Excise Tax on internet data hampers our digital future

Earlier this year, the Parliament of Uganda passed a 12 per cent excise tax on Internet data, potentially hiking the prices for online access. This tax measure repealed the daily Shs200 Over the Top (OTT) tax.

According to a World Bank report, the number of individuals using the Internet as a percentage of the population of Uganda stands at a mere 23.71 per cent. Uganda’s low rate of Internet adoption is primarily driven by affordability issues. Taxation — particularly the recently introduced excise duty – will play a pivotal part in the lack of mobile broadband affordability. Reducing the duties paid by consumers would increase affordability.

Yet for almost 10 million Ugandans, the Internet has become an essential component of our everyday social and business lives. The Internet helps us navigate through work, education, church, meetings, entertainment, and research, among other things, making it a mainstay of our lives.

Taxes play an important role in any country. Governments are duty-bound to balance the often-competing objectives of domestic revenue mobilisation and digital development. A force as central as the Internet certainly becomes a sustainable source of revenue critical for financing infrastructure, healthcare, education, and other public services.

However, careful consideration must be given to the broader and long-term economic and social benefits of digital inclusion versus a short-term focus on the Internet for domestic revenue mobilisation.

According to the World Wide Web Foundation, the low rate of Internet penetration is often attributed to the high cost of data. However, data plays a vital role in the transformation of our economy.

President John F Kennedy once said that “an economy hampered by restrictive tax rates never produces enough jobs or enough profits.” Today, those words echo in our ears as we find ourselves in a situation where taxes are added, resulting in the hampering of our aspirations of realising a ‘digitally transformed economy.’

Internet affordability is usually quoted as “1 for 2”, meaning that 1GB of data should not cost more than 2 per cent of the average monthly income in the country. But, in sub-Saharan Africa, 1GB of data currently costs more than 6.8 per cent of the average monthly income making it three times more expensive when compared to countries globally. This is not sustainable, given the harsh economic times facing Africa.

Uganda has been in and out of lockdowns for the last 18 months. Not only is most of the population still working from home, but even students continue their education via online classes, making internet services critical to ensuring the continuity of both businesses and education.

With the Internet adoption in Uganda still very low, we need to make significant strides to ensure increased adoption and access to most of the population rather than just a select few. The 12 per cent Excise Tax is therefore a few years too early in the era when we should be driving Africa’s digital future.

Dennis Kahindi

Dennis Kahindi is CEO, Liquid Intelligent Technologies Uganda