CIPESA Submits Comments on Uganda’s Proposed New Digital Tax 

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.

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

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.