Uganda has experienced a decline in the number of internet users since the introduction of a daily Over-The-Top (OTT) tax of UGX200 shilling($0.05) for social media tax last July. At the time the tax was introduced, Uganda’s finance minister, David Bahati said it was to raise revenue that would add to the national treasury. But that has not been the case.
According to figures from the Uganda Communications Commission (UCC), prior to the introduction of tax in July, the internet penetration rate in Uganda was 47.4 percent, that is 18.5 million internet users. But three months after, the penetration rate declined to 35 percent, 13.5million users. Five million people stopped using the internet. Also, others are bypassing the tax by accessing social media through virtual private networks (VPNs).
Monthly revenue from the tax that was supposedly meant to increase also declined. OTT tax revenue went down from UGX5.6 billion($1.5 Million) in July 2018, to UGX4.09 billion ($1.1 Million) in August 2018 and then to UGX3.96 billion(USD 1.08 Million) in September 2018. A major disappointment for the government which had predicted a UGX400 billion($108 million) revenue collection per annum.
Consequently, the overall economy is affected; social media is a popular medium for networking, interacting, and marketing. Fewer internet users automatically translate to less interaction, engagements, and business transactions. Online bank transactions have lessened. The Guardian reports that the value of mobile money transactions fell by almost a quarter, to UGX14.8 trillion between June and September.
“The tax has not generated the revenue the government anticipated. Instead, technology and financial sectors have been hit,” Irene Ikomu, a lawyer based in Kampala said. Paul Cise, a man who sells data for Nov Mobile Limited in Naguru, Kampala said the tax has made business difficult and forced him to cut staff as he can no longer pay rent and employees. “Customers are not happy about the tax. Many have resisted it,” he said.
According to a study by Research ICT Solutions, the tax could lead to lower tax revenues by up to UGX2.8 trillion($760 million) in forgone GDP growth and UGX 400 billion($109 million) in taxes per annum. “The ICT sector taxation slows Uganda’s development, dropping all ICT excise duties would stimulate job creation, formalise informal sectors, benefit the poor, foster fast economic growth, leading to a wider tax base and higher tax revenues,” the study stated.
Seeing the negative impact of the OTT tax, citizens and NGO’s are calling on the government to put an end to the tax. But Ibrahim Bbosa, spokesperson of the Uganda Communications Commission, says the drop in internet use is just a phase of behavioural adjustment and that the numbers will recover in due time.