Overview:
The renewed scrutiny comes just weeks after amendments to the Income Tax Act introduced a 10 percent final withholding tax on commissions earned by telecom agents.
A fresh bid by Parliament to review taxes on mobile money has reignited debate over whether Uganda’s growing tax burden on digital financial services is undermining financial inclusion and making cashless transactions increasingly unaffordable.
The renewed scrutiny comes just weeks after amendments to the Income Tax Act introduced a 10 percent final withholding tax on commissions earned by telecom agents.
Although the tax is imposed on agents rather than customers, industry stakeholders say many agents are likely to recover the additional cost by increasing service charges, further raising the cost of mobile money transactions.
The latest tax adds to an already extensive list of levies on the telecommunications sector. Mobile money users currently pay a 0.5 percent tax on withdrawals, telecom operator transaction charges, a 15 percent tax on those charges, a 12 percent excise duty on airtime and internet data, and 18 percent Value Added Tax (VAT) on telecom services.
Affordable smartphones, widely regarded as the gateway to digital financial services, also attract import duties and VAT, pushing up the cost of accessing the digital economy.
The cumulative tax burden has drawn criticism from civil society organisations, which argue that Uganda risks slowing progress towards financial inclusion by making digital transactions more expensive, particularly for low-income households.
Civil Society Budget Advocacy Group Executive Director Julius Mukunda warned that the new withholding tax on telecom agents could further discourage the use of mobile money, especially in rural areas where agents provide banking services for communities with limited access to formal financial institutions.
“Many people already avoid depositing money on mobile wallets because they know they will lose part of it when they withdraw,” Mukunda said, adding that higher operating costs for agents are likely to be passed on to consumers.
The Uganda Communications Commission (UCC) has also previously cautioned that high taxation is slowing digital transformation by suppressing demand for internet services and increasing the cost of digital transactions.
The regulator has proposed several reforms, including removing transaction charges on small mobile money withdrawals, scrapping VAT on mobile internet services, reducing excise duty on low-cost data bundles, and lowering import taxes on affordable smartphones.
According to UCC, such measures would make digital services more accessible, accelerate internet adoption and support broader financial inclusion.
The debate has now shifted back to Parliament after Budadiri East MP Julius Nakiyi was granted leave to introduce a Private Member’s Bill seeking to review taxes imposed on mobile money transactions.
Nakiyi argues that the current withdrawal levy effectively taxes people’s own savings rather than income or economic activity, contrary to government’s ambition of expanding digital financial services under the Tenfold Growth Strategy.
The proposed legislation is expected to reopen wider discussions on whether Uganda’s tax policy is striking the right balance between raising domestic revenue and promoting digital inclusion.
Analysts note that Uganda remains among the more heavily taxed telecommunications markets in the region. In neighbouring Kenya, taxation is largely applied to service fees charged by telecom operators rather than the value of money being withdrawn or transferred.
With Parliament set to consider the proposals, the debate is expected to test whether government is willing to ease the tax burden on digital financial services in pursuit of greater financial inclusion or maintain the current regime to protect domestic revenue collections.