These are excerpts from the World Bank report which is asking Uganda to scrap social media tax (OTT) and the mobile money tax. Of course since 2018, we have been clear that these taxes are illogical, irrational and exploitative. It doesn’t require an expert to realise that!
In March this year, Hon Robert Kyagulanyi Ssentamu, leader of the people power movement raised the very point before Parliament, that in the face of a pandemic, it was only logical to scrap these taxes. Yet again, he was ignored. Of course we all know that these taxes were not imposed because they make economic sense, but as a tool to clamp down on free expression which Mr. Museveni called rumour mongering!
………………………………………………………………………… 111. The social media tax is likely reducing the proportion of internet users and widening digital and income inequality and should be re-evaluated.
Social media services contribute to the reduction in information asymmetry, allow microentrepreneurs to reach consumers, and keep migrant populations socially connected. Moreover, the tax is difficult to collect and easy to bypass by more technically savvy users. In FY19, the Ugandan Revenue Authority collected only USh 49.5 billion against a projected USh 284 billion (which, as discussed in Box 2, was less than 0.3 percent of overall revenue in FY19).
The levy is likely to continue to discourage internet use and widen digital inequality between the poor and the rich. Removing the social media tax would contribute positively to the COVID-19 crisis response and encourage the use of internet and digital technology in Uganda.
The availability of digital services such as online shopping, food delivery, social media, instant messaging, and online entertainment allows people in self-isolation to remain connected and socially and economically active while at home.
Yet, this requires that barriers to internet use and online transactions are reduced, and that the use of these tools is affordable, especially in countries where internet penetration is still low such as Uganda. Governments can promote affordability by removing taxes and levies applied to specific digital platforms and services, thereby reducing transaction costs and supporting telecommunications companies in lowering prices for services that are needed during the crisis. In the long run, this is also likely to broaden the tax base.
112. The tax on mobile money withdrawals should be revisited and re-examined.
In the case of Uganda, the mobile money service is provided by a licensed institution (bank) in partnership with a MNO. While one product/service provided by the bank (agent withdrawals) is not taxed, another product/service provided through a technical solution (mobile phone) is taxed. Even if the tax were removed, mobile money services would still contribute to the tax base through the 10 percent excise duty on mobile money transaction fees introduced in the 2013/14 budget year, generating on average 6 percent of total excise duty revenues. In addition, Value Added Tax is also applied to mobile money transaction fees.
The continued imposition of the mobile money withdrawal tax could slow the achievement of key priorities including greater financial inclusion, promotion and adoption of digital payments, and reducing the use of cash during the pandemic.