders described as an attempt to promote “equity” in taxation.

However, Ministry of Finance officials have confirmed that the measure will not be included in the 2026/2027 budget framework.

Mr Ramathan Ggoobi, the Permanent Secretary and Secretary to the Treasury, said the reduction is not among the approved revenue measures for the coming financial year, although government may revisit the idea later.

“Nevertheless, we intend to undertake further analysis in future on how to incentivize a gradual shift away from excessive cash transactions toward more transparent and formal financial channels,” Mr Ggoobi said.

The 0.5 percent levy applies when users withdraw cash from mobile money agents, bank agents or ATMs, and is charged on the transaction value rather than the service fee, making it more costly for users who rely on cash-out services.

Industry players argue that the structure creates distortions in the financial ecosystem, particularly where users move money from banks to mobile wallets and then withdraw cash for daily spending.

Currently, banks charge fixed or tiered fees for transfers to mobile wallets, ranging from about Shs1,000 to Shs2,000 for small transactions and up to Shs12,000 for larger transfers, depending on the institution.

These fees are also subject to a 15 percent excise duty, further increasing the cost of digital transfers. For example, a Shs3,000 bank fee attracts an additional Shs450 in tax, bringing the total to Shs3,450.

By contrast, mobile money operators do not charge fees for receiving money into wallets, but the cost burden increases significantly at the withdrawal stage due to the excise levy.

Mobile money companies, including MTN and Airtel, have repeatedly called for a rebalancing of the tax regime, arguing that the current system unfairly penalises mobile platforms compared to banks.

Mr Richard Yego, former MTN MoMo General Manager, said industry players had proposed a shared taxation model to reduce pressure on users and improve uptake of digital financial services.

He explained that both banks and mobile money operators should each shoulder 0.25 percent of the withdrawal tax to create balance across the system.

“This would meaningfully lower the overall end-to-end cost of using a bank-to-wallet route for many users, especially those who later withdraw cash or move money frequently,” he said.

According to industry analysis, the current structure makes bank-to-wallet-to-cash transactions significantly more expensive than bank-to-bank transfers, which are often cheaper or free for small amounts.

Experts say the fragmentation of the financial system contributes to pricing disparities, with banks treating mobile wallets as external destinations, resulting in higher transfer charges compared to internal transactions.

Earlier in the 2026/27 Revenue Enhancement and Compliance Measures, government had proposed reducing the excise duty on withdrawals from 0.5 percent to 0.25 percent and extending the levy to cover ATMs, bank counters and mobile money agents.

The proposal was intended to promote tax neutrality across the financial sector while broadening the tax base and potentially increasing revenue collection through higher transaction volumes.

However, the idea was shelved before inclusion in the final budget proposals.

Civil society organisations say the current tax regime is undermining efforts to build a cashless economy and improve financial inclusion.

The Civil Society Budget Advocacy Group (CSBAG) warned that many Ugandans, especially those making small daily transactions, are reverting to cash due to rising digital transaction costs.

“This defeats the financial inclusion agenda and the push for a cashless economy,” CSBAG said.

The group also pointed to multiple layers of taxation within the digital finance ecosystem, including the 0.5 percent withdrawal tax, 15 percent excise duty on telecom service fees, and a 10 percent withholding tax on agent commissions.

CSBAG Executive Director Julius Mukunda said the combined effect of these taxes significantly increases the cost of using mobile money compared to cash transactions.

He illustrated that withdrawing Shs1 million through bank channels attracts about Shs315 in charges, while the same amount via mobile money could cost up to Shs6,630 in taxes and fees.

“Sending and withdrawing one million will cost more than Shs20,000, nearly four times more than physically transporting the same amount between Kampala suburbs,” Mr Mukunda said.

Mobile money penetration in Uganda continues to grow despite the high costs. MTN Uganda, which holds an estimated 52 percent market share, reported strong performance in its fintech segment, with active mobile money subscribers rising 6.5 percent to 14.7 million in the year ending December 2025.

Transaction volumes also grew by 16.8 percent to five billion transactions, while transaction value increased by 23 percent to Shs195.5 trillion.

However, analysts caution that earlier tax changes have had a measurable impact on usage patterns. When the mobile money withdrawal tax was first introduced in 2018 at 1 percent and later reduced to 0.5 percent after public opposition, studies—including those referenced by the International Monetary Fund—showed a contraction in transaction volumes.

Policy experts say the debate now centres on how to balance revenue mobilisation with financial inclusion, as government seeks to expand the tax base without discouraging digital payments.

For now, the 0.5 percent withdrawal tax remains in place, leaving consumers to continue bearing the cost of cashing out in Uganda’s fast-growing but heavily taxed mobile money ecosystem.