Study shows taxes on internet services pushing users offline

A new study has revealed that taxation regimes imposed without public consultation and impact assessment have increased barriers and pushed people offline, limiting access to information and services.

The Regulatory Treatment of Over the Top Services study did its analysis in a number of countries among them Uganda.

The study was released by Mozilla and the African Union Commission (AUC) after examining the misconceptions, challenges and real life impact of additional taxes on over the top services (OTTs) imposed by governments across Africa.

STRUGGLING

“We’ve seen new taxable internet users during the last two years leave millions of people struggling to deal with the costs of getting and staying online,” said Alice Munyua, the Policy Advisor for Mozilla in Africa.

Uganda introduced a one percent tax on the transaction value of payments, transfers and withdrawals, increasing mobile money fees from 10 percent to 15 percent. It also introduced a new levy on more than 60 online platforms including Facebook, WhatsApp and Twitter that amounted to 200 Ugandan shillings (USD0.05) per day.

According to the study, the impact of these new taxes was immediate as the number of internet users in Uganda dropped by nearly 30 percent between March and September 2018.

BARRIERS

“These regressive regulatory measures are taking place as governments rush to introduce digital transformation initiatives, and instead of focusing on how to connect more people to the internet, the region is building barriers that keep them off it,” Ms Munyua added.

The study further revealed that this had an impact on the economy where the country had forgone 2.8 percent in economic growth and Ugandan shillings 400 billion in taxes.

The report associates these taxes with a number of misconceptions which include misunderstanding of the impact of social media on the internet value chain.

At the same time, lack of a clear definition of OTTs has made evidence-based discussions about their impact difficult.

The researchers have since given recommendations that there is need to utilise the ICT sector for economic growth and social inclusion and not as a cash cow.

Further, the taxes should be broad-based and not single out the ICT sector specifically.

“Any new taxes, as well as existing taxes, must be subject to a detailed economic impact assessment,” read the recommendations in the report.