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EVALUATING THE ADOPTION & IMPLEMENTATION OF EXCISE TAXES TO DIGITAL SERVICES

A Case Study of Uganda

PRESENTED BY REGINA NAVUGA PROGRAMME OFFICER, SEATINI UGANDA

Outline

1. About SEATINI-Uganda

2. Over view of Digital Economy

3. Digital Taxation

4. A Case Study of Uganda

5. Recommendations

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About SEATINI Uganda

The Southern and Eastern Africa Trade Information and

Negotiations Institute (SEATINI-Uganda) was established in

1996, SEATINI-Uganda in 2001.

SEATINI’s headquarters are in Zimbabwe, and it has offices in

Uganda and Kenya, and a presence in Geneva, Switzerland.

1.1 Vision

A strong and confident Africa in world Trade.

1.2 Mission

To strengthen stakeholders’ capacity to influence trade, tax, and

related policies and processes through information generation and

dissemination, capacity building and advocacy, alliance building

and networking.

About SEATINI-UgandaProgrammes

❑Trade policies and Negotiations

❑Trade and Investments

❑Regional Integration

❑Agricultural Trade and Rural Transformation

❑Financing for Development

❑Equator School of Development Policy

❑Institutional Development

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About TJAU

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Digital services are any services delivered via the internet or an electronic network and, of interest to this study, include, social media, internet and mobile money services.

Income itself does not have a geographical location, what is looked at are the assets and activities

What happens where assets are located in more than one country? Which asset will you deem to be generating a given stream of income?

DIGITAL ECONOMY-FACTS

❖The global debate on the tax challenges of the digital economy has so far,understandably, focused on the implications for Corporate Income Tax(CIT).

❖However, across several African countries, including Uganda, excise taxes have increasingly become a tool for taxing consumer use of digital services.

❖GSMA (2018), State of the Industry Report on Mobile Money, GSMA: In the last decade, mobile money has transformed access to financial services and for the world’s most vulnerable, particularly displaced persons and women, the benefits are clear.

❖An important tool for mobilizing citizens, building and informing social movements and providing a platform for young entrepreneurs.

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CASE STUDY: UGANDA

Parliament of Uganda passed the Excise Duty Amendment Act,2018 on 30th May 2018 which provided inter alia for the paymentof excise duty amounting to UGX 200 per user per day of accessto Over the Top (OTT) services and a 1% excise duty on mobilemoney transaction value became effective 1st July 2018.

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UNDERSTANDING THE MOTIVE

POLITICAL ISSUE ?

The law follows President Yoweri Museveni’s March 12 letter to Finance Minister Matia Kasaija, in which he stated, “I am not going to propose a tax on internet use for educational, research, or reference purposes…these must remain free. However, olugambo [opinions, prejudices, insults, friendly chats] on social media and advertisements by Google and I do not know who else must pay tax because we need resources to cope with the consequences of their lugambo [gossip].” Source BBC News 21st

June 2018

REVENUE MEASURE ?

Tax Amendments

Performance for 2017 vs targets for 2018

In order to meet revenue shortfalls, in 2018, national governments in Uganda and Benin, amongst others, introduced excise taxes on different types of digital services.

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Immediate Impact

The introduction of excise dutyat 1% on the value of all mobilemoney transactions in 2018sparked significant public outcryas it made access to the servicemore expensive for a significantnumber of users, especially thepoor.

GSMA estimated that around100,000 agents saw earningsdecline by 35% to 40% and300,000 went out of businesscompletely.

Customers shifted to the use ofcash or agency banking, whilstothers transferred smalleramounts via mobile money.

Use of the Virtual privateNetworks (VPN)

WHAT DID WE DO?Developed a position paper

❖ Stagnation of Internet Penetration

❖ The violation of access to information

❖ Regressive in Nature

❖ MM: Financial Exclusion

❖ Increase in income poverty among Ugandans

Press Conference on CSO position on MM& OTT

Media Engagements/social media campaign; #This tax must go!

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Petition Presented to Leader of Opposition in Parliament

Due to public outcry againstthe said tax and reduction inthe use of the mobile moneyplatform, the tax was underreview with a proposal toreduce the rate to 0.5% andbe charged only onwithdrawals.

However, government maintained their stance on the OTT.

Outcome of the EngagementsDue to public outcryagainst the said tax andreduction in the use of themobile money platform, thetax was under review with aproposal to reduce the rateto 0.5% and be chargedonly on withdrawals.

However, government maintained their stance on the OTT.

GOVT’S POSITION ON 0.5% ON WITHDRAWALS STILL HARMFUL

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Press Conference targeting Mobile money vendors, PWDs, youth

LITIGATION24th June 2019

Supported the lawyers to conduct a research on social media tax to inform the case

Task

To conduct research on the constitutionality of taxation of social media relative to the terms of reference, namely, researching:

Any additional evidence on the adverse impacts of social media taxation.

Authorities, cases/precedents in Uganda or foreign jurisdictions that can strengthen the case and any other relevant literature.

