Uganda: New Telecom Taxes Renew Debate Over Whether Uganda Is Taxing Financial Inclusion

Kampala — A renewed parliamentary push to review taxes on mobile money has reignited concerns that Uganda's tax regime is making digital financial services increasingly expensive and slowing the country's drive towards financial inclusion.

The debate follows recent amendments to the Income Tax Act introducing a 10 percent final withholding tax on commissions earned by telecom agents.

While the tax is levied on agents rather than customers, industry players warn that many agents are already passing the cost to consumers through additional service charges.

The new measure comes on top of several existing taxes imposed across Uganda's telecommunications sector. Consumers already pay a 0.5 percent levy when withdrawing mobile money, transaction charges imposed by telecom operators, a 15 percent tax on those operator fees, a 12 percent excise duty on internet data and airtime, and 18 percent Value Added Tax on telecom services.

Entry-level smartphones also attract substantial import duties and VAT, increasing the cost of accessing digital services.

Civil society organizations argue that these overlapping taxes have made mobile money one of the most expensive financial services in the region, discouraging low-income households from using formal digital payment systems.

Civil Society Budget Advocacy Group Executive Director Julius Mukunda says the latest tax on telecom agents could further weaken financial inclusion, especially in rural communities where mobile money agents serve as the primary banking channel.

According to Mukunda, many people already avoid depositing money onto mobile wallets because they know they will lose part of it when making withdrawals.

He argues that taxing agents' commissions will increase operating costs, which are likely to be transferred to customers.

The Uganda Communications Commission (UCC) has repeatedly warned that heavy taxation is slowing digital transformation. The regulator says Uganda's layered tax structure suppresses demand for internet services, increases the cost of digital transactions and widens the digital divide.

Among the reforms proposed by UCC are the removal of transaction charges on small mobile money withdrawals, elimination of VAT on mobile internet, reduction of excise duty on low-cost data bundles and lower import taxes on affordable smartphones.

The regulator argues that reducing these costs would encourage more Ugandans to adopt digital financial services and internet connectivity.

The debate has now returned to Parliament through Budadiri East MP Julius Nakiyi, who 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.

Industry observers note that Uganda imposes one of the region's heaviest tax burdens on telecommunications.

In neighboring Kenya, for example, taxation is largely confined to service fees charged by operators rather than the value of money being withdrawn or transferred.

As Parliament prepares to debate the proposals, the discussion is likely to extend beyond revenue collection to a broader policy question: whether Uganda's tax system is helping or hindering access to affordable digital financial services for millions of citizens.

Read the original article on Independent (Kampala).