‘Don’t tax my megabytes!’: why taxing access to digital services is bad for consumers
A number of African governments have spotted the potential for raising money by taxing the increasing numbers of digital consumers in the region. Uganda, Kenya, Tanzania and Zambia have all added additional taxes to use social media sites like Facebook, WhatsApp and Twitter, as well as services such as mobile money and internet phone calls. All of this adds to the already relatively expensive cost of connection, making access harder for many consumers.
Benin also had its own social media tax, for a while although this was repealed after the successful #Taxepameso or ‘Don’t tax my megabytes’ campaign. How did the Beninese presidency announce the decision to repeal the tax? On Twitter, of course.
Many consumers, in Africa and beyond, rely on free digital services such as mobile banking and messaging apps to access saving, communicate with friends and even grow new businesses. In this blog, Consumers International’s Adam Koper, explains why governments should be removing obstacles to connectivity, rather than making it even more difficult for consumers to benefit from the opportunities that internet access can offer.
Crafty charges and tricky taxes
Governments have found lots of different ways to tax consumers’ internet use.
The defunct Beninese tax charged per megabyte of usage on a social media site. In Uganda, users must pay a daily up-front fee of $0.05, bringing the cost of 1GB of data to almost 40% of the average monthly income for the poorest consumers. An extra tax of 0.5% has been imposed on all mobile money transactions. Zambian consumers using the internet to make phone calls (known as ‘voice over internet protocol’ calls or VOIP) to bypass the much more expensive landline calls are seeing the benefits undermined by a charge of $0.03 per day.
Elsewhere, extra fees are being used to influence users’ ability to publish content online. In Tanzania, to publish a blog you must pay an annual fee of $930 – which is higher than the $900 average gross national income of a Tanzanian.
Kenyans posting videos online face similarly high barriers, including a $119 annual registration fee, plus a fee of about $50 for each video post. These fees differ from others in that they target the use of certain features rather than simply charging consumers to access a digital platform.
Intensifying inequalities
According to research on the introduction of the social media and mobile money taxes in Uganda, efforts to improve financial inclusion have been undermined, with almost half of consumers (47%) no longer using mobile money services.
For many Ugandans, the mobile money tax means delayed payments, increased prices and an increased risk from having to carry around more cash. This is worrying for a country where financial inclusion has been driven by mobile money, as has been the case in many countries with poor financial infrastructure.
The Ugandan President says he wants to boost the country’s tax revenue, but researchers Dr Christoph Stork and Steve Esselaar suggest it won’t be wealthier Ugandans who will be most affected:
“In poorer rural communities, the social media tax will constitute a large portion of the average income. It will slow the growth of broadband because social media is a primary reason for people to purchase internet access in the first place.”
They emphasise that most people on a low income use their phone for a huge range of essential tasks such as accessing local and foreign information and news, co-ordinating with their community to deliver their produce to markets on sites such as Facebook or WhatsApp.
Low income and less skilled people could also find it harder to bypass charges: “Better educated people will be able to use a VPN [virtual private network] and not pay the tax at all, but those who are uneducated will not know about this option and so they will be the ones who end up paying.”
A stealthy blip or a growing trend?
Given developments in some African countries, are internet taxes likely to grow or fade in popularity?
The Beninese presidency’s reasons for dropping the tax echoed the findings of Stork and Esselaar’s research: low income consumers were worst hit by price rises, thousands of whom would have been unable to pay for their internet. Furthermore, the tax proved technically difficult to implement and enforce. This has given some hope to those who feared Nigeria could be next, by showing that using such short term revenue raising can have negative long term impacts in countries who are relying on digital technology for transformation and growth.
As we set out in our recommendations for G20 member states, access to a reliable and affordable internet connection is essential if consumers are to reap the benefits of the digital economy. It is vital that governments do what they can to keep the cost of internet access low and remove any unfair obstacles that keep the price of connectivity artificially high. This is particularly important for consumers developing countries, where paying for internet access takes up a higher proportion of monthly income.
In the long run, taxing social media use will benefit no one. As well as being a bad deal for consumers, it could hinder entrepreneurship and innovation in new services, and, as the Ugandan government has been finding out, it does little to help cash-strapped governments.
Sessions on Access and Inclusion at Summit 2019
Our 2019 Summit, running from the 30 April 2019 for two days, will bring together diverse perspectives on both the digital world and consumer needs.
On Day 2, we will be hosting several sessions on boosting online participation for consumers globally, exploring what can be done to make sure that everyone can reap the benefits of affordable and good quality internet access.
View our programme to learn more about each session and book your place.
