Taxing technology: Why this African trend can pull back connectivity gains

13 Jul, 2018 - 11:07 0 Views
Taxing technology: Why this African trend can pull back connectivity gains File Photo:IDG Connect

eBusiness Weekly

There is a country-wide uproar in Uganda after its parliament passed the Excise Duty Amendment Bill, which has caught the world’s attention as a move that could curtail not only freedom of speech but the gains the country has made to make internet affordable for all.

The law compels users of social media platforms such as WhatsApp, Viber, Facebook and Twitter to part with a daily fee of approximately US$ 0.05. In addition, mobile money users will pay 1 percent excise fee on all transactions (this has now been reduced to 0.5 percent).

Even in the midst of great opposition from social media users in the country, a growing trend is being witnessed in Africa from internet shutdowns to imposition of taxes on various technology tools. Whether the reason is to create new revenue streams for government or to fight fake news fuelled by social media, the move to impose tax on technology seems not to be informed by the benefits of making such tools cheaper and more accessible, but by desperation. Tanzania, Kenya, Democratic Republic of Congo and Uganda are the latest countries to have an onslaught against the use of social media and blogging.

The Kenyan government has increased the excise fee on all mobile money transfers from 10 percent to 12 percent. There is also legislation that would see internet bloggers and ICT practitioners register with a government body and pay a yearly fee to use any IT tool.

Tanzania has already passed and implemented its version of Kenya’s registration of internet users. One of the biggest online news site, Jamii Forums, had to shut down due the implementation of the new law, Electronic and Postal Communications (Online Content) Regulations 2018 that looks to charge US$930 for certification for all bloggers and content generators online.

Already, these moves have had immediate negative effects including lack of access to information in the case of social media legislation, and making financial inclusion harder in the case of mobile money tax.

Driving up cost of connectivity and financial inclusion

Costs related to mobility and internet connectivity have been the number one hindrance to extend coverage to unreached population. The new regulations will not help low income households to access and use internet and telecom products.

“The tax, slated to take effect on 1 July, will push the cost of basic internet access further out of reach for millions of low-income Ugandans. The government must take urgent action to reverse this measure,” Alliance for Affordable Internet said in a statement.

According to the Alliance, for the low-income earners taking home averagely US$630 per year, the excise duty will increase connectivity costs by 10%, resulting in just 1GB of data costing them nearly 40% of their average monthly income.

“The impact on consumers in Uganda — and particularly on low-income users — will be significant, and is likely to force many of these users to curb their internet usage, or to forego access entirely,” its statement said.

In Tanzania, the cost of obtaining licenses to publish content online will not only restrict the type of content, but also the freelancers who are yet to realize profits to keep up with the fees. This means that only a few will have control over information found on the internet, limiting information flow.

The penalties that follow breach of the law attract hefty fines. Online reports that “cause annoyance, threatens harm or evil, encourages or incites crime or threaten national security or public health and safety”, will attract fines of US$2,210 or a year in prison if such content is not brought downwithin 12 hours.

These handgrip laws will drive down the trust people will have in internet news and reports. Its eventual ripple effect is less people will go online to search for content, driving down data driven revenues for operators.

Kenya’s increase on excise tax on mobile money transaction was felt immediately with telecoms adjusting their prices to reflect this new tax. Even though this is considered minimal by some, the simple act of passing and approving such tax only opens doors for it to be increased over time.

Financial inclusion that has been championed by technology innovation such as mobile money might face a slump if digital transactions become more expensive than cash payments. This would dent the mobile money penetration and curtail innovation around it.

Pulling in different directions

It has to be obvious to governments that pushing costs of connectivity and mobile money contradicts every effort to ensure there is financial inclusion for all and connectivity penetration – causes that most governments declare to stand by.

A lot of investments have been made by private and public bodies to enhance the connectivity industries in most African countries. Even governments are increasingly relying on the internet to extend their services to citizens. If these services are expensive, then the investments launched risk lower returns.

The greatest opportunity to increase revenues through broad ICT trends, such as telecommunication and internet use, is to widen the bracket and encourage untapped users to adopt mobile money and internet use.

A GSMA report titled, Rethinking Mobile Money Taxation, opposes the introduction to tax on technology, but supports lowering access to these services, hence growing the pool of users.

“Taxation undermines the investment case at a time when mobile operators are already under significant cost pressure to expand networks, improve service quality, and address new regulatory requirements,” the report said.

“The positive externalities of mobile money also spill over into other sectors, such as agriculture, healthcare and education. In short, there are strong incentives for the state to support the growth of mobile money, the opposite of what an excise duty is typically designed to achieve,” it added.

African governments need to have a new outlook on internet and new technology – not as disruptors, but enablers of new services, industries and jobs. Kenya’s digital transformation, especially in e-government services, cannot be underestimated as it has made services more efficient.

However, if the cost of technology does not go down for the common citizen, then all the progress made in increasing internet and mobile penetration would be washed away. – idgconnect

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