Every time a Ugandan withdraws mobile money, a small levy is deducted. Every time they buy airtime or data, another tax is added. Now, a new 10 percent withholding tax on telecom agent commissions has been introduced, prompting fresh debate on whether the country is taxing its way away from financial inclusion.
The latest measure, introduced through amendments to the Income Tax Act, has been described by industry players as the tipping point in a long line of charges that have made mobile money one of the most expensive digital financial services in the region.
A single mobile money transaction in Uganda now attracts a complex web of charges. The consumer pays a 0.5 percent levy on withdrawals, operator fees, and a 15 percent tax on those fees. On top of that, there is a 12 percent excise duty on airtime and data, and 18 percent VAT on telecom services. For those looking to access digital services through a smartphone, import duties and VAT add another substantial cost barrier.
Civil Society Budget Advocacy Group Executive Director Julius Mukunda argues that the cumulative effect is discouraging low-income households from using digital financial services. “Many people already avoid depositing money onto mobile wallets because they know they will lose part of it when making withdrawals,” he said.
The 10 percent withholding tax on agent commissions is the latest addition to the list. While the tax is levied on agents rather than directly on customers, industry observers warn that agents are likely to pass on the cost. In rural communities where mobile money agents often serve as the primary banking channel, that could mean even higher costs for the most vulnerable users.
Mukunda said the tax would increase operating costs for agents, “which are likely to be transferred to customers.”
The Uganda Communications Commission has repeatedly warned that the country’s layered tax structure is suppressing demand for internet services, increasing the cost of digital transactions, and widening the digital divide. The regulator has proposed several reforms, including removing transaction charges on small mobile money withdrawals, eliminating VAT on mobile internet, reducing excise duty on low-cost data bundles, and lowering import taxes on affordable smartphones.
Budadiri East MP Julius Nakiyi has been granted leave to prepare legislation seeking to review taxes on mobile money transactions. Nakiyi argues that the current withdrawal levy unfairly taxes people’s own money rather than economic activity and undermines one of the government’s key objectives under the Tenfold Growth Strategy—expanding digital financial inclusion.
Uganda is widely considered to have one of the heaviest telecom tax burdens in the region. In neighboring Kenya, taxation is largely confined to service fees charged by operators rather than the value of money being withdrawn or transferred. Analysts say the disparity raises questions about whether Uganda’s tax policy is helping or hindering its ambitions to become a digital economy.
As Parliament prepares to debate the proposals, the discussion is likely to extend beyond revenue collection. At its heart lies a fundamental policy question: can Uganda afford to tax digital financial services at current levels, or is it jeopardizing the very inclusion it seeks to achieve?
