The number of internet users in Uganda dropped by nearly 30 per cent between March and September 2018 following the introduction of tax on the mobile online services.
Uganda introduced a one per cent tax on the transaction value of payments, transfers and withdrawals, increasing mobile money fees.
The country also introduced a new levy on more than 60 online platforms including Facebook, WhatsApp and Twitter, of Ush200 ($0.05) per day.
According to a recent report by Mozilla and the African Union Commission (AUC) on the regulatory treatment of Over the Top services (OTTs), taxes imposed without public consultation and impact assessment have increased barriers and pushed people offline, limiting access to information and services.
The report zeroed in on Uganda because that is where government taxes have had the most impact.
“We’ve seen new taxes in the past two years leave millions of people struggling to deal with the costs of getting and staying online,” said Alice Munyua, the policy adviser for Mozilla in Africa.
The study further shows that the drop in users had an impact on Uganda’s economy, with the country losing 2.8 per cent in economic growth and Ush400 billion ($108 million) in taxes.
“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,” added Ms Munyua.
The report associates the taxes with misconceptions like misunderstanding the impact of social media on the internet value chain.
“African regulators are in the data-gathering phase, and the most common activity is a request for proposals for assessing the impact of OTTs. This has been the approach for regulators in Kenya, Tanzania, Zimbabwe, Guinea and Cote d’Ivoire,” the report says.
Analysts have requested for consultancy services for the study of OTTs in Kenya, where excise duty on mobile money transfer services increased from 10 per cent to 12 per cent of costs in September 2018.
At the same time, lack of a clear definition of OTTs has made evidence-based discussions about their impact difficult.
The researchers say there is a 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,” the report recommends.
According to the AUC, these types of sector-specific taxes pose a considerable threat to internet access and affordability for all users, but especially low income and marginalised people.
Internet costs in Uganda are prohibitively high. Uganda’s gross domestic product per capita per day, is currently at Ush7,000 ($1.90), and many live off less.