Are Social Media Taxes Good for the Economy? (Uganda)

Internet usage is growing rapidly across Africa, with over 20% more internet users in 2018 than in 2017. Consequently, many African countries are introducing taxes on different internet services. In July 2018, Uganda became the first African country to introduce a tax on using social media.

HOW DOES THE UGANDAN SOCIAL MEDIA TAX WORK?

The Ugandan government has introduced a tax on social media sites including WhatsApp, Facebook and Twitter. People who want to use social media must pay 200 Ugandan shillings ($0.05) per day through telecoms companies such as MTN and Airtel. This money goes to the Ugandan government.

WHY WAS THIS TAX INTRODUCED?

The Ugandan government claims that this social media tax will raise money which could fund public services. For instance, the ICT minister hopes this money could be used to expand internet access to rural areas. President Museveni also says that social media spreads bad gossip which should be discouraged. His political opponents such as MP Bobi Wine argue that the social media tax is undemocratic as it makes it more difficult to voice disagreement with the government.

WHAT ARE THE ECONOMIC CONSEQUENCES?

Many argue that the social media tax has been largely harmful to the Ugandan economy. Why is this?

The tax has caused telecom firms like MTN to raise the price of internet data packages to include the extra cost of using social media. As a result, Uganda has dropped from being the 9th cheapest to the 17th cheapest country in Africa to buy 1GB of prepaid data per month. This means fewer citizens can afford to use the internet, making it harder to do things like online banking and setting up businesses. People who continue to use social media now have less income to spend.

The social media tax hurts the poorest people the most. No matter how much income you earn, everyone pays the same price to use social media. So whilst the tax is only 2.4% of average income in the capital Kampala, it is 22.6% of average income in rural Bukedi. This means that many Ugandans with low incomes can no longer access the internet at all.

The tax also harms firms which sell items or advertise on the internet. Online shopping websites such as Jumia are worried that fewer people will buy their products due to reduced internet usage. Also, big technology firms such as Facebook no longer want to invest in improving internet speed and access.

Whilst the Ugandan government does earn money directly from this social media tax, the government will probably see a fall in the total tax received. This is because individuals and businesses are financially worse off, so they will pay less in tax overall.

WHAT HAPPENS NEXT?

In October 2018 Ugandan MPs voted to keep the social media tax. In contrast, the Republic of Benin has reversed its own social media tax after only a few days. This is a wise decision, and hopefully one which other African governments will follow.

REBECCA CLARK

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