New digital taxes are regressive

Tuesday May 11 2021
By Guest Writer

The  Parliament of Uganda recently passed the Excise Duty Amendment Bill, 2021 in which new taxes were introduced. One of such is that requiring users to pay a 12 percent levy on internet bundles. The internet tax levy replaces the Shs200 daily over-the-top tax that many people had started evading through virtual private networks. At a time when businesses are struggling to remain afloat from the effects of Covid-19, employers cutting back on wages and withdrawing benefits, the last thing government should do is  front-load citizens with new taxes. The internet tax is particularly going to hurt internet users especially enterprises whose business model rely heavily on the internet. It will slow connectivity and breed a culture of tax evasion as people find creative ways to beat this tax. 

According to the alliance for affordable internet, more than 75 per cent of Africa’s population is still offline. In Uganda, internet penetration stood at a paltry 24 per cent as of January 2020 with about 10m users. It is ,therefore, regressive to be making the cost of the internet high when nearly 75 per cent of the Ugandan population is still offline.

In 2018 when the government imposed a daily fee of  Shs200 ($0.05) on users accessing “over the top services” which included social media platforms, the taxes resulted in at least five million internet users going offline. This was largely attributed to the economic burden that the new tax had introduced. Around the same time, I was leading a $4m digital payment programme that sought to support agricultural off-takers to transition from cash to mobile payments for farmers. This initiative would help create a digital payment footprint for farmers, build up a base of payment data that would then be used to craft credit scoring models, and improve input financing to smallholder farmers. The initiative would also cut back on costs agribusiness companies were incurring in administering cash payment to farmers and introduce more transparent and seamless payment options. While the roll-out was going on and agri-business companies signing-up to start using mobile money as means of paying farmers; farmers getting excited to receive money digitally, government introduced a one per cent mobile money tax, making it expensive to withdraw money and forcing everyone who had signed up for the programme to opt out. The three-year programme that would have seen thousands of farmer data aggregated to enhance input financing through credit scoring, was ended. Even though the government later revised this tax, the impact had already been done, everyone had moved on and the donor funds meant for this programme relocated to another country. 

As the world is becoming a global village and the internet driving automation and innovation, the focus should be on building infrastructure and supporting an eco-system that drives easy access and use of the internet. For making it expensive not only hurts innovation but could also widen the digital gender divide – the difference in internet access between men and women – which already stands at 18 per cent for Uganda.

If the government is keen on expanding the tax base, then taxes on the internet are not the right path as these will keep away potential technology companies seeking to invest here, push those already here to markets were the eco-system is favourable and incentives are right. The long-term effects created by such taxes may be difficult to reverse and the intended tax projection may not be realised in the end. 

Let us make the internet available, keep it affordable, and nurture an ecosystem that might see growth in technology-driven companies and businesses that will in the end become sources of tax for the government.


Nathan Were