WE ARE TAXING THE PHONE THAT COULD SAVE UGANDA'S ECONOMY

Nakato sells second-hand clothes in Owino. No bank account. No paperwork trail. No loan officer who would look at her twice. But two years ago, she bought a refurbished Tecno smartphone on instalments. Today, she receives payments on Airtel Money, orders stock from Kikuubo via WhatsApp, and sends school fees to Masaka without leaving her stall. She has never stepped into a bank. She does not need to. The phone is her bank, her market, and her accountant.

And every time she uses it, the government taxes her.

That is where the story begins — and where the policy contradiction becomes impossible to ignore.

Because while Nakato pays a one percent excise duty on every mobile money transaction, her wealthier counterpart moving money through a bank account pays nothing. Same economic activity. Different tax treatment — depending on whether you are inside or outside the formal financial system.

Is it me, or are we taxing inclusion?

Start with the scale of what is at stake.

MTN Uganda’s revenues crossed sh3.6 trillion last year. Airtel’s  

revenues crossed the sh2trillion mark last year. The value of transactions flowing through mobile money platforms two years ago exceeded Uganda’s entire GDP of roughly sh200 trillion. In effect, the sector’s digital rails are now carrying an economy’s worth of value.

And yet we tax the very infrastructure that makes this possible.

Global evidence is unequivocal. A 10 percent increase in mobile or broadband penetration drives between 0.5 and 1.5 percent additional GDP growth. In Sub-Saharan Africa, where mobile is often the first and only access point to the digital economy, the impact tends to be even higher. For Uganda — still largely informal, still under-connected — this is not marginal. It is transformative.

Which makes our policy posture all the more puzzling.

We treat the phone as a luxury good rather than as economic infrastructure.

A smartphone today is not a lifestyle device. It is the entry point to the economy itself. It is a payments platform, a business directory, a logistics tool, a credit history, and a marketplace — all in one. For a trader in Owino or a boda rider in Gulu, it is the most productive asset they own.

Yet we tax it at the border.

Import duties on smartphones raise the cost of entry into the digital economy before a user even switches the device on. Rwanda and Tanzania have taken a different view — lowering device costs deliberately to accelerate adoption, expand mobile money usage, and ultimately widen the tax base through higher economic activity.

The trade-off is straightforward. The revenue collected at the border is small. The growth foregone by keeping devices expensive is not.

Then comes the second layer of taxation — the one that bites daily.

Mobile money transactions attract excise duty. Bank transfers do not.

It is, in effect, a tax on the informal sector’s pathway into formality. The very citizens that mobile money has brought into the financial system — those excluded for decades by traditional banking — are now the ones paying a premium to transact.

And yet mobile money has arguably done more for financial inclusion than any policy intervention in the last 20 years.

From Owino to Gulu to Mbarara, millions now participate in a traceable financial ecosystem. Payments leave records. Records create data. Data enables visibility. And visibility is the foundation of taxation.

URA cannot tax what it cannot see.

Mobile money makes the invisible visible.

This is how informal economies formalise — not through enforcement, but through convenience. When transactions move onto digital rails, the tax base expands organically. Every payment, every transfer, every transaction is a step toward a broader, more measurable economy.

Which is why taxing those transactions is counterproductive.

Lower transaction costs would increase volumes. Higher volumes would expand the pool of traceable economic activity. Over time, government would collect more — not less — revenue, but from a wider base rather than higher rates.

And yet, in a moment of policy irony, the conversation has begun to drift in the opposite direction — proposals to introduce excise duty on bank transactions to “level the playing field.”

Level it downwards.

Tax everyone equally.

It is a seductive argument — and a deeply flawed one.

Because the problem is not that bank transactions are undertaxed. The problem is that mobile money is overtaxed. Expanding a distortion does not correct it. It simply spreads the inefficiency across the entire financial system.

If anything, the logic points the other way.

The rational policy is not to tax banks like mobile money. It is to stop taxing financial transactions altogether.

Remove the friction. Let money move.

Because every transaction cost is a tax on economic activity itself — a brake on commerce, a penalty on inclusion, a disincentive to formalisation. In an economy trying to broaden its tax base, that is the last thing you want.

Kenya’s experience with M-Pesa offers a clear preview. Affordable mobile money enabled households to save, invest, and grow small businesses — lifting many out of poverty. Uganda is on the same path, but with one hand tied behind its back.

The cost of this policy choice is not abstract.

Uganda’s tax-to-GDP ratio remains low, not because rates are insufficient, but because the tax net is narrow. Most economic activity still sits outside the formal system. Every barrier to digital adoption — expensive devices, taxed transactions — slows the migration of that activity into the visible economy.

And every delay is a missed opportunity for growth.

The solution is not complicated.

It is, in fact, disarmingly simple.

First, reduce or eliminate import duty on smartphones. Treat them as productive assets, not consumption goods.

Second, eliminate excise duty on all financial transactions — mobile money and bank transfers alike.

These are not concessions to telecom companies or banks. They are investments in SMEs, in financial inclusion, and in the long-term expansion of the tax base.

Because the phone is not the problem.

The phone is the economy.

And until policy catches up with that reality, we will continue to tax the very tool that could accelerate Uganda’s growth.