Based on the above (a-c), to compile research and submit it to the Managing Partner.

Taxing Dissent: The Impact of a Social Media Tax in Uganda Levi Boxell, Stanford University September 2019

❖Examined the impact of a new tool for suppressing the expression of dissent—a daily tax on social media use.

❖Using a synthetic control framework, the research estimated that the tax reduced the number of georeferenced twitter users in Uganda by 13 percent.

❖The estimated treatment effects are larger for poorer and less frequent users.

❖Despite the overall decline in Twitter use, tweets referencing collective action increased by 31 percent and observed protests increased by 47 percent.

❖These results suggest that taxing social media use may not be an effective tool for reducing political dissent.

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13th August 2019

EXCERPT URA ANNUAL REPORT- 2018/19

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REASONS FOR THE DEFICIT

❖Alternative use of the Virtual Private Networks (VPN)

❖Forego using it, use of wifi, limited to calls

❖Taxing only digital users; Where are the business owners?

JUSTA POSITION:

❖Political Issue Vs Revenue Mobilisation issue.

❖The impact and outcomes have been documented and excise taxes are proving to berestrictive for fundamental freedoms, accessibility and addressing inequality.

❖The tax still limits financial inclusion and limits the amount of disposable income availablefor consumption

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ANY RELATED CASES?

The outcry in Benin

In September 2018, the government of Benin proposed an OTT that introduced a 5% tax on the pre-tax price for voice, SMS and internet services and a 5 CFA fee per MB for data used to access social media and OTTs.

In response, large scale online and offline protests against the tax broke out, including the twitter campaign #TaxePasMo reaching over 2.2 million people.

The protests helped to influence the government’s decision not to implement the tax and within five days of making the proposal, the announcement was withdrawn.

The Alliance for Affordable Internet estimates that the taxes would have decreased the number of active mobile broadband subscribers by 20%, leading to about US$40 million in lost taxation and other revenues across the economy.

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CHALLENGES

❖Limited capacity to tax digital transactions; a number of digital platforms in Ugandacurrently include Jumia, OLX, Amazon. There is also a growing transport sector withcompanies such as Safe Boda, Taxify, Uber, operating in Uganda. However, operators inthese sectors have not been subject to tax due to the complexities of taxing the digitalsector.

❖Emergence of data havens; there is a shift from the use of tax havens to data havens by thecorporates to hide their wealth. Current rules governing the digital economy prohibit therequirement of local presence of a firm. This will make it hard for a country like Ugandato regulate digital transactions within her territory thus risking to facilitate data havens.

❖Furthermore, the raw material of the digital economy is data for countries for instanceUganda which have challenges with data banks, tapping into this critical raw material is achallenge. Big corporations are now using data to manipulate sales, pricing, declaration ofturnover and wealth.

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CHALLENGES

❖Consumer welfare; big data firms for instance Google, Apple, Facebook,Amazon and Ali-Baba are using data to manipulate consumer tastes andpreferences through tailored advertising while clouding out smaller firms.This is an anti-competitive practice and unfavourable for building competitivedomestic digital players.

❖Lack of an enabling digital infrastructure; Internet is a big component of thedigital economy. For this to be feasible, internet in countries like Ugandashould be accessible, available and affordable to all citizens. This is notcurrently the case in Uganda

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RECOMMENDATIONS

❖Excise taxes should be viewed as corrective tools designed to alterindividual behavior in a way that is socially desirable. For instance greatertaxation of tobacco can help to discourage usage and promote public healthobjectives whilst raising revenue. Governments should evaluate and respondto the social outcomes of applying excise taxes to digital services, incidenceanalyses should be undertaken to understand and, where necessary, mitigatethe impact of such taxes on poverty and inequality.

❖A thorough evaluation of the impact of mobile money, social media andinternet taxes across the African continent should be carried out to build astrong evidence base documenting the impact of these types of excise taxes.

❖Review existing policies-Double Taxation Agreements vs Digital Economy,etc

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RECOMMENDATIONS

❖Efforts to raise revenue and meet revenue shortfalls should be focused on more progressivetaxes, for the purposes of digital services mainly CIT, to prevent regressive outcomes.

❖ Social media platforms have been a key influencing and mobilizing space, evidenced byrecent movements in Algeria and Sudan, and should be maintained by governments as aspace to connect with their citizens. Governments should, therefore, refrain from restrictingor infringing upon fundamental freedoms through regressive and restrictive tax policies.

❖Uganda needs to benchmark India by investing in technology, and putting in place policiesaimed at digital taxation. This also requires building the capacity of the URA staff tounderstand the dynamics of digital taxation.

❖For the transport sector, efforts should be made to register the operators under thissector and have the companies under which they operate file returns and withhold acertain percentage of their income as tax payable to URA.

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FOOD FOR THOUGHT

Arthur Vanderbilt: "Taxes are the

lifeblood of government and no

taxpayer should be permitted to

escape the payment of his just

share of the burden of

contributing thereto."

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+256-414-540856

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