Uganda Communications Commission Proposes Sweeping Tax Reforms to Catalyse Digital Economy Growth
The Uganda Communications Commission (UCC) has put forth a comprehensive suite of proposed reforms to the nation’s telecommunications tax framework, aiming to significantly reduce the cost of digital services and accelerate Uganda’s digital transformation. The proposals target key areas including smartphones, internet data, and mobile money transactions, signalling a strategic shift towards fostering greater digital inclusion and economic participation.
These recommendations are detailed in the UCC’s recent report, “A Study on the Impact of the Current Telecommunications Taxation Policy on the Communications Sector (2026).” The report critically assesses the current tax structure, arguing that it acts as a substantial impediment to digital inclusion, investment, and innovation, despite the sector’s impressive growth trajectory. By 2023, Uganda’s communications sector had expanded to encompass over 43 million mobile subscriptions and 27 million internet users, underscoring its status as a rapidly growing industry.
However, the UCC highlights that this expansion occurs under a considerable tax burden. The sector faces a multi-layered taxation regime, including excise duties, Value Added Tax (VAT), mobile money levies, and import duties on Information and Communications Technology (ICT) devices. These cumulative taxes directly inflate the cost of accessing digital services, thereby limiting broader adoption. The report asserts that the prevailing “high-tax, business-as-usual regime,” while yielding short-term revenue, has reached its economic limitations, stifling usage growth, smartphone adoption, rural connectivity, and the sector’s overall contribution to the Gross Domestic Product (GDP).
To invigorate digital adoption, the UCC advocates for a reduction in VAT on digital devices and a lower excise duty on data bundles below one gigabyte. Furthermore, it proposes the removal or reduction of VAT and excise taxes on entry-level smartphones. These measures are projected to decrease smartphone costs, boost internet usage, and ultimately expand the digital economy in the long term. The Commission prioritises VAT reform over excise duty adjustments, positing that a reduction or elimination of VAT on mobile data would yield a more profound impact on affordability and internet uptake.
Crucially, the report urges the government to reclassify internet access as an essential service rather than a luxury. It underscores that affordable connectivity is fundamental for progress in education, healthcare, agriculture, e-commerce, and the delivery of digital public services. The UCC also suggests a phased removal of VAT on mobile data, coupled with fiscal transition measures designed to mitigate revenue losses while simultaneously encouraging increased internet usage and broadening the tax base over time.
To stimulate further investment within the telecommunications sector, the UCC recommends the implementation of long-term tax incentives for operators. These could include accelerated depreciation allowances and performance-based rebates, particularly for companies extending network coverage to rural and underserved areas. Targeted tax reliefs and subsidies for affordable smartphones are also proposed to enhance digital inclusion and encourage greater participation in online services.
The report further posits that telecommunications tax reform can serve as a catalyst for improving business efficiency and public service delivery. This can be achieved by simplifying tax procedures for small businesses, mobile money agents, and handset retailers. In parallel, the UCC calls for a reform of mobile money taxation, suggesting a simplified revenue- or profit-based charge on service providers, with exemptions or reduced taxes for low-value transactions to foster financial inclusion.
A significant proposal involves the zero-taxation or removal of withdrawal charges on mobile money transactions ranging between five thousand and one million shillings. The UCC argues this would significantly boost the use of digital financial services, especially among low-income Ugandans. This approach could also bolster government initiatives like the Parish Development Model (PDM) by enabling direct fund disbursement to verified beneficiaries via mobile phones, thereby curtailing opportunities for corruption associated with cash handling. The report notes that this arrangement would allow the Ministry of Finance to disburse funds directly to beneficiaries without intermediary involvement, addressing concerns about corruption among parish committee staff.
To encourage the adoption of digital payments by businesses, the UCC recommends subsidising merchant fees or introducing tax credits for entities that embrace mobile money transactions, particularly in the retail, agriculture, transport, and utilities sectors. Lowering the cost of accepting digital payments is seen as a key driver for businesses to transition away from cash, accelerate digital payment adoption, and consequently broaden the tax base.
Addressing the persistent inequality in digital service access, the UCC proposes targeted tax exemptions for entry-level smartphones and assistive technologies. It also advocates for subsidised data packages for vulnerable groups and the zero-rating of educational platforms. Furthermore, the Commission suggests ring-fencing a portion of telecommunications sector revenues to finance digital inclusion initiatives, encompassing rural connectivity, affordable devices, digital literacy programmes, and efforts to reduce gender disparities in ICT access.
These recommendations emerge against a backdrop of increased government investment in digital infrastructure, with the national budget allocating 72.4 billion shillings for public sector internet connectivity and additional funding for digital transformation initiatives. Despite these efforts, internet access remains prohibitively expensive for many Ugandans, with mobile data costing approximately five thousand shillings per gigabyte and monthly fibre internet subscriptions reaching up to one hundred and thirty thousand shillings before taxes.
The call for tax reform is echoed by prominent figures in the business community. Morrison Rwakakamba, businessman and former Uganda Investment Authority chairman, has also advocated for a review of taxes on internet services, digital platforms, and mobile money, citing their potential to promote financial inclusion and accelerate digital transformation. Telecommunications companies have similarly put forward proposals, with Airtel Uganda urging Parliament to abolish the 10 percent import duty on smartphones under five hundred thousand shillings, arguing that cheaper devices would expand the tax base by bringing more Ugandans online. MTN Uganda has proposed reducing the mobile money withdrawal tax from 0.5 percent to 0.25 percent, with a cap of five thousand shillings per transaction, to encourage greater use of digital financial services.
Uganda’s National ICT Strategic Plan 2025/26-2029/30 highlights significant investments in shared digital infrastructure, including the National Data Centre and various e-government platforms. While internet bandwidth costs have decreased, the high cost of internet data remains a primary barrier to digital inclusion. The country’s Global e-Participation Index ranking of 91st out of 193 countries reflects this challenge. The strategic plan explicitly states that “High data prices remain one of the main reasons many people are not using the internet and related services. They continue to undermine Uganda’s competitiveness and hinder the growth of the local ICT sector.”
In conclusion, the UCC’s proposed telecommunications tax reforms are presented as a critical pathway not only to enhance affordability but also to stimulate investment, deepen digital inclusion, expand the tax base, and ultimately propel Uganda’s long-term digital transformation agenda.
