For decades, tax policy has been guided by a simple assumption; if the government wants to collect more revenue, it must raise taxes. However, a new study commissioned by the Uganda Communications Commission (UCC) and conducted by ECASA Group of Consultants suggests the opposite may be true when it comes to Uganda’s digital economy.
The May 2026 report presents a compelling case that lowering taxes on internet services and digital devices could actually increase government revenue over time. Through econometric modelling and fiscal simulations, the study concludes that reducing key digital taxes would stimulate internet adoption, expand data consumption, and ultimately create a much larger tax base capable of generating more revenue than the current system.
The findings challenge the long-standing belief that higher tax rates automatically translate into higher collections. Instead, they suggest that Uganda may have reached the point where excessive taxation is beginning to constrain growth, limiting both digital inclusion and future revenue potential.
Uganda currently operates one of the region’s heavier telecommunications tax regimes. Internet users pay a 12 percent excise duty on data alongside an 18 percent Value Added Tax (VAT). Mobile money withdrawals attract a levy of up to 0.5 percent, while smartphones and other digital devices face import-related taxes that raise the cost of access.
While this framework has delivered short-term revenue for government, the study argues that it has also created a significant barrier to digital adoption. High connectivity costs force many consumers to ration their internet usage, purchase smaller data bundles, or delay upgrading to smartphones altogether. For low-income households, students, and small businesses, the cost of staying connected remains a major obstacle.
According to the report, this creates a self-defeating cycle. By making internet access expensive, the tax system suppresses demand, reduces digital participation, and ultimately limits the very tax base it seeks to expand.
To test alternative approaches, researchers modelled several tax reform scenarios over a five-year period.
One of the most striking findings emerged from a scenario in which the 18 percent VAT on internet data was removed while retaining the existing 12 percent excise duty. The study found that such a move would reduce the effective price of data by nearly 29 percent.
The impact on consumer behaviour would be significant. Data usage is projected to increase by 19 percent, while the number of internet subscribers would grow by 21 percent.
Perhaps most surprising is the effect on government revenue. Rather than reducing collections, the study estimates that total sector revenues would rise by more than 20 percent, reaching approximately UGX 1.084 trillion over five years. Increased consumption and a larger user base would more than compensate for the lower tax rate.
The report also examined the impact of reducing taxes on entry-level smartphones, which remain the primary gateway to the internet for millions of Ugandans.
Under one scenario, eliminating import duties on smartphones would result in an immediate revenue loss of approximately UGX 30.42 billion. However, the resulting growth in smartphone ownership and digital participation would generate an estimated UGX 609.52 billion in additional tax revenues across the wider economy.
A second scenario focused on removing VAT from entry-level smartphones. The modelling suggests this would increase the active subscriber base by 35 percent. While government would forgo roughly UGX 54.76 billion in direct device taxes, the expansion in digital transactions, internet usage, and related economic activity would generate an estimated UGX 637 billion in additional revenues.
The study’s conclusions align with broader international evidence. World Bank simulations referenced in the report indicate that reducing effective internet taxation from 30 percent to 10 percent can increase data consumption by around 30 percent and boost internet penetration by 7 percent.
The logic is straightforward. When internet access becomes more affordable, businesses can reach customers more efficiently, entrepreneurs can participate in e-commerce, students can access online learning opportunities, and financial services become more accessible. Each of these activities contributes to economic growth, job creation, and future tax generation.
In this sense, internet connectivity functions less like a luxury good and more like essential infrastructure. Just as roads, electricity, and water systems support broader economic activity, affordable digital access enables participation in the modern economy.
The report therefore recommends that Uganda gradually transition from a high-rate, narrow-base taxation model to a lower-rate, wider-base approach. Policymakers could begin by reducing taxes on entry-level smartphones before pursuing broader reforms such as VAT rationalization on internet data.
Such measures would support the country’s digital transformation agenda under the National Development Plan IV while simultaneously strengthening long-term revenue collection.
The central message from the study is clear: taxing internet access less could ultimately allow Uganda to collect more. By lowering barriers to digital participation, government would not be sacrificing revenue. Instead, it would be investing in a larger, more productive economy capable of generating sustainable growth and stronger tax collections for years to come.
