Ugandans will continue to pay the 0.5 per cent excise duty on mobile money withdrawals after the government declined to revise the levy, despite growing concern over its impact on the cost and uptake of digital financial services.
The ministry of Finance, Planning and Economic Development dropped a proposal to halve the tax and distribute it across the financial ecosystem, a model that had been advocated by mobile money service providers.
Under the proposal, the withdrawal tax would have been reduced to 0.25 per cent and shared between banks and mobile money operators to promote equity. Transfers from bank accounts to mobile wallets were also expected to benefit, easing the cost burden on users.
Currently, many users find it cheaper to withdraw cash from ATMs and either spend it directly or deposit it with mobile money agents, rather than transferring funds digitally from banks to mobile wallets.
Banks charge fixed or tiered fees for such transfers, typically ranging from Shs 1,000 to Shs 2,000 for smaller amounts and up to Shs 12,000 for larger transactions. These charges attract a 15 per cent excise duty, further increasing the overall cost.
For instance, a Shs 3,000 bank charge incurs an additional Shs 450 in tax. In contrast, the 0.5 per cent excise duty on withdrawals is applied to the total amount withdrawn, whether at an agent, ATM, or bank counter making cashing out significantly more expensive.
Mobile money operators argue that this structure disproportionately affects their business compared to banks. Industry players, including MTN MoMo and Airtel Money, have previously proposed a shared tax model to reduce the burden on users and encourage digital transactions.
Former MTN MoMo general manager Richard Yego noted that splitting the tax between banks and mobile money platforms would significantly lower the end-to-end cost of transactions, particularly for users who frequently move funds between bank accounts and mobile wallets.
As it stands, the combined cost of transferring money from bank to wallet and then withdrawing it remains higher than traditional bank-to-bank transfers or holding funds in a bank account.
Earlier, in the 2026/27 Revenue Enhancement and Compliance Measures, the ministry had proposed reducing the excise duty to 0.25 per cent and extending it across all withdrawal channels, including ATMs and bank counters, in a bid to create neutrality and expand the tax base.
However, the proposal has since been shelved. Permanent secretary and secretary to the treasury, Ramathan Ggoobi, said the reduction is not part of the upcoming financial year’s revenue measures.
“Nevertheless, we intend to undertake further analysis on how to incentivise a gradual shift away from excessive cash transactions towards more transparent and formal financial channels,” he said.
The Civil Society Budget Advocacy Group (CSBAG) warns that high transaction costs are pushing many Ugandans, especially those making smaller transactions, back to cash, undermining financial inclusion and the push for a cashless economy.
Data from MTN Uganda indicates continued growth in mobile money usage, with active fintech subscribers rising by 6.5 per cent to 14.7 million in 2025. Transaction volumes increased by 16.8 per cent to five billion, while transaction value grew by 23 per cent to Shs 195.5 trillion.
However, historical trends suggest that taxation has a direct impact on usage. When the levy was first introduced at 1 per cent in 2018, before being reduced to 0.5 per cent, studies, including those by the International Monetary Fund (IMF), recorded a contraction in mobile money transactions.
CSBAG executive director Julius Mukunda argues that multiple taxes, including the 0.5 per cent withdrawal levy, 15 per cent excise duty on telecom services, and 10 per cent withholding tax on agent commissions are undermining affordability.
He noted that withdrawing Shs 1 million via mobile money costs about Shs 6,630, compared to Shs 315 at a bank counter or ATM.
“Sending and withdrawing Shs 1 million can cost more than Shs 20,000, nearly four times the cost of physically transporting the same amount,” he said.
