A look at the impact of internet tax on businesses

There is no denying the fact that the recently scrapped OTT tax was felt by different people in different categories, despite the majority’s ability to bypass it with VPNs and WiFi. The government only removed it to introduce an internet tax on mobile data that people will not be able to dodge as easily.

Also read: The end of OTT tax ushers in the 12% tax on mobile data

However, the taxing of internet services, in general, has affected businesses that rely heavily on the internet to get a wider customer base through marketing. Times have changed indeed as advertising/marketing has seen a new wave as people especially small businesses are utilising the power of social media to capture customers.

This has been seen as one of the most affordable methods of advertising compared to the older ways like the use of billboards and newspapers. With social media, all someone needs is to find an internet package that works for them and gain a following on various platforms.

In 2018, the joy of these businesses was short-lived as everyone was now subjected to the social media tax in order to gain access to social media platforms. An evident strain was immediately felt as people had to pay more money with the already existing high internet rates in the country.

Read also: E-commerce companies want ban on Facebook lifted in Uganda

Someone who only had to pay UGX 1000 for 100 MBs was now subjected to UGX 200 OTT tax hence paying a total of UGX 1200. In a month, someone would have spent UGX 8400 to access data which is quite costly for many Ugandans who live below the poverty line (UGX 3,700). This shows that the daily cost of data is not sustainable.

The digital economy as we know it immediately felt a dip as the numbers of customers reduced due to the inability to afford taxes and this also increased operational costs for businesses in the digital economy like e-commerce businesses such as Jumia, content creators, e-payment service providers and more. By September 2018, the introduction of the OTT Tax had slashed internet users from 8 million subscribers to 6.8 million in just a period of 3 months.

At the Impact of Digital Taxation on Digital Rights workshop, Ron Kawamara CEO of Jumia Uganda said “It is difficult to scale e-commerce in Uganda with high digital taxes.” These taxes are an obstacle to the growth of the economy and a huge block in the way of digital penetration in the country since the taxes are regressive. The burden is left to the citizens requiring them to pay despite the income inequality gap.

Read more: The 12 per cent tax on mobile data in Uganda will be approved

What can the government do to ease the burden?

When it comes to digital penetration in Uganda, the country still lags behind on a regional and continental basis. Introducing digital taxes only pushes this number higher as people are forced to prioritise what they deem as important which leaves internet usage at the bottom of this list.

This not only affects the customer base in the growing digital economy but also stands in the way of innovation. Internet access plays a huge role in innovativeness as it has been witnessed in countries like Kenya and Nigeria that receive the most funding for startups in Africa. One factor that they have in common is a huge number of internet subscribers.

Taking lessons from African countries like Chad, the removal of the country’s 18% internet tax saw an increase in internet uptake after years of reduced internet users resulting in less revenue for telecom companies. Similarly, the removal of internet taxes in Uganda along with telcos efforts to increase digital inclusion could have a significant impact and increase the number of internet subscribers which in turn increases revenue for telecom companies.

The effects of the new internet tax remain unprecedented as telecom companies have communicated about where they stand in regards to the tax. Some of the telecom companies like MTN will carry the burden for their customers as they will not adjust their internet prices. Other telecom companies decided to immediately adjust their rates shifting the burden to customers.

Read more: 12% internet tax: Every telecom’s (good and bad) response

READ: Government proposes new tax on ATM withdrawals in Uganda

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