Social Media Tax Cuts Ugandan Internet Users by Five Million, Penetration Down From 47% to 35%

By Juliet Nanfuka |

The tax which the Uganda government introduced on use of social media last July has slashed the number of internet users in the country by five million in three months, according to figures from the industry regulator, the Uganda Communications Commission (UCC). The numbers also show that revenue from the tax is far from the windfall which government had predicted the tax would add to the national treasury.

The figures released by the commission show that only half of the country’s internet subscribers were paying the Over-The-Top (OTT) service tax in the third month after its introduction. Those paying the tax fell from eight million subscribers in July to 6.8 million in September. In June 2018, a month before the introduction of the tax, the internet penetration rate in Uganda stood at 47.4% (18.5 million internet users) but three months later, it had fallen to 35% (13.5million users).

Monthly revenue from the tax was equally on a downward trend, falling from Uganda Shillings (UGX) 5.6 billion (USD 1.5 Million) in July 2018, to UGX 4.09 billion (USD 1.1 Million) in August 2018 and further to UGX 3.96 billion (USD 1.08 Million) in September 2018.

The figures from the UCC  suggest that many internet users may have stopped accessing the internet altogether since July. But they also reflect the growing number of Ugandans who are using virtual private networks (VPNs) as a means to continue accessing social media while avoiding to pay the daily  OTT tax of UGX 200 ( USD 0.05).

The figures from the regulator appear to confirm the fears expressed by many upon the introduction of the tax, that it would harm the sector by undermining internet access and affordability, while also threatening access to information and freedom of expression.

Upon the introduction of the social media taxes last July, the government had anticipated revenue collections of up to UGX 400 billion (USD 108 million) per annum, while projections from the June 14 national budget speech for the fiscal year 2018/19 had projected that up to UGX 486 billion (USD 131 million) could be collected annually by 2022. 

Earlier this month, Uganda’s ICT minister Frank Tumwebaze hinted that his ministry may have been misled by the finance ministry  into supporting the tax on the assumption that it would widen the country’s revenue base. Accordingly, parliament’s committee on Information and Communication Technology (ICT) ordered the ICT ministry to conduct an assessment on the impact of the social media tax and share their views with the finance ministry.   

Earlier studies forecast the negative impact of the tax. The Alliance for Affordable Internet (A4AI) said the tax would likely push basic connectivity further out of reach for millions, as it would disproportionately and negatively impact low-income Ugandans and their ability to affordably access the internet. It explained that, where the richest Ugandan would experience an increase of 1% in their cost to connect, this cost to connect for Uganda’s poorest would jump by 10%, resulting in just 1GB of data costing them nearly 40% of their average monthly income. According to the World Bank, the average national income stands at USD 630 per annum. 

According to the  2017/18 Uganda National Information Technology Survey, social media platforms are some of the popular avenues for citizens to engage with each other, and to  pursue businesses and education opportunities. At least 76% of the survey respondents cited the price of internet subscription as a key limitation to their internet use. This was followed by concerns over slow internet speeds and the lack of connectivity in some areas.

Image: Internet use limitations in Uganda | Source: 2017/18 Uganda National IT Survey

A study by Research ICT Solutions warned that the OTT tax could lead to lower tax revenues including costing up to UGX 2.8 trillion (USD 760 million) in forgone GDP growth and UGX 400 billion (USD 109 million) in taxes per year. The study argued that removing all excise duties across the ICT sector would lead to more tax revenues by facilitating economic growth and growing tax revenues across all sectors. It added that the more Ugandans that have broadband access, the easier it will be to serve them with e-governance, e-health, e-education and financial services while also growing tax revenues faster.

At an August 2018 multistakeholder meeting hosted by the Collaboration on International ICT Policy in East and Southern Africa (CIPESA) and the Internet Society Uganda Chapter, stakeholders called for the government to reassess its position on the taxation to ensure a more inclusive financial economy and digital society that does not discriminate or disenfranchise already marginalised and vulnerable communities, including persons with disabilities (PWDs), women, youth and rural communities. Participants at the meeting stressed that the government should instead look at available alternatives for raising government revenue without necessarily taxing citizens and suffocating Uganda’s nascent digital economy.

