The brisk business Julius Kirya did from his cash transfer kiosk in the Ugandan capital has slowed right down with a new tax on mobile money. Many customers returned to sending banknotes by hand, in some cases via motorbike taxi.
How to tax digital revenues, from fintech to social media, is a puzzle authorities around the world are working on. A solution catching on in Africa – levies on usage – has obvious appeal to indebted governments but a big impact on people like Kirya, who saw the tech revolution as a way out of poverty.
“I had a dream of steadily growing to middle income status,” he said from his cubicle at a Kampala petrol station, one of thousands across the country serving millions without bank accounts.
He was making three times the average salary before the tax was introduced in July. Now his income has halved. “With this tax I have no chance,” he said.
It is not just Kirya and his customers losing out.
Mobile communications revolutionised life in Africa where telecom company reports show calls and texts giving way to data services like Facebook-owned WhatsApp, Skype, Viber and WeChat owned by China’s Tencent.
Telecom companies say taxes on mobile payments introduced by a string of countries hurt revenues and threaten investment in infrastructure.
Levies on social media usage in Uganda and Benin and a proposed tax on internet calls in Zambia have taken the shine off a fast-growing market and sparked protests.
Officials say the taxes are needed to preserve state revenues as technologies evolve.
The International Monetary Fund (IMF), which has long pressed African states to improve tax collection, urges caution.
“You want to make sure you don’t introduce taxes stifling innovation and curtailing activity in the sector,” Abebe Selassie, the IMF’s top official for Africa, told Reuters. “So striking a balance will be important.”
The communications sector is evolving fast in Africa, where convenience and lower communication costs of “over-the-top” (OTT) services via the internet appeal.
Data revenues in most African markets are increasing at a much faster rate than SMS and voice revenues are declining, a Reuters analysis of telecom company finances showed.
Kenya’s Safaricom – part owned by Vodafone – reported its customer base jumped almost 12% last year but voice revenues grew just 2.9% while SMS revenues shrank nearly four percent and data revenue rose 38.5%.
MTN saw revenues from outgoing voice calls decline in a number of African countries in the first half of this year; SMS revenue fell across the group and in many markets by double digits year-on-year. But data revenues grew nearly 27%.
Mobile operators are expanding 4G networks, trimming data costs and nurturing financial services offerings to drive future revenue.
In theory, this should protect countries’ tax take, but many African governments supplement revenue or profit taxes with separate levies on voice airtime, SMS and mobile money.
Amid fears the first services are tailing off, authorities are bringing in or increasing taxes on mobile money and introducing them for social media to make up the shortfall.
In January, Ivory Coast imposed a 0.5% tax on transfers via mobile money services. Kenya last month increased its tax on mobile money transfer fees from 10 to 12%. Benin introduced a tax of 5 CFA francs ($0.01) per megabyte consumed on social media usage. Zambia has proposed a daily levy on consumers using the internet for phone calls.
In Uganda, riot police repressed demonstrations against new taxes implemented in July – one on mobile money transactions and a daily levy on social media usage with apps and websites blocked until a user pays.
Amnesty International and local opposition parties say OTT tax is a veiled attempt to stifle criticism of President Yoweri Museveni, in power for over three decades. Opposition activists use apps to organise protests.
Officials say the taxes are aimed at raising revenue, not suppressing dissent and reject the telecom firms’ complaints.
Finance Ministry spokesman Jim Mugunga said they helped the revenue authority exceed its third quarter targets.
“There’s no proof these taxes are hurting business,” he said. “No one has given us empirical evidence. That’s a narrative by telecom companies. I don’t accept it.”
Godfrey Mutabazi, executive director of the Uganda Communications Commission, echoed a common complaint around the world that social media companies keep local tax authorities at arms’ length.
“The traditional voice technology we’ve lived with over the past 20 years is dying,” he told Reuters. “The big technology firms are not registered here so the only way government can get revenue from them is to put a tax on OTT usage.”
As of last year, Facebook boasted 170 million users across Africa, a 42% increase from 2015, it said. Facebook’s WhatsApp is the most popular messaging app on the continent, home to more than a billion people.
The number of social media users in Africa grew 12% last year on the back of a 20% increase in internet users, the fastest rate of any region in the world, a report by social media marketing firms We Are Social and Hootsuite found.
A Facebook-financed report published in August by Christoph Stork, a telecoms analyst with Research ICT Solutions, said network operators in Uganda have seen a 20% drop in subscribers using data since the social media tax started.
A decline could affect the broader economy.
Studies, including one from the World Bank, estimate a 10% increase in mobile broadband penetration translates to a 0.8 to 1.5% increase in a country’s GDP growth.
Mobile money transactions are taking a hit. A spokeswoman for Airtel Uganda, a subsidiary of India Bharti Airtel’s, said the new tax on transfers saw a significant drop in the volume and value of transactions.
“Any disruption in Airtel Money operations causes an indirect negative impact on growth prospects of emerging businesses, stifling economic growth,” said Sumin Namaganda.
Ugandan media quoted MTN officials saying the tax cut the company’s mobile transaction volumes by half.
As of March 2017, mobile money services were operating in 39 sub-Saharan African countries with almost 280 million registered accounts, according to mobile communications industry body GSMA.
At least six countries introduced taxes on the service, prompting GSMA to warn in a report last year high or unpredictable levies may cost states some of what it said would be $31 billion in investment across Africa, mainly focused on improving data coverage and services.
Some governments appear to be having second thoughts.
Zambia’s proposed levy on internet calls, announced in August, did not make it into the new budget approved last month.
Just three days after Benin introduced its social media tax to widespread public outcry, government cancelled it on the grounds it created “instability in the sector’s economy which harms the interest of consumers”.
Uganda’s mobile money tax was introduced as one percent levy “on receiving, payments and withdrawals”. Museveni later said the rate was 0.5% and applied only to withdrawals. Parliament corrected the law but the president has not enacted the revised text.
While kiosk owners and some clients in big cities are struggling on, Kirya and his colleagues operating mobile money kiosks in rural areas had shut up shop.
“With this tax everything is getting complicated,” he said.