Rather than fostering economic growth, the government of Uganda is looking at ways of raising additional tax revenues from the ICT sector. This ignores the role of the ICT sector as a contributor to other sectors of the economy. Removing all ICT sector excise duties would facilitate GDP growth, stimulate job creation and help the informal sector to become more formal, leading to a wider tax base and higher tax revenues. Economic growth will generate more tax revenues and enable investment in other parts of the economy, such as infrastructure. The ICT sector needs to be turned into a growth engine to power Uganda’s ambitious development programme.

1. USING THE ICT SECTOR AS A
GROWTH ENGINE INSTEAD OF A
CASH COW – UGANDA IN FOCUSDr. Christoph Stork & Steve Esselaar
Research ICT Solutions
31 October 2018

2. 2
The ICT sector supports all three platforms
needed for development
RESEARCH ICT SOLUTIONS
Fixed broadband
Mobile Broadband
Mobile Narrowband
Voice/SMS/USSD
Connectivity Platform
Passport
National ID
Drivers Licence
Mobile number
ID Platform
Credit Cards
Bank Accounts
Mobile Money
Payment Platform
Connectivity
Platform
ID
Platform
Payment Platform
Jobs
GDP growth
e-Services
Income
Income
Income

3. 3
ICT taxes weaken connectivity and payment
platforms and disadvantage the poor
RESEARCH ICT SOLUTIONS
Fixed broadband
Mobile Broadband
Mobile Narrowband
Voice/SMS/USSD
Connectivity Platform
Passport
National ID
Drivers Licence
Mobile number
ID Platform
Credit Cards
Bank Accounts
Mobile Money
Payment Platform
Connectivity
Platform
ID
Platform
Payment Platform
Jobs
GDP growth
e-Services
Income
Income
Income

4. 4
After introducing new taxes, ICT revenues are likely to
continue to grow, but from a lower base. Example
Guinea:
Q2 2013 Q4 2013 Q2 2014 Q4 2014 Q2 2015 Q4 2015 Q2 2016 Q4 2016 Q2 2017 Q4 2017
Total voice traffic (millions of minutes) SMS traffic (millions of SMSs)
Intro of tax on voice
Intro of tax on SMS
RESEARCH ICT SOLUTIONS

5. 5
OTT MYTH
RESEARCH ICT SOLUTIONS

6. 6
Falling Revenues Myth
■Strong mobile broadband data revenue
growth due to OTTs
■Data revenue growth outpaces potential
decreases in voice and SMS revenues
■If revenues are declining then due to
insufficient 3G+ coverage, excessive
regulation or adverse operating conditions
■Operating a mostly 2G network makes an
operator vulnerable to losses in domestic
and international voice and SMS revenues
RESEARCH ICT SOLUTIONS
MTN revenues expressed in % of Q1 2013 revenues
0%
50%
100%
150%
200%
250%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
Benin Bissau Conakry Ghana
Ivory Coast Liberia Nigeria South Africa
Uganda

7. 7
Free Riding Myth
■It is also often argued that OTTs are free riding,
not paying for the infrastructure that is being
used and not paying taxes
■Both are factually wrong
■MNOs make money from data and pay taxes on it
■OTTs make money from advertisement and some
from service fees and pay taxes on it in the
countries where they are incorporated
■Facebook et all not different from any other
Internet content such as CNN, BBC or a plain
webpage with click banners
RESEARCH ICT SOLUTIONS

8. 8
EXAMPLE: ICT SECTOR
TAXES IN UGANDA
RESEARCH ICT SOLUTIONS

9. 9
Uganda’s government is using the ICT sector as source for additional
tax revenues instead of using the ICT sector as a growth engine
Uganda’s excise duties
April 2002 July 2014 July 2018
Airtime 7% Airtime 12% Airtime 12%
VAS 20% VAS 20%
Landlines 5% Landlines 12%
MM fees 10% MM fees 15%
1% MM tax on transaction value of payments,
transfers & withdrawals*
OTT tax 200UGX per day
* An amendment bill is currently before parliament to reduce the tax to 0.5% on withdrawals only.
RESEARCH ICT SOLUTIONS

