In July 2018, the Ugandan government instituted a 200 shilling, or about $0.05 per day excise duty on Over-the-Top (OTT) social media and instant messaging services including Facebook, WhatsApp, Twitter, LinkedIn, Instagram, Skype, Google Hangouts, Tinder, and Viber, and a 1% tariff on all mobile money transactions. Mail services such as Gmail are not considered a taxable OTT service.
President Yoweri Museveni said that social media encourages gossip, and the social media tax is intended to reduce borrowing from outside the country and improve the low GDP tax ratio. Regardless of why he pushed the Ugandan Parliament to pass the tax, the impact is very real.
Social Media Tax Impact
In the Pollicy report Offline and Out of Pocket, around 1,000 people with smartphones in Kampala, Jinja, Gulu and Bushenyi, were surveyed in focus group discussions and in-person interviews to better understand the impact of the tax on internet usage. Key results from the survey included:
- Affordability: Paying the social media tax for one-month is greater than 6% of respondents total monthly expenditures, especially the 25% of respondents who made less than US$27 per month.
- Access: Mobile internet, where the tax was applied, was the only means to access the Internet for 97.4% of respondents. Only 0.7% had access to a computer and only 0.2% used internet cafes,.
- Payment: Around 56% of respondents pay social media taxes, whereas 38% use a VPN to access “over-the-top” services for free.
- Usage: Prior to the tax, 33% of respondents would access social media platforms more than 10 times a day, yet only 6.6% kept up this pace of usage after the tax started.
- Productivity: One-third of respondents used social media for business activities and of these respondents, 74% reported reduced income following the tax implementation.
Government figures show that the social media tax is having a major impact on Internet access. Internet subscribers dropped by 3 million or 18.75% after the tax was introduced, from 16 million to 13.5 million.
Mobile Money Tax Impact
Of the Pollicy survey respondents, 97.6% had used mobile money services after the tax was introduced, for a myriad of expenses:
- 56% for supporting household and school expenses
- 23% for business transactions
- 16% for airtime top-ups
- 4.7% for paying the social media tax
A majority, 87%, said that the mobile money tax reduced their income and business growth, with 70% transacting less money than before the excise duty, and 4.2% of respondents completely stopped mobile money transactions.
Ms Elsa Muzzolini, the MTN mobile money General Manager backed up these findings by saying that MTN saw a 50% drop in mobile money transactions.
What Should We Do About the Social Media Tax?
The large and disappointing drops in Internet and mobile money usage in Uganda after these excise taxes were introduced, brings to the fore a question we should be asking ourselves: What should we do about these taxes?
On the one hand, the taxes are an obvious barrier to ICT4D. If people are reducing their usage of Internet and mobile money services, we will be hard pressed to see advances in digital development – in any of our sectors.
On the other hand, Uganda is not alone in wanting to tax Internet companies somehow, especially since they are extracting money and data from Ugandans, with almost perfect impunity. In addition, reducing social media consumption, which is known to be mentally harmful, is a laudable goal.
Ether way, what can we do? What should we do? Or is this a purely Ugandan issue that we should leave well enough alone?
Ugandans, please tell us how we can help!
I think internet connectivity and affordability should be among the SDG .
And therefore beyond the ability of a government to tax internet access?
This is not only a Ugandan issue, we are seeing this in other emerging markets, for example Cote d’Ivoire :
“Côte d’Ivoire : augmentation des tarifs des transactions du «mobile money» ”
https://afrique.latribune.fr/africa-tech/telecoms/2019-02-06/cote-d-ivoire-augmentation-des-tarifs-des-transactions-du-mobile-money-806468.html
” In Côte d’Ivoire, fees on mobile money transactions have increased by 7.2%. Mobile money operators are thus passing the 7.2% tax imposed on their turnover by the 2019 fiscal appendix onto their end-clients.”
