July 1, 2021
Uganda has ditched the Over-The-Top (OTT) tax that it introduced three years ago on the use of social media services after the tax failed to raise revenues and constrained internet usage. But appearing to not have learnt any lessons, the country has instead introduced a 12% tax on internet data.
Introduced on July 1, 2018, the infamous OTT tax, widely known as ‘social media tax’, required Ugandans to pay a daily levy of Uganda Shillings (UGX) 200 (USD 0.05) in order to access over 50 platforms including Facebook, Twitter, and WhatsApp. President Yoweri Museveni directed the introduction of the social media tax as a ‘sin tax’ to punish social media users in Uganda for the consequences of their “opinions, prejudices [and] insults” and as a means to raise government revenues.
From inception, sections of civil society and the public saw the tax as an attempt to stifle free speech and access to information – and they warned that the tax would have disastrous effects on the country’s fledgling digital economy and digital civic space. These fears were not unfounded, as Uganda is a notable digital rights predator that has ordered social media blockages and internet shutdowns, besides harassing some social media users that are critical of the government.
Predictions that the social media tax would harm internet use and fail to generate the envisaged revenues indeed came true. At the time the government filed proposals to introduce the OTT tax, the Ministry of Finance projected that up to UGX 486 billion (USD 131 million) could be collected annually by 2022. However, by the end of July 2018, the projections had been revised downwards to UGX 284 billion (USD 78 million) annually. In July 2019, one year after the introduction of the tax, the revenue body reported that it had experienced an annual shortfall of 83%, having collected only UGX 49.5 billion (USD 13.5 million). In the second year, the social media tax fetched a paltry USD 16.3 million.
Now, beginning July 1, 2021, the government has replaced the OTT tax with a direct 12% levy on the net price of internet data, after which a value added tax (VAT) of 18% will apply.
According to a social media notice by Roke Telkom, an internet service provider, the charges for a basic 60GB monthly bundle will increase by an extra USD 1.5 per month with the new levy compared to what the same bundle cost when the OTT tax was being levied. In other words, this will cost an additional USD 18 per year compared to what the same bundle cost when the OTT tax was being levied.
Within the first year of the social media tax, Uganda lost five million internet subscriptions due to the negative effects of the tax. Although the tax was envisioned as small and manageable, it did not meet the fairness and proportionality requirements: for a country whose average phone subscriber spends just UGX 10,500 (about USD 2.8) per month on all their voice calls, data, SMS, and access taxes, according to Uganda Communications Commission (UCC) figures, a monthly social media tax of USD 1.5 alone consumes up to 54% of their telecommunication services spend.
Moreover, in 2018, the Alliance for Affordable Internet (A4AI) showed that the social media tax was likely going to push basic connectivity out of reach for many including the underemployed and unemployed youth who make up over 78% of the population. Additionally, A4AI explained that this tax would increase the lowest income group’s access to the internet by 10%, resulting in just 1GB of data costing them nearly 40% of their average monthly income.
In the 2020 Affordability Report, Uganda’s data costs are higher than the African average, with 1 GB of data costing up to 8.07% of an average Ugandan’s monthly income compared to Sub-Saharan Africa’s average of 3.1%. According to a 2018 nation-wide survey by the National Information Technology Authority of Uganda (NITA-U), 76.6% of respondents named high cost as the main reason why their use of the internet was limited.
Based on problematic assumptions and projections?
The tax was clearly based on wrong assumptions, and the signs were ominous from early on. In January 2019, the then Minister of ICT, Frank Tumwebaze, reportedly said his ministry could have been misguided by the finance ministry in introducing the social media tax and he promised an impact assessment to gauge potential policy re-alignments. A year later in January 2020, the then revenue body’s Commissioner General, Doris Akol, decried social media tax avoidance through the use of Virtual Private Networks (VPN). She called for the tax to be repealed and replaced with a direct levy on internet data.
Indeed, since the social media shutdown during Uganda’s 2016 general elections, the use of VPN apps has been growing. These have helped users to avoid paying the OTT tax and to sidestep further internet shutdowns, such as the recent disruption during the 2021 election and the suspension of Facebook access in Uganda, which is in the fifth month now.
According to UCC, as of December 2020, there are 21.4 million active internet subscriptions – translating into a little more than one active connection for every two Ugandans – but the number of subscribers who paid the OTT tax at least once during that month was 13.7 million. For most months in the lifetime of the tax, the number of OTT taxpayers remained under 10 million. At the time Uganda introduced the tax, the internet penetration rate stood at 47.4% (18.5 million internet subscriptions), meaning in three years, the country has added under three million subscriptions and the penetration rate has risen marginally.
The new 12% levy comes when Uganda is in the middle of a second wave of Covid-19, which saw the government recently instituting a 42-day lockdown that prohibits all public gatherings, inter-district travel, and public transport. This has rendered digital technologies indispensable to working, learning, public participation, and livelihoods, yet Uganda’s new tax will adversely affect internet access and citizens’ access to information – perhaps more than the now repealed social media tax.
Having recently secured a USD 200 million loan from the World Bank to support “access [to] high-quality and low-cost internet, public services online, a digital economy driving growth, innovation and job creation,” Uganda’s new tax seems inconsistent to the larger national visions of digital transformation, including the National Broadband Policy (2018-2023) and the Digital Vision 2040.
But Uganda is not alone on this worrying path. Following the Covid-19 disruptions to domestic economies marked by weakening tax bases, various countries in the region have turned to, or are considering, some form of digital tax as one of the new revenue streams. For example, Zambia and Nigeria have considered plans of imposing direct taxes on OTT services but have withdrawn following backlash. Botswana has indicated it is exploring a digital tax due to a decrease in tax revenue and in 2020, Mauritius introduced a 15% VAT on digital services provided by non-resident companies.
