Faced with an increasingly critical citizenry, the Ugandan government has slapped new taxes on social media platforms such as WhatsApp, Facebook, Twitter, Skype and Viber to stop what President Yoweri Museveni has called lugambo (gossip).
Mr Museveni also targets commercial buildings to boost government revenue from the Sh50 billion the taxman collects from landlords annually.
The president criticised the “concealment” of taxes in housing sector as “scandalous” and asked Finance Minister Matia Kasaija and his team to get serious.
The new tax proposals were castigated by social media users, human rights defenders and opposition leaders as “diversionary, deceptive, injurious to individual freedoms and burdensome”.
The new taxes were confirmed by Mr Kasaija, Secretary to Treasury Keith Muhakanizi and State House officials.
The proposed tax measures that seek to help Mr Museveni’s government raise between Sh400 billion and Sh1.4 trillion from social media users annually were ordered by the president in a March 12 letter to Mr Kasaija.
“I am not going to propose a tax on internet use for educational, research or reference purposes… these must remain free,” Mr Museveni wrote.
“However, olugambo on social media (opinions, prejudices, insults, friendly chats) 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.”
The president, however, did not explain how lugambo has affected resource mobilisation.
And on the issue of the so-called “over-the-top” platforms (OTTs)— such as WhatsApp, Skype, Viber, Twitter, etc— Mr Museveni wrote:
“If we were to introduce a small fee of Uganda Sh100 per day from sim-cards that are used by these OTTs, that would generate about Sh400 billion additional revenue.”
He further explained that this estimate is on the basis of the minutes used by Ugandans over OTT and that this does not include undeclared calls and data by the telephone companies.
“These could be in the magnitude of $400m per year. This is all to do with airtime excise duty and tax on voice over OTT and phones (mobiles and fixed),” he added.
Mr Kasaija, who the president scolded for “lack of seriousness” in identifying tax sources and collecting more taxes for the country, also confirmed the disputed taxes measures.
Mr Kasaija, however, explained that the orders in the president’s letter are “a Cabinet directive” and that the details will be contained in the new tax bills to Parliament.
In trying to widen the tax base in the 2018/19 budget, Mr Museveni has proposed new taxes on telephones data transmission and the housing sector, which he says generates rented incomes but are not adequately taxed.
The details will be contained in the new tax bills.
Delving into the details of the new tax proposals, the president added: “The big losses on telephones are in three areas: not collecting excise duty on airtime and only collecting VAT, missing many calls because you depend on false declarations by telephone companies and not taxing voice conversations and other non-educational communications over the internet (via social media, whatsApp, Facebook etc). Why not put excise duty on (internet) air time?”
Telecoms have reacted with consternation, rejected the tax proposals as uncalled for and grumble about “double taxation”.
MTN general manager of corporate service Anthony Katamba denied claims that telecom companies falsify declarations.
He told the Monitor that imposing excise duty on social media is taxing content.
“The data you buy gives you internet. So taxing social media is a taxing content,” Mr Katamba said, adding that if government goes ahead to implement the proposed tax, “it would be unprecedented.”
On taxation, Mr Katamba said: “URA assess us for tax based on the minutes used, you cannot hide that. If you chose to under declare, how do you gain by hiding the minutes? It’s not possible because MTN has to bill another entity for the minutes.”
Citing calls from Britain where MTN has to bill the British Telecom, Mr Katamba asked, “If I under declare, then how will MTN get its money from British Telecom.”
However, a senior official from Uganda Telecom, who requested not to be named because he or she is not authorised to speak to journalists, backed the president and accused URA and Ministry of Finance officials of sleeping on the job.
He said most Ugandans are busy making free calls off social media platforms such as Viber, Skype, Facebook and WhatsApp.
According to this official, URA has allowed telecom companies to take home a wider profit margin, denying government the billions of shillings needed to finance the budget.
In asking URA to widen its tax base, UTL sources indicated that URA charges excise duty and VAT on voice calls yet the trend has changed— people are using airtime more for data than voice calls.
Data from URA show that telecoms pay 18 per cent VAT and 12 per cent excise duty on airtime for voice calls but only VAT on data yet mobile phone subscribers use more of data than voice.
The telecoms also pay corporate tax, which is determined from the net earnings and 2 per cent on gross earning to the regulator, the Uganda Communications Commission (UCC).
However, both VAT and excise duty are passed on to the consumers.
In lecturing government economists at Finance ministry on the principles of taxation, President Museveni, who is a student of economics and political science, invoked the equivalence of a shirt manufacturing plant to justify the need to tax airtime for internet access and widen the tax base, something his critics say has eluded his government for 32 years.
“When you manufacture a shirt you pay excise duty at the factory level. When the shirt is eventually sold, it also pays VAT, paid by the consumer. Whether the shirt is bought or not, it will have paid the excise duty. Are your officials aware of these principles of taxation?” he asked Mr Kasaija again.
Mr Muhakanizi told Sunday Monitor that Mr Kasaija will table the new tax measures in Parliament on Tuesday even as some lawmakers, such as Mr Nandala Mafabi (Budadiri West), vowed to block what they ridiculed as “WhatsApp tax”.
Some MPs, economists and independent experts in the ICT sector accused the president of “deepening the tax base” as opposed to widening it— a move they say would balance the books on the backs of the poor.
Mr Venansius Baryamureeba, the Vice Chancellor of Uganda Technology and Management University and a former dean of Makerere University Faculty of Computing and IT, asked the president to drop the proposed tax measures in public interest, and instead cut taxes on smartphones and make internet affordable to ease access to information.
Mr Julius Mukunda, the executive director of Civil Society Budget Advocacy Group explained:
“From the point of view of pro-poor and progressive taxation, if you charge Sh100 per day then everybody will pay but when you charge say 1 per cent, it will be proportionally a way of expanding the tax base because it will only be paid by the rich.”
He added: “We can have the tax but how will it be collected? We rely on telecom companies to collect tax. So we need to put in place an infrastructure to help government to collect this tax. Currently nobody knows how much money we collect from telecom companies.”
In choosing new taxes against increased borrowing, the Finance minister, according to sources, will tell Parliament next week how Cabinet took the decision to widen the tax base in order to finance government projects.
Instead of taxing Facebook and WhatsApp, some of the MPs on the ICT and the Budget Committees of Parliament asked the president and Mr Kasaija to focus on the fight against corruption and other forms of financial indiscipline in governmentX
The MPs have cited a 2016 survey by the procurement authority that revealed the raging plunder of public resources through inflated procurement deals and ranks key spenders such as Education and Defence ministries among the worst thieving government agencies.
The “performance results and corruption perceptions in public procurement” survey carried out by the Public Procurement and Disposal of Public Assets Authority blames corruption in procurement on “political meddling in the procurement processes”, impunity and a decadent culture that adores wealth accumulation.
In 2005, the World Bank estimated that Uganda loses more than $300 million through corruption and procurement malpractices every year.