From Savings to Securities: A Case For Tax-Free Investment Accounts

In 2024, MTN Uganda’s mobile money platform recorded a daily transaction volume of UGX 435 billion – approximately $123.1 million. On the other hand, in August 2025, the Uganda Stock Exchange recorded a daily trading volume of just UGX 17.63 million – approximately $5,000.

Even in Kenya, the region’s largest and most active exchange, the Nairobi Stock Exchange, manages only around $1.5 million a day – a mere fraction of the $763 million transacted daily on Safaricom’s M-Pesa platform. The gaps highlight a disconnect in East Africa at large.

Without connecting savings to securities, households miss out on wealth creation, businesses struggle to raise capital and exchanges remain stagnant.  Consequently, East Africa needs to revolutionise its capital markets. A tax-free, mobile-friendly investment account can bridge the gap and turn individuals into investors, fueling East Africa’s development.

Structural Issues

East African stock exchanges suffer from illiquidity, with low trading volumes that discourage both companies from listing and investors from participating. From the Nairobi Stock Exchange (NSE) to the Uganda Stock Exchange (USE), the crux of the problem is the domination of institutional investors such as pension funds. For instance, the Uganda’s National Social Security Fund (NSSF) bought 52.75% of Airtel Uganda’s shares at Initial Public Offering (IPO) and 43.3% of MTN Uganda’s shares.

While the presence of institutional investment provides much needed stability, the domination of the market by these funds leaves little room for trading. This is because these institutional investors tend to buy and hold shares, typically selling only after a significant downturn. This, together with their sheer size, has the potential to push market prices out of line with their intrinsic value. Without a strong retail investor base, the exchange ceases to be a marketplace thus when these institutions decide to sell, they are unlikely to find willing and able buyers.

The Tax-free Investment Account

To unlock East Africa’s dormant retail capital, a simple, trusted, and accessible vehicle is required. The United Kingdom’s Individual Savings Account (ISA) provides a useful model. ISAs are a tax-free ‘wrapper’ where individuals can place savings into approved investments without paying tax on dividends, interest, or capital gains. Over two decades, ISAs have grown into a cornerstone of household wealth-building in the UK, with over 22 million accounts and a market value of £725 billion – the majority of which is held in equities.

Closer to home, South Africa introduced Tax Free Savings Accounts (TFSAs) in 2015. The scheme has an annual contribution limit of R36,000 ($2,050) and a lifetime limit of R500,000 ($28,484). Like UK’s ISAs, there is no tax on capital gains, dividends and interest. By the end of 2024, approximately R5.1 billion ($ 290.7 million) had been invested through Ninety One, the country’s largest platform. However, with an average account value of R131,035 ($7,470) and just over 38,000 accounts registered on the largest platform, adoption remains limited.

Adapting this concept to East Africa demands both innovation and pragmatism. As in the aforementioned models, every shilling earned inside the account would be fully exempt from tax. This simplicity is critical in a region where complex, and at times heavy handed, tax regimes discourage participation in markets and the economy.

Eligible investments would include local stocks, government bonds and real estate investment trusts (REITs). The scope would be regional, as cross-border investments would deepen the regional pool of capital. With an East African exchange-traded fund (ETF) – a basket of the five largest publicly traded companies in Kenya, Rwanda, Tanzania and Uganda referred to as the EAE20 Share Index – already in the works, individuals would be able to effortlessly build a diversified portfolio and passively invest.

Contributions would be capped annually, set either as a fixed allowance – in the UK, it is £20,000 every financial year – or a percentage of median income, ensuring the incentive reaches beyond high-income households. Therefore, this initiative would appeal to those seeking wealth building tools outside of real estate and agriculture as well as the diaspora looking to simply invest money back home.

Furthermore, East Africa’s tax-free accounts must be accompanied by mobile friendly applications. Citizens must be able to open, fund, and monitor accounts through the mobile phones with links to mobile money platforms like M-Pesa, MTN MoMo and Tigo Pesa. Agent networks would support cash-to-investment conversions, making participation possible nationwide.

