Who wins, loses with the brand new web tax in Uganda?

Kampala, Uganda | THE INDEPENDENT | The government has started rolling out the new 12% excise tax on airtime and internet data, among other fiscal measures for 2021/2022, which began Thursday. The new tax was part of changes to the Excise Duty Act and replaced the Over the Top Services Tax, or OTT. But who wins and what does that mean for users of telecommunications services?

In contrast to OTT, which were paid separately by the user, the new tax in accordance with Section 4 (4) of the Consumption Tax Act will be paid by the service provider at the time the service is provided. “The supplier of excise duty services is liable” to pay the excise duty at an earlier point in time; (a) the date on which the provision of the service is completed; (b) the date on which payment for the service is made; (c) the date on which the invoice is issued, ”says the law.

“For mobile data users, it is the payment date that represents a point of purchase / sale. For landline users who can pay at the end of the month, this will likely be the case at both the point of payment and the end of the month, ”says Michael Masembe, Team Leader Tax Training at URA.

The tax is expected to bring in $ 60 billion this fiscal year. In the first year of the controversial OTT tax, the government expected to raise at least $ 320 billion, but it only raised $ 46 billion, and that rose to $ 52 billion in 2020. The tax measure became difficult to administer after protests from sections of the public against the tax, which they believed violated the rights of communication.

Since then, many Ugandans have been using virtual private networks, circumventing government regulations such as taxes and blocking of Internet sites. The Ministry of Finance, Planning and Economic Development says the new tax is partly aimed at luring internet users into the trap who managed to avoid paying OTT.

URA has also denied fears that sharing data will incur multiple charges each time data is transferred to a different phone or third party user. They say excise tax is only paid once upon purchase. Therefore, if the data has already been purchased and transferred, there is no excise duty.

This is due to the fact that customs clearance has already taken place at the time of purchase. This also applies to the conversion of transmission time into data, since the transmission time has already been charged. “It is important to remember that the tax is levied on the fee for the data. Regardless of the promotion like 'Tugabane' or how the data is used, the tax is collected at the time of paying this package and is no longer a problem after paying, ”says Mr Masembe.

According to Cable.co.uk, Uganda ranks 70th out of 228 countries for cheap internet delivery, with the cheapest data package costing around $ 50,000. This is also one of the highest in the region, where the same volume costs an average of $ 3,200 in Rwanda and Kenya.

"The concern about the new tax is that it will likely increase the cost of using the Internet, which will then increase the cost of doing business in the country compared to the situation in the other countries," said Juliet Najjinda, a tax advisor at PricewaterhouseCoopers.

This is made worse by the timing of the new tax as more businesses move online, restricting movement and contact restrictions amid the COVID-19 pandemic. While the daily filing of Ushs200 was consistent for a day no matter how much data you used, this new tax ensures that the more you use, the more tax you pay.

The ministry says this is a better deal as it's fairer to low-end users. Airtime and data used to access education and health services are exempt from this tax. According to the URA, the list of approved health and education providers is obtained from the Ministry of Health and Education for tax purposes.

URA says that the normal consumer will have an advantage with the new tax. “You have lower mental tax costs. Airtime has had a 12% excise tax for years but no one has complained because it was included in the price. OTT was problematic because it was paid for outright. Consumers will be better off not paying the tax directly, ”he says.

He also agrees with the Treasury Department that this tax is fairer, especially for low-end users.

“With OTT, the muntu wa wansi and the bourgeoisie used a lot more data. With the data tax, the bourgeoisie pays a lot more when they access Netflix and the like than the muntu wa wansi who only accesses Facebook. The data tax is levied on the wealthy. More like a progressive tax, ”says Masembe.

In addition, “according to the figures from UCC, the average internet user will pay less tax on data than on OTT.