Executives Anticipate Damage in Economy, Business Over Social Media Tax

Industry Executives in Uganda have predicted that the country’s new social media tax will damage business and the economy and cool investor interest in its new IT sector that has wooed global giants Facebook and Google.

73-year-old President Yoweri Museveni, has touted the levy as necessary to deter Ugandans from using social media for “lying” and squandering the nation’s hard currency on fees paid to foreign-owned telecoms.

Critics say Museveni’s complaint about “lying” is code for his aversion to political dissent spread online.

Local and international rights groups accused him of increasingly trying to stifle opposition, in part with clampdowns by security forces.

From July 1, a tax has been charged on transactions involving dozens of popular social media sites including WhatsApp, Facebook, Twitter, YouTube, Instagram, Google Hangouts, Yahoo Messenger, Skype and others.

Described by some as the first of its kind in the world, the tax has stoked widespread anger among Ugandans and triggered a street protest.

Sefik Bagdadioglu, Regional Director for Online Retailer Jumia, said he worried the tax measure would curb Internet use by lower-income Ugandans, potentially putting them beyond the firm’s reach.

“A significant portion of Jumia customers use social media to log into their accounts, see what we do, share our deals and events,” Bagdadioglu said.

“A decline in social media use is likely to have an adverse impact on our business.”

Jumia, which describes itself as Africa’s leading online shopping destination, launched in Uganda in 2014 betting on the East African country’s young population and a fast-growing online community.

“My real worry is that it (tax) has the potential to exclude lower-income groups from accessing internet and hence our services,” said Bagdadioglu.

The social media sites in question are blocked by Internet service providers including a unit of South Africa’s MTN Group and India’s Bharti Airtel until access is granted upon payment of the tax.

Payment of the 200 shillings (0.0541dollars) per-user-per-day levy is made via the telecoms’ mobile money platforms.

The levy amounts to nearly three-quarters of a low-cost data bundle favored by students and other lower-end data customers.

Kyle Spencer, Executive Director of Uganda Internet Exchange Point (UIXP), a non-profit organisation that connects all of the country’s data networks, said Ugandan officials failed to recognise the economic import of social media.

“(Social media have) permeated the economy in ways they really don’t understand and that this will have an economic impact … It will definitely slow growth,” he said.

“In terms of perception, we are the laughing stock of the region now…This is embarrassing, it scares away investors.”

Spencer said the tax would trim Uganda’s online audience and ultimately undermine economies of scale in the sector.

Over the last eight years, the number of Ugandan Internet users via mobile phones, personal computers and public access points has risen fivefold to 19 million, according to state-run sector regulator.

As the sector mushroomed, the lucrative market pricked the interest of U.S. technology giants Google and Facebook.

In 2017, Facebook partnered with Airtel and Bandwidth & Cloud Services Group (BCS), a Nairobi-based bandwidth investor, to lay 770 km of fiber-optic cable in Uganda to help slash connectivity costs and lower prices of data.

Google has also invested in Uganda with “Project Link”, laying a fiber optic network in the capital Kampala that has helped boost speeds and trimmed costs.

Facebook has declined to comment on the tax while Google had yet to respond to a Reuters request for a comment.

“We’re squandering an opportunity that was very hard-fought and built up,” Spencer said.