https://www.ecofinagency.com/public-management/2602-39715-cote-d-ivoire-mobile-money-fees-increase-by-7-2
In statistics, there’s a difference between causation and effects. The Ministry of Finance gave the President bogus numbers. You have to remember governments in developing countries don’t have good I.T. systems, so they aim for the low hanging fruits, things like fuel which are easy to tax. Little attention is paid to causation and effects. From a mathematics or statistics point of view it looked like it would generate more revenue, but math is a strange animal. Many people changed their habits, some downloaded VPNs to by pass the tax, others decided to use wifi at their offices, restaurants. The motives for this tax were beyond collecting more tax but mainly to stifle the people opposed to the Ugandan government (dissent). Several multi nationals, most especially the telecoms take advantage of Uganda’s lax lax laws to avoid tax through tax havens, In countries such as Ethiopia with only 1 government controlled telecom, the tax cheats have no where to hide, but this is at the expense of innovation and poor services. Internet in Ethiopia is slower than a giant sloth, It’s easier for a camel to go through an eye of a needle than to get an internet connection in Ethiopia. It’s a double edged sword, what the Government of Uganda (GoU) needs to do to get a fair shake from the telecom revenues is to setup robust ICT systems that can identify how much the telecoms are raking in, because right now they have no clue. GoU decided to behave like the dog which chased a cat up a tree and keeps barking up the tree, not knowing the cat has shifted to another tree.
Globally, it is perceived that all politicians have got temporally interests with permanent benefits. The greed for power, dictatorship, corruption, high levels of nepotism tendencies, threatened monarchal power transition ( from Museveni to the son Kainerugaba Muhoozi), under development, high levels of youth un employment, debilitated education and hospital facilities, high levels of poverty, to mentioned but a few intrigued the introduction of social media tax.
The dictator (Museveni) to the best of my knowledge never wanted the world to know what kind of suffering that tax payers were going through. Was this the best rationale? Absolutely NEVER!
What can we do?
I call upon the external/Western forces to join hands with us in the struggle to oust out the juntas’ leadership to enable Uganda’s economic growth to grow and rebrand a new Uganda fully liberated from corruption and dictators.
In my opinion and as a Ugandan, I also don’t like the business of taxing everything but again, I HATE people who abuse one another if we are to develop. Social media is good but it is not everything. We need other things in life. Alex might have best ideas if you sat with him, but because the other side of him, check his comment sincerely. Tax on social media did mean that we stop using it, but atleast to boost the usage by adding value to it so that even those who haven’t joined could do it in future with better services and to contribute to our economy. If you prefer using VPN, you find it more expensive than the tax, and VPN service providers are not Ugandans, so we fund other nations yet we are failing to do it for ourselves, this is total ignorance. Before the tax was introduced, most Ugandans who were using let say facebook and watsup on phone, someone loads 10,000/= for only chatting, but now, you have to think about contributing to your country. You load 200 tax for a whole day, then mbs of 5000/= and you use it for purpose not just chatting. in that way we learn to be economic and learn how to contribute to our economy.
We, thankfully, haven’t seen any indication that this is affecting Premise’s user base.
I don’t think access to Premise’s app is taxed, and if you still pay your data providers, they have an incentive to access mobile money and pay the 1% tax.
No but the cashouts from the app are, since they’re through mobile money.
A 50% drop in mobile money transactions resulting from the 1% tax. What is the fee taken by the Mobile money suppliers in Uganda? Must be low. I assume they are not in a position to drop their fee by 1%?
That price sensitivity is surprising. Maybe there is confusion around the tax and its amount. I would think using other transaction mediums would have a greater cost than 1%.
Yes possibly also a form of push back marketing from providers. With that level of price sensitivity it should be automatic that the providers pay the tax. Then there would be a different conversation about the benefits and downsides of the tax.
This sure sounds like a good topic of discussion at the upcoming ICT4D conference in Uganda, doesn’t it?
Oh yeah – good point! If the ICT4D Conference is truly focused on relevant topics, this would be a central theme: the impact of government policy on digital development.
some of us have been around the block for a minute, but we don’t tell. Truth of the matter, things are never what they seem on the surface, you need to scratch deep and avoid tunnel vision.