Regulators should also license providers under a new framework. Fees must be capped and disclosed in plain language, with default ‘starter portfolios’, for example, a simple bond-equity mix, offered to first-time investors. Additionally, financial literacy must be promoted through the dissemination of educational materials via media and outreach programmes.

A Virtuous Cycle

Currently, East African businesses face a brutal funding landscape. According to the Bank of Tanzania, the overall lending rate in April 2025 was 15.16%. Similarly, the Ministry of Finance, Planning and Economic Development (MoFPED) in Uganda reported average lending rates in UGX-denominated debt as 19.07% in June 2025. On the other hand, foreign debt comes with political and foreign exchange risks.

Tax-free investment accounts can change this equation fundamentally. Local companies would gain access to patient, domestic capital at competitive rates, reducing dependence on expensive debt financing and foreign investment. This democratised funding model enables businesses to expand operations, invest in innovation, and create jobs without the crushing interest burdens that currently stifle entrepreneurship.

Furthermore, it reinforces the region’s investment culture. Saving and Credit Co-operative Organisations (SACCOs) and community groups, like chamas in Kenya, serve as trusted, grassroots mechanisms of pooling savings. These institutions demonstrate how collective commitment to small-scale investing can thrive when aligned with familiar structures. In 2023, SACCOs recorded KSh 682.19 billion – $7.5 billion – in deposits. As tax-free investment accounts channel these savings into formal securities (such as equities, bonds, and ETFs), East African exchanges will become more liquid and efficient marketplaces.

With greater market depth, trading costs fall and participation rises, a classic network effect, where each new investor enhances the value for others, attracting further engagement. Revitalised exchanges foster robust secondary markets making listings more appealing to firms. This increases capital-raising and in turn boosts corporate profitability to complete the cycle.

Rebuttal to the Tax Revenue Argument

Critics may argue that tax-free investment accounts reduce government revenue, but this perspective misses three crucial realities. First, what does not exist cannot be taxed. No East African country reports tax revenue from capital gains as a separate budget line item. Instead, it is aggregated under ‘Taxes on income, profits and capital gains’. In Kenya, capital gains tax – abolished and only reintroduced in 2015 – accounted for 0.037% of tax revenue in financial year 2018/19. Tax-free investment accounts will expand the entire investment ecosystem, creating taxable activity where little to nothing existed before.

Secondly, the genuine tax windfall emerges not from direct capital gains taxation, but from the powerful multiplier effects that follow. When companies gain access to affordable capital, they expand operations, recruit talent, and drive innovation. They then begin generating substantially higher corporate and income tax revenues while enhancing their competitive position both regionally and globally. This transformation proves especially vital for the small and medium enterprises that form the backbone of East Africa’s economy.

Thirdly, beyond revenue generation, increased access to capital fundamentally reshapes the business landscape in the region. Primarily by reducing the prohibitive cost of capital that currently strangles entrepreneurship. In Tanzania, 83% of new businesses fail, while Uganda sees 80% of startups collapse within their first two years. These devastating failure rates largely stem from the crushing burden of interest rates that make sustainable growth nearly impossible. In Uganda, shilling - denominated debt averaged at interest rate of 19.23% in the second quarter of 2023. Tax-free investment accounts therefore offer a pathway to affordable capital that could dramatically improve these survival odds, transforming East Africa from a region where businesses struggle to survive into one where they thrive.

Conclusion

East Africa stands at a crossroads. The contrast between billions flowing daily through mobile money platforms and the meagre turnover of stock exchanges underscores an opportunity: East Africans are savers and transactors, but not yet investors. Tax-free investment accounts offer a practical and proven pathway to close this gap.

By combining the familiarity of community savings models like SACCOs and chamas with the efficiency of mobile technology and a simple tax shield, the region can democratise wealth-building as well as broaden and deepen its capital markets. Yet this is no silver bullet. The promise of this reform will only be realised if barriers, such as low levels of financial literacy and limited trust in markets, are also addressed.

If East Africa can tackle these challenges while rolling out tax-free accounts, the result is not only healthier exchanges, but a more resilient economy where businesses access affordable domestic capital and households accumulate assets. This is more than a financial reform; it is an opportunity to redefine the relationship between citizens and markets.