TaxationHow will The 12% Excise Duty Tax on Internet Bundles Affect Uganda’s digital Economy

Aidah NabunjoSeptember 22, 202110213 min
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“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
― Winston S. Churchill

Ugandans started paying tax for internet subscriptions back in July 2018 after the President’s order to the Finance Ministry to impose a tax that would limit access to social media platforms so as to contain ‘ gossip among the social media users according to Chimp reports

 In April 2018, the Ministry passed the Excise Duty Amendment Bill, which required users to pay a daily Over the Top (OTT) tax of 200 UGX (USD 0.05) to access platforms as Facebook, Twitter, WhatsApp, Skype, Viber and the like according to Chimp reports . This caused mass outrage and protests, about the tax’s aim to control the public’s freedom of expression which saw many evade it through the use of Virtual Private Networks (VPNS). This would allow users to enjoy free internet access whilst using foreign addresses.

According to The Daily Monitor, the country lost UGX 234Billion from its projected UGX 284 Billion, as it was only able to collect UGX 49.5Billion as reported by the Uganda Revenue Authority  (URA)

The Uganda Communications Commission (UCC) states that Uganda’s active Internet Subscriptions stood at 21.4m which meant that 1 out of every 2 Ugandans was an active Internet user. However, during the lifetime of the  OTT tax, subscribers who paid the tax during its first month were at most 13.4 million but those who paid the tax throughout its lifetime remained less than 10 million.

Having failed to deliver, Former Uganda Revenue Authority (URA), Commissioner General Doris Akol, proposed to the Parliamentary Finance Committee, that a direct tax on data bundles be implemented so as to tackle the VPN problem. This led to the introduction a 12% tax on data bundles that would run effective on 1st July at the beginning of the financial year 2021/22.

Comparing the two taxes

Having repealed item 13(b) of Schedule 2 of the Excise Duty Amendment Bill 2021, the 12% tax became effective on July 1st, with a value added tax (VAT) of 18% daily. This has seen telecoms raising costs of their Internet Bundles tremendously shifting the tax burden to subscribers.

One of the Internet Service Providers (ISP) known as Roke Telkom, through a social media notice informed that the 60GB monthly bundle was to be increased by an extra USD 1.5 per month, incurring a price much more expensive that the previous one with OTT making subscribers to pay an additional USD 18 per year as stated by CIPESA.

To experts, the OTT tax was less expensive than the new 12% tax due to its payment method that would allow users pay daily, weekly or monthly. According to the tax advisor Juliet Najjinda, a source interviewed by The Daily Monitor a local newspaper said that unlike the OTT tax, the more data an individual or organization consumes, with the new tax, the more tax they have to pay.

How the tax will affect the economy

The tax having been implemented in the second wave of the COVID-19 Pandemic, found many users in high consumption of Internet Bundles and use of Digital Technologies to work from home while curbing the virus’s spread. As part of government’s strategy to establish high quality and low cost Internet, provision of Online Public Services and digitalizing the economy, it went ahead to secure USD 200million from the World Bank.

However, with the new tax in place, the country seems to contradict it’s vision of digital transformation including the National Broadband Policy (2018-2023) together with  the Digital Vision of 2040, by making data bundles expensive for average citizens to afford.

According to The Daily Monitor , Ms. Regina Navuga, a tax analyst, stated that as a result of Covid-19 pandemic, the need for affordable and reliable Internet access increased as work, school, trade and many other essential services shifted online. In contrast to the country’s goals, this proposed Excise Duty on the internet bundles might hinder, rather than promote E-Commerce. One of the key impediments to E-Commerce in Uganda are the 3As of Internet namely: Accessibility, Availability and Affordability as stated by the UNCTAD (2018) Rapid e-trade Readiness Assessment report.

According to Reuters , Dorothy Mukasa the Chief Executive Officer of Unwanted Witness, a digital communications rights Watchdog said “… Internet has become a factor of production… For any investor to make an investment decision, they have to make sure there’s good internet connectivity for their Business to operate. But now the same government wooing investors is the same government hiking the cost of production… If the Connectivity is poor and the cost is high, how will investors get value for their money?” She wondered.

In 2018, the OTT tax saw  penetration rates drop from 47.4% ( 18.5million) users in June to  35% (13.5 million users) by September 2018 according to the Uganda Communications Commission Report  . Furthermore, the report showed that because of the tax, a few individuals were able to access the internet given that the average phone subscriber spends just 10,500 (about USD 2.8) per month on all voice calls, data, SMS and access taxes.

According to Anadolu Agency, its tax consultant Swaib Kaggwa states, “authorities should have raised tax revenues from profits got from internet advertising and other online business as alternative ways to collect revenue, as stated by the government when introducing the social media tax.”

For Zuriat Nakayenga, a Tax advisor argued that policy makers should consider some key indicators for tax laws such as convenience, economic simplicity and ability of the public to pay for the taxes. She added that government should have put into account the economic crisis created by Covid and its strict measures, before imposing such taxes

Recent studies done by the Uganda Communications Commission (UCC) showed that the cost of 1 internet GB in Uganda costs $2.67 (shs.9819) as compared to Kenya’s $2.41 (shs.8863), Tanzania’s $2.18 (shs.8017) and Rwanda’s $2.18 (shs.8017), making Uganda’s Internet access the most expensive in the region. Adding such a tax on top of the high internet tariffs and poor internet speeds or infrastructure is detrimental to Uganda’s digital economy mostly comprised of its youth.

Aidah Nabunjo

My name is Aidah Nabunjo, a Ugandan Journalist and writer. Passionate about bringing African stories to life. Areas of interest are Agriculture, Energy , Policy and Governance. Email: aidahnabunjo@gmail.com

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