A study released by Pollicy indicated that many social media users have found the OTT tax frustrating  despite 56% of respondents indicating that they pay the tax compared to the 38% who opt to utilise VPN and the 3% who  access social media platforms through free Wi-Fi. 

Uganda: New social media tax will push basic connectivity further out of reach for millions

By Alliance For Affordable Internet |
Uganda’s government has passed a new tax that will require citizens to pay UGX 200 (US$0.05) per day in order to use messaging and voice over-the-top services (OTTs), including Facebook, WhatsApp, Twitter, and Viber. The tax, slated to take effect on 1 July, will push the cost of basic internet access further out of reach for millions of low-income Ugandans. The government must take urgent action to reverse this measure.
The Excise Duty (Amendment) Bill 2018, passed last week by the Ugandan Parliament, calls for telecommunications service operators providing data used to access OTTs to pay an excise duty on this access. According to Reuters, the country’s mobile network operators are likely to pass these costs on to consumers, levying a daily tax on each SIM card used to access the relevant platforms and services. The impact on consumers in Uganda — and particularly on low-income users — will be significant, and is likely to force many of these users to curb their internet usage, or to forego access entirely.
Only five other countries in Africa (where data was available) have more expensive mobile internet plans than Uganda. At the end of 2016, a 1GB mobile broadband plan in Uganda cost more than 15% of average monthly income. This high cost is keeping Ugandans offline — according to the GSMA, individual mobile internet subscriber rates in Uganda stand at just 18% of the population.
The true cost to connect is even higher for those earning less than the average national income (i.e., less than US$630/year). For the lowest income group in Uganda (see graph below), purchasing the same 1GB plan costs them 30% of their average monthly income. With the excise duty in place, this cost to connect for Uganda’s poorest will jump by 10%, resulting in just 1GB of data costing them nearly 40% of their average monthly income. The richest Ugandans will also experience an increase of 1% in their cost to connect, and by and large, this new excise duty disproportionately and negatively impacts low-income Ugandans and their ability to affordably access the internet.

he Ugandan government has argued that such a tax is necessary both to reduce gossip (“lugambo”) on these platforms, and to raise funds needed to address the impacts of comments made on social media that are critical of the government. However, it has not provided any explanation as to how such a tax might change what people say on the platforms, nor how the funds collected would be used to address these impacts.
The government has also argued that this tax will help promote local content development by placing a tax on “imported content.”  As consumers increasingly shift toward data-based services, mobile operators will have new opportunities to develop and offer their own OTT services on their networks. However, the current language in the bill makes the duty applicable to all voice and messaging OTTs, including those that could potentially be developed by mobile operators or Ugandan firms. This is precisely why regulators in other countries have opted not to intervene on OTTs — so that local companies can innovate and create jobs and value in the telecoms market. The government of Nigeria, for example, previously considered a tax on internet use, which was eventually scrapped as a result of studies showing it would make access unaffordable for millions of people.
For other local firms that rely on voice and messaging apps for sales and service, for example when they use WhatsApp to communicate with customers, this duty will hurt their businesses. Finally, from a consumer view, these services offer value for money to communicate and share with others beyond what existing voice and messaging services can provide.
Stifling internet uptake and use is also likely to result in failure to achieve the goals laid out in the Digital Uganda Vision.The ICT sector contributed 3.4% to Uganda’s GDP in 2015, and increasing internet access has the potential to spur significant socio-economic growth — a recent study showed that a 10% increase in mobile broadband penetration can increase economic growth by nearly 3%.
We urge the government of Uganda to:

  • Repeal the excise duty amendment before it goes into effect, and
  • Adopt an evidence-based approach to policy making for the sector, with a specific focus on better broadband planning, increased public access solutions, innovative spectrum policy, and more efficient use of universal service and access funds.

By focusing instead on these areas, the government can have a far more positive impact on increasing internet access, and promoting local content development and innovation.
Featured image: Bustling street scene in Kabale, Uganda (Photo credit: Adam Cohn, CC BY-NC-ND 2.0)