OTT tax: The good and bad side

It is now a year since the introduction of the Over The Top (OTT) tax, also known as the social media tax. The OTT’s is meat to raise revenue needed to facilitate Uganda’s dream to attain middle income status by 2020. Indeed, OTT tax is to contribute about Shs51.27b towards financing the 2019/2020 Budget. Already, the government has allocated Shs146.2b to the ICT sector, partly with the aim of reducing internet costs through the national broadband policy.

It is clear that the government is taxing internet users out of the internet connectivity only to finance them back into the same. However, does the OTT tax close the internet connectivity gap more than it enlarges it, lessen poverty more than it magnifies it, or improve equality more than it worsens it?
Previously, low-income earners could spend Shs250 daily to access the internet via the social bundle services. The OTT tax, which inflated internet costs by 80 per cent (Shs200 daily), reduces their already non-existent/low disposable incomes.

It is critical that such people would rather disconnect from the internet than incur higher costs of accessing it. The UCC’s latest data reveals that following the introduction of OTT tax, internet users had dropped by 30 per cent as at January 2019. One can only imagine the direction and magnitude of change between then and now. The government should address the belief that OTT tax obtrudes on both the people and the economy through solid involuntary internet disconnections. Theoretical and empirical studies evince that the internet promotes economic development, efficiency, innovations, and welfare.

The Organisation for Economic Co-operation and Development (OECD) 2016 report demonstrates that internet connectivity promotes economic growth and development. These results align with the findings of the 2016 World Bank Development report, which reveals that the internet promotes inclusion, efficiency, and innovation by lowering the costs of acquiring and using information. This information spreads most via social media, which many Ugandans are deserting. Studies specific to Sub-Saharan Africa also demonstrate the importance of internet connectivity.

For instance, the Economic and Private Sector-Professional Evidence and Applied Knowledge Services (EPS-PEAKS) study on Sub-Saharan Africa says countries with high levels of internet penetration tend to have lower poverty rates. Other studies credit the importance of social media platforms - Facebook, LinkedIn, Twitter, and WhatsApp in eliminating the information asymmetry, through disseminating timely, efficient and necessary information to the masses.
This includes news on employment, markets, education and skills development. Social media also carries information on health, innovations, banking, etc.

With the OTT tax, information can only flow to those who can afford it. This exacerbates information asymmetry levels, which aggravates the already existing poverty and inequality levels. Thus, while the government raises revenue through the OTT tax, it also creates and widens the already large development impediments.

Pamella Eunice Ahairwe,
pamellaeuniceahairwe@gmail.