A new study commissioned by the Uganda Communications Commission (UCC) has raised pointed questions about whether the country’s telecom tax regime is doing more harm than good — suggesting it may be one of the heaviest in the region, and one that could be holding back the very digital economy it helps fund.
The telecommunications sector is now central to Uganda’s economy, connecting more than 47.5 million mobile subscribers and 17.9 million active internet users to financial services, education, healthcare, government platforms, and business opportunities. But the UCC-commissioned study found that the combined weight of taxes on the sector — 12% excise duty on internet data, 18% VAT, mobile money withdrawal levies of up to 0.5%, import duties on ICT devices, and various regulatory fees — has pushed up the cost of connectivity to a point where it may be suppressing the sector’s growth.
A counterintuitive finding
Perhaps the study’s most provocative conclusion is this: cutting some of these taxes could ultimately increase, not reduce, government revenue.
Using fiscal simulations, researchers found that lowering excise duty and VAT on telecom services and devices could encourage more people to get online, draw in greater private investment, and expand overall market activity — generating, over time, a larger and more dynamic digital economy capable of producing higher tax returns than the current model manages from a smaller, more constrained one.
The toll on consumers and rural Uganda
The study also found that Ugandan telecom demand is far from immune to price increases. Econometric modelling showed that when the cost of data bundles, voice services, or smartphones rises, many consumers respond by cutting back usage, delaying purchases, or abandoning digital services altogether — a pattern researchers describe as price-sensitive demand.
That sensitivity hits some groups harder than others. Low-income households, small businesses, and rural communities are disproportionately affected, the study notes, partly because deploying telecom infrastructure in remote areas is already more expensive due to lower population density. The result, researchers warn, is a widening digital divide shaped as much by income and geography as by the basic availability of services.
Investors flag policy uncertainty
Beyond the financial burden on consumers, the study found that telecom operators and investors are also concerned about the complexity and unpredictability of Uganda’s tax framework — pointing to frequent amendments, overlapping levies, and inconsistent interpretation of tax laws.
Because telecom investments require substantial capital and long planning horizons, researchers argue that this uncertainty has weakened investor confidence and reinforced market concentration among a handful of dominant operators — at a time when expanding competition and investment is precisely what the sector needs.
Revenue versus growth
The study acknowledges that government’s reliance on telecom taxation is understandable. The sector contributes substantially to public coffers, accounting for more than 12% of national VAT collections and roughly 40% of total excise-duty revenue — making it one of the country’s most important tax-generating industries.
But the report cautions that revenue generation should not be the only yardstick for judging the sector’s health. Despite its tax contribution, telecom’s relative share of GDP has been declining, suggesting current policy may be undermining the long-term growth and sustainability of the very industry it taxes.
What should government do?
Notably, the UCC study does not call for scrapping telecom taxes altogether. Instead, it advocates a more balanced approach — one that recognises both government’s need for revenue and the sector’s broader role in national development.
For a sector serving more than 47 million mobile subscribers and 17 million internet users, the study frames the central question as one of long-term strategy: will Uganda’s tax policy unlock the digital transformation it has promised under Vision 2040, or will it continue to constrain a sector struggling to expand into the communities that need it most?
