Taxing gone over the top, literally?

The Plan B For Uganda’s Foiled Social Media Levy Is Full Internet Tax

By  |  April 12, 2021

Since 2018, Ugandans have had to part with UGX 200.00 (USD 0.055) daily as a levy that must be paid before they can access over-the-top (OTT) services that include social media and internet-enabled instant messaging platforms. But apparently, that’s not enough.

On Wednesday, April 7, Uganda’s Finance Ministry made it known that the leadership of the Ministry has made a proposal that would see the OTT tax repealed and replaced with something that the average internet user in Uganda would probably describe as outrageous.

The country’s leadership is seeking a 12 percent tax on internet data in Uganda, with data purchases for educational services and medical purposes the only exemptions.

Why rescind an OTT tax that sparked outrage and introduce an even bigger tax that is equally burdening? That’s because the Uganda Revenue Authority is convinced that the OTT tax hasn’t brought in the goods.

Now, a bit of a backstory: Although it was first talked about in 2017, the leadership in Uganda slapped a daily levy of USD 0.055 on Ugandans accessing over 50 OTT mobile communication apps in 2018. Think of OTT as any media service offered directly to viewers via the internet – like Facebook, WhatsApp, Twitter, Netflix, etc.

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Despite the outcry that accompanied the initial proposal all the way to the eventual implementation of the levy, the country’s leadership justified the introduction of the tax by describing it as a “source of revenue” and a “way to curb online gossip.”

What followed was quite predictable: internet users dropped (one source claims 5 million Ugandans went offline as a result), unrest and dissent gathered steam, and, naturally, people sought alternative means through which they can circumvent the tax while accessing their favourite OTT services.

Virtual Private Networks (VPNs) have been the most popular alternative in Uganda with hundreds of thousands reportedly skirting around the levy through this means. Despite efforts by the government to get network operators to block VPNs, the difficult and impractical nature of that task meant that VPNs couldn’t be totally shut down without crippling essential government/enterprise networks.

That’s because key parts of the economy and society, in general, are inextricably tied to VPNs in some way; governments and institutions are known to interconnect their various sections and also support remote work by means of VPNs. Suffice it to say taking out VPNs would’ve also meant taking out vital systems.

Now, it’s been reported that collections from the tax introduced in 2018 have been below target as users have avoided it by using VPNs.

The country’s tax agency had projected that OTT levy collections would amount to USD 77.8 Mn yearly. But by 2019, the agency had managed just USD 13.5 Mn. Another analysis by the Ugandan government claims that 8 million of the country’s 20 million internet subscribers were dodging the taxes in some way.

It is the goal of dragging everyone into the tax net that has resulted in the new proposal to introduce a flat 12 percent internet tax on all internet data purchases in the country. This proposal might well become law from July 1, if approved by the country’s parliament (which is heavily dominated by the ruling party with obvious support for the pro-internet tax movement).

With the shortcomings of the OTT tax noted, the Ugandan government first talked up a full internet data tax in January last year. But those plans were shelved, presumably due to the pandemic and the Presidential Elections that have since reinstated President Yoweri Kaguta Museveni for yet another term – He’s been Uganda’s President since 1986. The election was infamously marked by an internet blackout that lasted several days.

Although the proposed internet data tax hasn’t quite elicited the same sort of outrage that the OTT levy drew – probably because Ugandans may already be too numb from the previous experience to complain – the new proposal is no less controversial and has implications that are even more concerning.

While this new internet tax structure affords the government a more robust tax funnel, the proposed tax rate of 12 percent is obscenely high, and it is feared that internet costs will balloon to levels where internet usage in Uganda will suffer a decline.

Clearly, a depression in the internet penetration and the online population has negative ramifications for the Ugandan economy over the long haul.

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