Uganda’s expanding digital economy is opening new opportunities for small businesses, but entrepreneurs say the rising cost of digital services—driven in part by taxation—is slowing their growth.
In Kisaasi, a suburb of Kampala, Brenda Namulindwa runs a small online fashion business that relies on social media platforms to connect with customers.
For her and many others, access to smartphones, affordable internet, and mobile money services forms the backbone of daily business operations. But staying online is becoming increasingly expensive.
“Most of my customers come through social media, mostly TikTok. I target a particular segment, so I must always be connected. But the cost of data, devices, and transactions keeps going up,” Namulindwa said.
A key concern among digital entrepreneurs is the structure of taxes applied to mobile money transactions.
Currently, withdrawals are subject to a 15% excise duty on transaction fees, with an additional 0.5% levy charged on the value of the transaction itself. For small-scale traders who make frequent transactions, these charges quickly accumulate.
“When I receive payments and withdraw the money, I’m charged multiple times. The 0.5% on the amount plus the excise duty on fees reduces what I actually take home,” Namulindwa explained.
“In the end, it’s the small business owner who absorbs these costs.”
Industry players argue that while each charge may appear modest on its own, the combined effect is significant—especially for entrepreneurs operating on thin profit margins.
Digital media advocate Christine Masiika Thembo says such taxes risk undermining Uganda’s digital transformation agenda.
“The 15% excise duty on mobile money fees, combined with the 0.5% levy on transactions, creates a layered tax burden. For many small entrepreneurs, this discourages frequent use of digital payments,” Thembo said.
She added that these costs are particularly harmful to startups and informal businesses transitioning into the digital space.
“We are trying to bring more people into the digital economy, but high taxes on transactions and devices like entry-level smartphones are doing the opposite. They slow adoption and limit growth,” she noted.
Entrepreneurs like Namulindwa say going digital is no longer optional—it is essential for survival in a competitive and increasingly online marketplace.
“If I am not online, I lose business. But every transaction I make comes with a cost, and those costs are adding up,” she said.
Experts say the challenge for government is finding the right balance between revenue generation and enabling innovation.
While taxes on digital services contribute to national income, excessive or layered taxation can stifle the very sector they aim to grow.
“Government needs to decide whether it prefers short-term gains over the bigger picture and align taxation with its digital agenda. If the cost of using digital platforms remains high, small businesses will either pass the cost to consumers or revert to cash-based systems,” Thembo warned.
The Ministry of ICT and National Guidance has acknowledged the concerns. ICT Minister Chris Baryomunsi said government is aware of the pressure on digital entrepreneurs and is working toward reforms.
“We recognize the concerns around the cost of digital services and mobile money. Efforts are underway to ensure that taxation supports, rather than hinders, digital growth,” Baryomunsi said.
However, analysts caution that without timely policy adjustments, small businesses leveraging digital platforms could struggle to survive under the weight of cumulative taxes.
As Uganda advances its digital economy ambitions, entrepreneurs are calling for a review of the current tax structure—particularly the combined impact of the 15% excise duty and the 0.5% levy—to make digital business more sustainable.