10. 10
Uganda’s excise duties on ICT Sector violate
best practice principles
RESEARCH ICT SOLUTIONS
Social media tax of UGX 6,000 per month as
% average individual income
Kampala
Central I
Kigezi
Central II
Ankole
Bunyoro
Tooro
Lango
West Nile
Teso
Elgon
Busoga
Karamoja
Acholi
Bukedi 22.6%
19.6%
14.2%
13.2%
11.1%
10.3%
9.2%
8.3%
6.6%
6%
5.8%
5.8%
5.7%
4.5%
2.4%■Not broad-based: single out ICT sector
■Penalise positive externalities
■New taxes are not simple and enforceable
■New taxes significantly affect competition
■Regressive not progressive tax

11. 11
GDP is growing, tax revenues growing even quicker and tax to GDP
ratio is improving, hence no reason to impose new taxes on ICT sector
RESEARCH ICT SOLUTIONS
Net URA Collections in UGX billion is
growing exponentially year to year
3,500
7,000
10,500
14,000
1991/92
1993/94
1995/96
1997/98
1999/00
2001/02
2003/04
2005/06
2007/08
2009/10
2011/12
2013/14
2015/16
Tax has grown faster than GDP since 2012 (Sources: URA and UBOS)
2012 2013 2014 2015 2016
13.1%
18.2%
18.4%
13.6%
18%
6.9%
12.4%
8.8%8.6%
13%
GDP growth in market prices Growth of net URA collections
IMF: tipping point of for the GDP: tax ratio associated with significant
acceleration of development and growth is between 12.75% and 15%
World Bank and GoU 2015 2016 2017
Uganda’s Tax to GDP Ratio 12.9 13.5 14.2

12. 12
Some policy makers believe that most money leaves the country only
because an MNO is foreign owned. Yet half of airtime is kept by the
state: net taxation is 44.6%
How much of 1,000 UGX goes to state? Airtime Tax % going to STATE
VAT 18% 180 180 100%
Excise duty 12% 120 120 100%
Average staff cost 86 17 20% PAYE
Average Commissions 276 28 10% withholding tax
EBITDA 338 101 30% corporate tax
Total 1,000 446 44.6%
Source MTN AFS: https://bit.ly/2nddMRS
RESEARCH ICT SOLUTIONS
338 - 101=237 UGX, less than a quarter, could go abroad if there would be no investment

13. 13
EXCISE DUTY ON THE VALUE OF
TRANSACTIONS IS DEVASTATING
FOR TRANSACTION VOLUMES
RESEARCH ICT SOLUTIONS

14. 14
Mobile money tax threatens to cripple the
mobile money sector
Mobile money transaction value changes for July 2018
Total Cash in Cash out P2P Bill Payment
MTN -29.4% -26.5% -25.2% -45.7% -22.9%
Airtel -33% -32% -28% -44.7% -35.6%
■New mobile money taxes:
■ May lead to a 15% reduction in mobile money agents: 7,800 jobs
■Slow financial inclusion efforts (including formal banking)
■Distorts competition i.e., discriminates against a single payment channel
■We are unable to calculate the effect on GDP growth and employment for Uganda. There is no study
that modelled the impact on GDP.
RESEARCH ICT SOLUTIONS

15. 15
IMPACT OF SOCIAL MEDIA
TAX IN UGANDA
RESEARCH ICT SOLUTIONS

16. 16
The social media tax of UGX 200 a day a discriminates
against low usage data bundles - i.e. the poor
RESEARCH ICT SOLUTIONS
PriceincreasethroughSMtax
0%
125%
250%
375%
500%
Monthly data in MB
0 1250 2500 3750 5000
MTN
Airtel
Africell
UT

17. 17
UGX 6,000 per month expressed as share of MTN Uganda’s
ARPU indicates that most users will not be able to afford it.
1Q 2017 2Q 2017 3Q 2017 4Q 2017
71%
78%
81%
79%
RESEARCH ICT SOLUTIONS

