In 2018, mobile technologies and services generated 8.6% of GDP in Sub-Saharan Africa, a contribution that amounted to over $144 billion of economic value added. It is therefore understandable that many governments view taxing digital financial services as a potentially lucrative revenue stream. Uganda, with 27 million registered mobile money accounts and over $20 billion in annual transaction value, is one example – a 0.5% tax on all withdrawals was introduced in 2018.

However, very little is known about the impact of this tax in Uganda or similar taxes in other countries in Sub-Saharan Africa. UNCDF partnered with PHB Development to help bridge this gap through semi-structured interviews of a non-random sample of 303 people in Western and Central Uganda. Results indicate a strong correlation between income levels and access to mobile money alternatives. In other words, the introduction of the tax seems to have led to many users migrating to agent banking, where no comparable taxes are applied to withdrawals. At the same time, people with lower incomes tend to have less access to agent banking, indicating that the burden of this tax does fall disproportionately on the poor.

Beyond this, the study looks at people's perceptions about digital taxation, awareness of current mobile money fees and taxes and willingness to pay for DFS and mitigation mechanisms. Qualitative interviews with dozens of stakeholders and key informants from all sectors were conducted as part of this study, and activity-based costing with stakeholders in the most affected sectors.

Building on these insights, UNCDF will carry out a follow-on study with a broader scope and hold discussions with various stakeholders on recommendations that balance financial inclusion and revenue generation.