Uganda grapples with the pros and cons of increased access to mobile phones

Around 100,000 farmers currently access the data on their phones by text message, guiding them as to where they can get the highest price for their produce.

However, a large section of the Ugandan population – the rural poor – are still on the fringes of this communication revolution, mainly due to prohibitive call rates, resulting from high mobile phone taxes.

Ugandans pay a sector specific tax of 12 per cent on mobile phone usage, the highest in East Africa.

In a research report, Taxation and the Growth of Mobile in East Africa, the GSMA argues that these taxes are regressive (in other words a tax that imposes a greater burden on the poor than the rich).

It also argues that reducing taxes would generate more money for the government in the long run as it would boost the use of mobiles.

However, last month the Ugandan government rejected a proposal, submitted by opposition MPs, to scrap taxes on mobile phones.

Keith Muhakanizi, the under-secretary in the Ministry of Finance, said: “If there are no taxes on people using mobile phones, whom do we tax then? Can we have a government without taxes?”

Uganda Revenue Authority, the statutory body collecting taxes, says net tax collections from telecommunications companies last year amounted to Sh267 billion ($3.57 billion) or 9.5 per cent of the country’s total tax revenue.

“Scrapping local excise and VAT tariffs for the sector would imply a huge revenue gap considering that these two tax heads contribute more than 55 per cent of the total tax collected from the telecommunication companies,” says Sarah Banage, the Uganda Revenue Authority’s assistant commissioner for public and corporate affairs.

Ms Banage says the windfall from the telecoms industry, the country’s third biggest contributor to tax revenues, behind wholesale and retail trade and manufacturing, comes in handy for a government pursuing a self-sustaining economy when donors currently fund 30 per cent of its budget.

Despite high taxes, the telecommunications sector in Uganda has continued to grow phenomenally.

In the first quarter of 2009, a total 1.6 billion billed voice call minutes were made, 14 per cent higher than for the previous quarter, text message traffic grew by 54 per cent to 294 million within the same period.

However, independent experts warn these taxes prevent low income groups, particularly the nine million Ugandans who live on less than a dollar a day, from enjoying the benefits of mobile phones.

Import duties

The Information Economy Report, published last month by the UN Conference on Trade and Development, stated: “Taxes can also act as a barrier [to the spread of mobile phones], particularly import duties on handsets or special mobile communications surcharges. The mobile industry has been seen as a cash cow in some countries.”