18. 18
The economic cost of the social media tax is likely to be a
2.8% less GDP growth leading to less tax revenues overall
Authors Countries
Effect on GDP growth
of 10% additional
broadband penetration
Czernich et al
2009
OECD, 1996-2007 0.9-1.5%
Koutroumpis
2018
OECD, 2002-2016 0.82%-1.4%
OECD 2013
EU countries,
1980-2009
1.1%
Qiang et al
2009
Low income countries
1980 and 2006
1.4%
Scott 2012
Low income countries
1980 and 2011
1.35%
RESEARCH ICT SOLUTIONS
■MNOs report a drop of subscribers that used
data by 20%.
■A 20% drop in active internet users translates
into 2.8% forgone GDP growth:
■USD 737 million less in GDP
■USD 105 million less in taxes per year
■The expected tax revenue of the social
media tax for the financial year 2018/19 is
USD 75 million representing a net loss in tax
revenue of USD 30 million.

19. 19
Removing excise duty on airtime (from 2002) is tax
neutral (USD 2 million), while benefiting the poor
UGX billion With excise duty Without excise duty
Direct Excise Duties (URA 2016/17) 194.3 0
Implied industry airtime revenues 1,619 1,969
MNO Profits from airtime (35%) 567 689
VAT 291 354
Corporate Tax 170 207
Net direct tax impact 656 561
Indirect from increase
in mobile subribers
Additional GDP 608
Additional tax revenues 86
Overall Impact tax impact for 1st year UGX billion 656 647
Overall Impact tax impact for 1st year USD million 177 175
RESEARCH ICT SOLUTIONS

20. 20
EXAMPLE BENIN
RESEARCH ICT SOLUTIONS

21. 21
ICT taxes in Benin would have slowed
economy down and let to net tax loss
■Tax introduced on the 25th of
July 2018
■ 5% of the pre-tax price for
all services (voice, SMS,
Internet)
■ 5 CFA tax, per megabyte
for OTT use
■Taxes were withdrawn on the
22nd of September 2018 after
a meeting between the
President and mobile
operators
RESEARCH ICT SOLUTIONS
Impact of tax of 5 CFA per MB on data packages for Q2 2018
MB 100 500 1,000 2,000 5,000
Tax
CFA 500 2,500 5,000 10,000 25,000
USD 0.9 4.4 8.8 17.5 43.8
Cheapest
package is
USD
without 1.8 2.7 7.3 7.3 16.4
without tax 2.7 7.1 16.0 24.8 60.1
Increase 48% 160% 120% 240% 267%
Sources Research ICT Solutions

22. 22
RIS Tax impact calculator
■The 5% on voice and SMS:
• USD 3 million less GDP growth
• USD 0.5 million forgone taxes
■The 5% on data:
• USD 12.8 million less GDP growth
•USD 2 million forgone taxes
■The 5F CFA per MB:
• USD 313 million less GDP growth
• USD 48 million forgone taxes
• (based on 1GB average consumption, MTN’s average
consumption is 1.8GB)
RESEARCH ICT SOLUTIONS

23. 23
CONCLUSIONS &
RECOMMENDATIONS
RESEARCH ICT SOLUTIONS

24. 24
Unleash, not squeeze, ICT sector
■OTT taxes prevent the poor from participating in tomorrow’s
information society
■The more people that have broadband access, the easier it will be to
serve them with e-gov, e-health, e-education and financial services.
■Dropping ICT excise duties will serve Africans better and grow tax
revenues faster, creating a win-win situation.
RESEARCH ICT SOLUTIONS

25. 25
STEVE ESSELAAR
PARTNER, RIS
MBA
CHRISTOPH STORK
PARTNER, RIS
PHD, ECONOMICS
www.researchictsolutions.com
+27 84 999 000 2
christoph@researchictsolutions.com
www.researchictsolutions.com
+1 778 865 5695
steve@researchictsolutions.com
Research ICT Solutions