Promoting Effective and Inclusive ICT Policy in Africa

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  HomeCollaboration on International ICT Policy for East and Southern Africa (CIPESA)  /  Digital Taxation
21Mar

NEW BRIEF: Policy Considerations for Enhancing Digital Trade in East Africa

Author CIPESA Posted on

By Lillian Nalwoga |

The East African region is on the cusp of a digital revolution, with significant strides being made in digital trade and payments. This is driven by remarkable growth in internet penetration, mobile money services, and the adoption of emerging technologies like 5G and Artificial Intelligence (AI).

Further, initiatives such as the African Continental Free Trade Area (AfCFTA) and the East African Community (EAC) e-Commerce Strategy are laying the groundwork for a thriving digital economy. The World Bank projects digital services exports from Africa to reach USD 74 billion by 2040, highlighting the immense opportunity at hand. Despite these strides, there are several key challenges that need to be addressed to fully unlock the region’s digital potential.

In this brief, the Collaboration on International ICT Policy for East and Southern Africa (CIPESA) outlines barriers to digital trade and presents key policy recommendations for promoting a human rights-based digital economy in the region.

According to the brief, the key barriers hindering the advancement of digital trade in East Africa include:

  • Limited Digital Infrastructure and Internet Access: While mobile internet penetration is growing, issues like internet subsea cable cuts, network disruptions, low digital literacy, and low affordability persist. Uneven distribution of infrastructure, high deployment costs, and slow adoption of new technologies further exacerbate the digital divide.
  • Fragmented Approaches to Digital Economy Taxation: Differing digital service taxes (DST) across countries create complexities and may impede innovation and cross-border trade. Kenya, Uganda, and Tanzania all levy DST, with Kenya’s rate being the highest in the region.
  • Data Governance and Privacy Concerns: While some countries have adopted data protection laws, harmonise action is lacking. Issues like data localisation requirements and the need for a comprehensive regional approach to data privacy and management remain.
  • Limited Local Data Centres: The region has a limited number of data centres, which hinders data localisation efforts and the advancement of AI and other data-intensive technologies. Restrictive regulatory frameworks in some countries further complicate the use of cloud solutions.
  • Rising Cybersecurity Threats: Cyber risks are a major concern, with increasing cyber attacks targeting various sectors. Cybercrime laws, while necessary, sometimes contain vague provisions that can be used to curtail online freedoms.

To overcome these challenges and fully leverage the digital economy, the policy brief offers several key recommendations:

  • Embrace Digital Transformation and Connectivity: Invest in robust networks, backup systems, and address single points of failure in internet connectivity.
  • Implement Robust Cybersecurity Frameworks: Prioritise investments in cyber infrastructure, skilling, and awareness.
  • Recognise Data as a Trade Enabler: Ensure trade agreements prevent unnecessary restrictions on data flows and adopt balanced data localisation policies.
  • Harmonise Data Protection Standards: Reduce compliance costs and build trust by harmonising data protection standards across the region.
  • Build Robust Digital Infrastructure: Focus on Digital Public Infrastructure (DPI), data policy, privacy, and protection.
  • Speed up the Adoption of the EAC Data Governance Policy Framework: Secure resources for its implementation.
  • Assess and Address the Impact of Emerging Technologies: Ensure policies foster innovation while addressing ethical and legal challenges.

The East African region has the potential to become a major player in the global digital economy. By addressing the existing barriers and implementing these recommendations, the region can create a thriving digital ecosystem that benefits all its residents.

Read the full brief here.

18May

CIPESA Submits Comments on Uganda’s Proposed New Digital Tax 

Author CIPESA Posted on

By Edrine Wanyama |

On April 28, 2023, the Collaboration on International ICT Policy for East and Southern Africa (CIPESA)  submitted comments on the Income Tax (Amendment) Bill, 2023 to the Committee on Finance, Planning and Economic Development of the Uganda Parliament. The comments argue that the proposed law would  undermine access to and use of digital tools and services. 

The bill, among others, proposes to impose a tax of five percent on foreign-based entities that derive income from providing digital services to customers in Uganda. The proposals are contained in clause 16 which seeks to introduce a new section, 86A.

Clause 86A provides:

  1. A tax is imposed on every non-resident person deriving income from providing digital services in Uganda to a customer in Uganda at the rate prescribed in Part IV of the Third Schedule to this Act.
  2. For the purposes of subsection (1), income is derived from providing a digital service in Uganda to a customer in Uganda, if the digital service is delivered over the internet, electronic network or an online platform.
  3. For the purposes of this section “digital service” includes—
  1. online advertising services;
  2. data services;
  3. services delivered through an online marketplace or intermediation platform, including an accommodation online marketplace, a vehicle hire online marketplace and any other transport online marketplace;
  4. digital content services, including accessing and downloading of digital content;
  5. online gaming services;
  6. cloud computing services;
  7. data warehousing;
  8. services, other than those services in this subsection, delivered through a social media platform or an internet search engine; and
  9. any other digital services as the Minister may prescribe by statutory instrument made under this Act.”

While the clause targets non-residents, if enacted it would add to the digital taxes borne by the already tax-burdened consumers of digital services in Uganda. Since July 1, 2022, web hosting, software and streaming services in the country pay a mandatory value added tax of 18% chargeable on consumers of services offered by  platforms such as Amazon, Meta (Facebook), Twitter and Zoom. 

