Tax on ICTs will hurt Uganda consumers

Ugandans are up in arms against the additional tax on Information and Telecommunication Technologies (ICTs) that is likely to stifle industry growth.

Tax, especially on social media, will hurt consumers more than service providers. In the recent budget estimates, the Ugandan government imposed excise duties on social media use and mobile money services.

It introduced a mobile money tax of one per cent on the transaction value of payments, transfers and withdrawals, and a social media tax of USh200 (Sh5.4) per day.

In addition, excise duty on mobile money fees was also increased from 10 to 15 per cent. These additional taxes are likely to slow down the uptake of ICTs at a time when citizens are becoming increasingly dependent on technology.

Uganda’s policy direction is in contradiction to where they need to be in order to exploit the emerging Fourth Industrial Revolution (FIR).

Africa missed the First Industrial Revolution, which exploited water and steam power to mechanize production. The continent also missed the Second Industrial Revolution that used electric power to create mass production.

Even the Third Industrial Revolution that leveraged electronics and information technology to automate production passed Africa by and the continent did not benefit.

Earlier this year, the World Economic Forum (WEF) predicted the emergence of the FIR and argued that it would build on the Third and christened it the digital revolution that has been occurring since the middle of the last century.

Further, WEF says this emergent revolution is characterised by a fusion of technologies that are blurring the lines between the physical, digital, and biological spheres.

Broadband is key to exploiting this emerging revolution but if we imposed heavy taxes on the enabling apps, then we stifle opportunity to exploit the potential it brings to the continent.

While many friends of ICTs have called for a total elimination of taxes from the sector, such calls are unrealistic considering that governments need resources to provide for other common services.

However, in their search for more revenue, governments must strike the balance between encouraging citizens to adopt technology as an enabler and realistic revenue targets that do not destroy this opportunity. There is need for a compromise tax that encourages the exploitation of online services that are key to economic growth.

The presumption that online service providers (OSPs), or what is referred to Over The Top (OTTs) service providers are free is deceptive. Indeed, OSPs invest heavily in Internet backbone and peering infrastructure, and provide tools/services that contribute to telco revenues through data sales. Before going for such providers, it is important to understand the workings of the Internet.

There is no doubt that the Internet and online services are driving innovation and social and economic transformation. They are democratizing knowledge and access to information, transforming the ability of people and communities to communicate and offering local businesses of any size unprecedented scale and resources.

An attempt to impose heavy taxes on these services is analogous to shooting oneself on the feet. It will be counterproductive and could negatively impact not just the economy but undermine the freedom of speech in the country.

Internet tools and services provide small businesses with unprecedented access to global markets, enabling them to compete against the biggest multinationals.

Studies such as those compiled in Asia Foundation, Online Platforms as Drivers of Inclusive Growth in 2017 note that internet tools have enabled the “shift to decentralized, inclusive and dynamic processes of social and economic value creation”.

Another study by Boston Consulting Group in 2013, across 13 countries representing 70 per cent of the world’s GDP, show that the consumer surplus of the mobile internet is approximately $3.5 trillion a year - that is, seven times what consumers pay for devices and access. In Sweden, 40 per cent of consumers’ time spent online is on mobile devices and consumers with multiple devices derive 50 per cent more value from the Internet than those using two or less devices.

There is no shortage of evidence with respect to access and affordability of Internet tools. Uganda must find a balance between access to Internet and the need for development resources from tax.