Tag Archives: Uganda

Of Uganda’s Analog technocrats managing a Digital economy

The drive to increase tax revenue in Uganda has seen the Government explore all forms of novel ways of creating new taxes. One of those has been an attempt at taxing Social Media usage through a flat daily access rate.

Granted, we do appreciate the tight spot the Government is in as regards budgetary funding, however the misguided approach being used has turned the technocrats into headless chicken. A headless chicken will run around disoriented and aimlessly until it eventually dies due to shortage of blood.

In the run up to the Financial Year 2018/19 budget, various proposals were mooted including taxing Holy Books like Bibles and the Koran, introducing new taxes on Mobile Money transactions and Social Media usage.

Despite protests from different sector players, the level of insensitivity and ignorance displayed by the legislators as well as Ministry of Finance officials was very deplorable. They took on a one way street mindset with one goal, To ensure that the President’s thoughts on Social Media taxation are implemented.

Little did they know that they were setting the stage for a bigger fight with the consumers of the Social Media services. D-Day came and to our horror, the tax implementation went ahead as planned on July 1st 2018. The ensuing fracas is one that has turned Uganda into a laughing stock. All this because the technocrats that came up with this tax implementation chose to believe that they knew what they were talking about only to be outdone by a digitally alert citizenry.

Today, social media users as far as Butaleja district are comfortably using VPNs to bypass the need to pay the Social Media tax. Fifteen years ago, while training some university students, I had a hard time getting them to understand what a VPN was. Today, thanks to the Government’s misguided decisions, nearly all Ugandans with a smartphone understand what a VPN is and does.

Advice on Social Media Tax

Since this is my only channel that I can effectively use to advise the Ministry of Finance, Planning and Economic Development (MoFPED), I have chosen to share some ideas on how the government can consider gaining tax revenue from the Social Media giants.

Transactional Tax Surcharge: The government is better off engaging with the key players like Facebook, Google, and others to consider a tax surcharge on transactions originating from Uganda. As opposed to making every user in Uganda access social media after paying a daily tax, focus should be on any individual or organisation that transacts with Facebook. For example, VAT of 18% could be added outrightly onto each transaction. Thereafter, quarterly or monthly reconciliations can be made between Facebook and the Uganda Revenue Authority.

This can be achieved through protracted talks with these online giants. Infact, as opposed to approaching them as Uganda alone, we could come together as the East African Community and engage them. That way, we have a bigger voice than going it alone.

Flat rate tax: The government again through negotiations can consider a flat rate tax of say 2% of estimated market value of people accessing the platforms from Uganda. There are ways this can be determined using various matrix that have been developed over time. These could take into consideration; How many users access the platforms daily, weekly or monthly; The Average Revenue Per User (Varies per country and continent) e.t.c.

Misguided Excitement?

The person that sat down and simply scribbled numbers on a piece of paper in order to figure out how much money the Government could earn from Social Media taxation suffered from misguided excitement.

Res ipsa loquitur” (Facts Speak for themselves). Using publicly available information, I was able to work out the potential earnings from Social media in order to help set a bar of expectations that is more realistic.

GlobalStats indicates that Uganda’s social media usage is as shown below.

globalstats_socialmedia

We see that Facebook at 82.7% takes the lion’s share of Social Media access. You may ask, what of WhatsApp? It’s also owned by Facebook.

For purposes of this article, let us explore Facebook. The number of people accessing Facebook from Uganda on a monthly basis lies between 2.7 million to 3 million. These statistics are pre-Social Media tax implementation.

The Facebook Quarter 1 2018 earnings results reveal that the company earned US$ 11.966 Billion of which 98.6% came from advertising alone. This implies that the average monthly income in the first quarter was US$ 4 Billion.

Of this quarterly income, the report indicates that 9.8% came from users in the “Rest of the World,” a category that combines Africa (where Uganda is), South America and the Middle East. This implies that the monthly contribution from this category was close to US$ 390 million.

The Average Revenue Per User (ARPU) for the “Rest of the World,” in the first quarter was at US$ 1.68 which works out to US$ 0.56 monthly. In lay man speak, a Ugandan who accessed Facebook during the first quarter of 2018 (January to March) contributed UGX 6,400/= in all those three months or UGX 2,130/= per month.

Let us take 3 million as the number of unique visitors that access facebook from Uganda on a monthly basis. They are likely to generate for Facebook the following income;

3,000,000 x 2,130 = UGX 6.39 Billion or US$ 1.68 Million

If Facebook had put a surcharge of 18% VAT on these transactions, then the Uganda Government would have earned UGX 1.15 Billion or US$ 286,000 on a monthly basis.

In a year, this translates into at least UGX 13.8 Billion or US$ 3.4 Million as potential tax from Facebook.

The same approach could be used for others like Google. The mistake made by the architects of this social media tax was to get too greedy after seeing how widely used Social Media is in Uganda. If only they had put effort in understanding how the digital economy works, they wouldn’t have entertained adding another direct tax to the users of Social Media.

By the end of July 2018, the statistics of Facebook are likely to show a big drop in user access from Uganda because of the VPNs that we are utilising to bypass and protest the tax. This will have a multiplier effect on the revenue valuations from Uganda.

It is therefore high time greater awareness is made on the Digital Economy in order to bring most of our technocrats on board. It doesn’t hurt to admit that once in a while mistakes are made. The focus should be on transforming that analog approach into a digital one.

Over to you Hon. Matia Kasaija, Hon. David Bahati and the no nonsense Mr. Keith Muhakanizi.

James Wire is a Business and Technology Consultant based in Kampala, Uganda
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