The World Bank has asked the government of Uganda to get rid of the controversial over-the-top tax (OTT) because that would lead to an increase in the access to coronavirus prevention information and internet usage for every Ugandan individual.
Being one of the top lenders of the country , this is the first time the organization is openly calling for the abolition of OTT popularly known as social media tax. This was in their economic update 2020 report which said that the tax has not achieved its intended objective because “the tax is difficult to collect and easy to bypass by more technically-savvy users.”
It adds that the social media tax is instead reducing “the proportion of internet users and widening digital and income inequality and should be re-evaluated”.
In 2018, the government imposed a Shs 200 daily tax on use of social media however the tax has contributed to to the reduction of internet users and widendd digital and income inequality re-examined. The tax was expected to raise at least Shs 284 billion in 2018/19 financial year but by the end of the financial year, the government had only managed to collect Shs 49.5 billion because majority Ugandans had opted for the virtual private networks (VPN) to bypass the tax and some decided to quit social media platforms..
“Removing the social media tax would contribute positively to the COVID-19 crisis response and encourage the use of the internet and digital technology in Uganda,” the World Bank says.
“The availability of digital services such as online shopping, food delivery, social media, instant messaging, and online entertainment allows people in self-isolation to remain connected and socially and economically active while at home.”
It added that “governments can promote affordability by removing taxes and levies applied to specific digital platforms and services, thereby reducing transaction costs and supporting telecommunications companies in lowering prices for services that are needed during the crisis. In the long run, this is also likely to broaden the tax base.”
It says there is a need to reduce taxes imposed on mobile money services. It says even if the tax was removed, mobile money services would still contribute to the tax base through the 10 per cent excise duty on mobile money transaction fees introduced in the 2013/14 budget year.
This would generate on average 6 per cent of total excise duty revenues, the World Bank says. There is also the 18 per cent value added tax applied to mobile money transaction fees.
“The continued imposition of the mobile money withdrawal tax could slow the achievement of key priorities including greater financial inclusion, promotion and adoption of digital payments, and reducing the use of cash during the pandemic,” it says.