Ugandans will, starting Thursday, July 1, 2021, stop paying the daily social media tax of Shs 200.

The tax on so-called Over-the-Top (OTT) services required telecom subscribers to pay a daily subscription in order to access popular social media platforms, such as Facebook, Twitter, Instagram and WhatsApp.

The 10th Parliament passed the Excise Duty (Amendment) bill, 2021, repealing item 13(b) of schedule 2 to the Excise Duty Act which provides for a shs200 daily excise duty rate for Over the Top Services (OTT).

The move was welcomed by millions of internet users across the country. Entrepreneurs use social media to promote their products and also connect with friends and loved ones.

The social media tax was introduced in 2018, sparking domestic and global outrage.

President Museveni argued that the Excise tax of Shs 200 was to curb on what he termed as “Lugambo” (literally meaning gossip) among social media users who share opinions, prejudices, insults and friendly chats.

Government envisaged to collect a total revenue of between Shs 400billion and Shs 1.4 Trillion annually. The introduction of OTT followed the passing of 1 % Excise duty on mobile money transactions.

The social media tax received criticism from various groups and resulted into people taking to the streets to demonstrate against the tax on grounds that it was unfair to Ugandans.It is a consumption tax which can be avoided as evidenced by the number of taxpayers currently using VPN to circumvent the tax

To avoid the social media tax, most Ugandans opted to use the Virtual Private Network (“VPN”) and wireless networks in offices.

Several activist groups expressed concerns that the social media tax was an instrument to muzzle freedom of expression and denied Ugandans their basic human right to freely use the internet.

Revenues

The justification to introduce the social media tax was that the Government needed money to further develop infrastructure in rural areas.

Three years down the road, the Government which had projected to collect revenue worth Shs 284bn from social media by 2019, was only able to register Shs 49.9bn which is just 17.4 % of the annual projected revenue.

Tax advisor, Zuriat Nakayenga, says policy makers should take into account in making tax laws such as Convenience, Economical, Simplicity and ability to pay.

“One of the reasons is, it is a consumption tax which can be avoided as evidenced by the number of taxpayers currently using VPN to circumvent the tax. Secondly, the mode of payment for the tax is rigid, a taxpayer is only allowed to pay daily, weekly or monthly which has encouraged more VPN usage and less payment of tax,” said Nakayenga.

“Evidently, the government has not achieved its objective and the tax is now a deadweight loss since it has caused a decrease in demand for Internet Usage especially for the low-income earners,” she argues.

Nakayenga says the telecommunications industry has been negatively impacted in form of loss in revenue from the consumption of Internet data and moreover the system of collection and administration of the social media tax contradicts the Adam Smith’s four maxims of an effective tax system, fairness, certainty, convenience and efficiency.

Data tax

However, the 10th Parliament introduced a 12 percent duty on internet data, a move that could increase the cost of internet in Uganda.

Internet data, except data for provision of medical and educational services will, under clause 4(f) pay an additional 12 per cent of taxes on the fee charged.

According to Uganda Communications Commission (UCC), 50 percent of the Ugandan population use internet.

A recent study by telecom regulator, Uganda Communications Commission (UCC) put the cost of acquiring 1 gigabyte of internet in Uganda at $2.67(Shs9819).

Compared to Kenya, Tanzania and Rwanda at $2.41(Shs8863), $2.18(Shs8017) and $2.18(Shs8017) respectively, Uganda’s is the highest.

More taxes on internet will worsen the situation.

According to Nakayenga, whereas the Government may limit avoidance of taxes on data, consumption of data in the economy will drastically drop.

She says the tax will make consumption of internet data quite expensive for an economy that is in the process of recovering from the economic crisis created by the COVID-19 strict measures and lockdown imposition on non-essential activities.

“The likely incidence of tax in circumstances of a tax on internet data would be the final consumer with telecommunication companies being at liberty to transfer a bigger percentage of the burden of the tax to the end user,” she argues.

“This will however, depend on the end user’s perception of demand for internet data. If one believes they can do without internet data, we shall witness another migration of users abandoning the service.”