The tax would potentially hinder inclusive access and use of digital technologies and negatively affect Uganda’s digital economy. According to the United Nations Capital Development Fund (UNCDF), Uganda’s digital economy score is low, particularly in areas such as digital inclusiveness. According to the UNCDF Score Card of 2021 the digital divide or groups most excluded from the digital economy in Uganda are the elderly (80%), rural communities (64%), persons with disabilities (74%), the youth (33%), refugees (80%) and migrants (75%). The inclusion gap such as for persons with disabilities is attributed to the high cost of technologies. 

Innovation is a prerequisite for the provision of digital services including advertising, data services, marketing, cloud computing services, and data warehousing. Most of these tools and services are developed outside Uganda, hence imposing high taxes on non-residents that provide them could   limit access to these critical tools and services. That could push Ugandans further into the margins of the global digital economy.

The enjoyment of digital rights and freedoms, including freedom of expression, access to information, and association, could also be limited by the imposition of high digital taxes. 

Accordingly, the submission by CIPESA recommends that the Committee on Finance, Planning and Economic Development:

  1. Drops the entire proposed clause 16 of the Income Tax (Amendment) Bill, 2023;
  2. Conducts wide consultations with the affected stakeholders including the tech community, innovators, the business community and civil society on the potential effects of the proposed amendment.
  3. Conducts a tax impact assessment to weigh the potential effects of the proposed tax on access and use of digital tools and services. The impact assessment should specifically spell out the anticipated positive impacts and weigh them against the anticipated negative effects.
  4. Takes into consideration and supports all the progressive policies that seek to increase and enhance accessibility and usage of digital tools and services such as tax incentives which usually lead to lowering of the costs to be borne by consumers in purchase and use of digital tools and services.

See the full submission here.

24May

Ethiopia’s New Telecommunications Operator Could Be Bogged Down By Old Habits

Author CIPESA Posted on

By Juliet Nanfuka |

Ethiopia, one of the world’s last closed telecommunications markets, has been liberalised. On May 22, 2021, the Ethiopian government announced that a new telecommunications license had been awarded to the Global Partnership for Ethiopia –  a consortium comprising Kenya’s Safaricom PLC, Vodacom Group, Vodafone Group, the United Kingdom’s development finance institution CDC Group plc, the Japanese-owned Sumitomo Corporation, and the Development Finance Corporation. The award is likely to boost quality of service provision and promote access to information online, in the historically troubled country. 

The newly licensed operator will compete with the state-owned Ethio telecom to serve the country’s population of more than 100 million people. Currently,  the country has low connectivity rates, with internet penetration standing at 20% and mobile phone penetration at  38.5%. Earlier in May 2021, Ethio telcom launched a mobile phone-based financial service, Telebirr, to boost the digital economy by offering cashless transactions as an alternative to an inefficient banking system. The Huawei built Telebirr is likely to face off with MPesa – the mobile banking system pioneered by Safaricom 14 years ago, whose popularity has seen it being adopted by multiple other countries and has served as a key enabler of increased financial inclusion in Kenya and beyond.

The liberalisation of Ethiopia’s telecommunications sector is part of the country’s ongoing reforms to promote social, political and economic development. Reform efforts under the premiership of Abiy Ahmed have included the release of prisoners and dropping charges against opposition actors and activists. Further, efforts have been made to reconnect mobile and broadband internet services disrupted since 2016, including reinstating access to 246 websites, blogs, and news sites that were inaccessible for an extended period of time.

Abiy was shortlisted for a Nobel Peace Prize within a year of his leadership. He went  on to win the prize in October 2019. The commitment to reforms saw Ethiopia jump 40 places up in the World Press Freedom Index in 2019 and the country also hosted the May 2019 commemoration of World Press Freedom Day. A few months later, the Ministry of Innovation and Technology partnered with the Collaboration on International ICT Policy for East and Southern Africa (CIPESA) to host the 2019 edition of the Forum on Internet Freedom in Africa (FIFAfrica), a landmark convening of digital rights actors from across the continent and beyond.

However, the various positive strides are marred by actions in response to ongoing ethnic conflict. The Tigray region in the north of the country, which is currently the epicentre of the conflict, has experienced government-initiated blocks on communications, including internet access and voice calls. Meanwhile, prosecution and persecution of the media and human rights activists alongside state-sponsored disinformation propaganda in the context of the conflict is eroding the initial press freedom and governance gains.

On the policy front, in March 2020, Ethiopia enacted a new Proclamation on hate speech and disinformation, which weighs heavily on social media users and intermediaries, with hefty fines and long jail terms for offenders. Critics have argued that the proclamation undermines free speech, especially as it was passed just months before the general election, which was set to take place in August 2020. Due to the Covid-19 pandemic, the elections were rescheduled to take place in June 2021 and will likely mark a key test for democratic reforms in the country.

Indeed, the autonomy of the newly licensed private operator during the upcoming elections and any periods of public unrest is one to watch. Indications from other parts of the African continent are grim – government overreach in intermediaries operations remains a threat to citizens’ rights, political engagement and economic activity. 

See this State of Internet Freedom in Ethiopia report which mapped 20 years of Government internet controls in the country.

Moreover, Ethiopia has traditionally used Ethio telecom to monitor and control citizens’ communications, a scenario it may try to replicate with the new licensee. It remains to be seen whether the new licensee will be ready to resist any illegitimate actions by state agencies to impede citizens’ access to digital information and platforms.

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