Africa-Press – Uganda. After the over-the-top (OTT) tax precipitated a painfully topical cat-and-mouse drama, the government wasted no time in replacing it with a levy on internet data last July. While anger didn’t initially erupt at the stealth tax, the carve-outs of the Value Added Tax (VAT) on digital services have recently left many caught in a shiver of frustration.
Digital service subscribers in Uganda must now pay 18 percent VAT if they are not VAT registered. This is on top of the 12 percent excise duty already paid on the gross purchase of Internet data. The tax charged on revenue raised from Uganda sales—regardless of where the digital service providers are based—reveals a twisting network of these services.
Its patchwork includes subscription streaming services, broadcasts of events transmitted wirelessly and online data warehousing. Other services on the taxman’s radar include digital marketplaces that facilitate buyer-seller interactions, cloud storage services as well as file sharing.
The government reckons the digital service tax will not be detrimental since it’s not directly charged on the income of tech giants. This—state actors opine—allays fears of rubbing tech giants the wrong way.
We, however, hold that such an approach shouldn’t entirely be useful in soothing fears, not least because taxpayers in Uganda are doing a good job grasping the hidden contours of the tax regime. They are acutely aware that the essential constituents of the tax regime—taken together—push them out of the digital society. If this exclusionary streak continues to burn itself into the DNA of Uganda’s tax regime, it will permanently damage any prospect of digital devices showcasing transformative power. Not so far back, the biblical mustard seed was thought to have found a match in the mobile phone. One of the enduring hallmarks of mobile gadgets is their extraordinary ability to square the circle by providing information (which translates to power). Unfortunately, Uganda has an astonishingly low telephone (69 percent) and Internet (52 percent) penetration when juxtaposed with Kenya (133 percent and 122 percent), Tanzania (91 percent and 50 percent) plus Rwanda (84.2 percent and 64.4 percent). This is as per market reports from telecom regulators in the various countries. Empirical evidence suggests that Uganda’s dim showing is down to the punishing effect of digital taxes.
The cost of mobile-based transactions attracts a withholding tax on gross amount of payment totaling 10 percent. Elsewhere, the weight of the numbers of taxes on basic connectivity and airtime (a 12 percent excise duty on Internet data; VAT of 18 percent and another 12 percent excise duty on prepaid and postpaid airtime) are staggering. As the taxman looks to widen Uganda’s constricted tax base, we urge state actors not to overlook the intrinsic merit of digital inclusion.
There should be an iron will to strike down retrogressive laws that stop the information, communication and technology sector from being a driver of socio-economic transformation. Tax cuts for digital media should be contemplated, with tech-focused measures that make it doubly hard to access information from the repository that is the Internet frowned upon.
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