Research questions relevance of social media tax

Over The Top (OTT) tax
A woman in Kampala scrolls through her WhatsApp messages.

Kampala, Uganda | URN | Two years after Uganda introduced a special tax on the access to social media sites, a new survey shows that the move has not achieved what it was meant to.

In July 2018, the government introduced a levy of 200 Shillings per day on anyone who wanted to access social media sites with the popular ones being Facebook, Twitter, WhatsApp and Instagram.

At the same time, it also introduced levies on mobile money transactions. But this was later amended to target withdrawal of cash from a mobile money agent at 0.5 percent of the value of the transaction.

The government had anticipated that the tax on social media use officially called the Over the Top Tax or OTT would raise to 400 billion Shillings in revenues per annum while mobile money tax would raise 246 billion Shillings. Then the government said that the money from the internet users would be used to expand and improve the quality of services countrywide.

But research by technology policy research group, Pollicy, finds that internet speeds remain consistently slow in most parts of the country including the urban areas where internet speeds average 2.4 megabytes per second compared to a global average of 7.0 megabytes per second.

The report also shows that even with the tax in place, the cost of internet in Uganda remains among the highest in the world with the 1GB mobile broadband plan costing more than 15 percent of average monthly incomes. For the poorest, one-quarter of Uganda would spend up to 40 percent of their average monthly income.

The report says that when the tax was implemented, social media usage fell drastically while several Ugandans opted for the Virtual Private Networks or VPN to evade the tax at the time. Over time, more people started paying the tax possibly because respondents found out that VPNs consumed high volumes of data.

Of the 1,188 respondents, three quarters or 76 percent access social media by paying the OTT tax while another 14 percent use VPNs only. A smaller group, 7.3 percent either has to find where there is a free signal over the open wireless technology-WiFi, while 2.7 percent have abandoned social media altogether.

The report comes at a time when the use of social media is more relevant than it was two years ago or even before April 2020, when the world was paralysed by the outbreak of coronavirus disease sending more people into virtual collaborations.

Today, more people have turned to the use of the internet and specifically social media to do business. Majority of the respondents also say that they find it easy to use WhatsApp for making calls because it is cheaper than ordinary voice phone calls yet this is still not possible in the absence of OTT.

Respondents called for a review of the tax policy, or a temporary waiver until the environment improves and offers more options. They argue that the low quality of the internet as well as the high cost exacerbated by the tax has made it difficult for most children to study online during the closure of learning institutions.

Read Also: World Bank tells Ugandan govt to scrap social media tax

Considering that the tax affects the poorer communities more, there are fears of increased inequality among the richer and poorer children but also between the rural and urban learners as the latter find the internet more inaccessible or unaffordable.

The group adds that a waiver would also make it easier for more Ugandans to follow the electoral processes as they become more and more digital-based, “otherwise, the tax makes their freedom to information curtailed.”

The researchers urge the government to conduct more research into the impact of taxing the ICT sector, and adopt an evidence-based approach to developing further policies in a manner that leads to economic growth, increased access for all and fuels the innovation of novel approaches to revenue generation.

The research group however says that their findings may not be generalized for the whole country since the 1,000 people they interviewed were picked from four districts chosen from the four regions of the country.