On Uganda’s Digital Economy: To tax or not to tax mobile money?

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On Uganda’s Digital Economy: To tax or not to tax mobile money?

On Uganda’s Digital Economy: To tax or not to tax mobile money?

Currently, there are debates in Uganda on the issues of taxing the digital economy. That's the Social Media tax and Mobile Money transaction tax. Just to say at the outset, I believe levying these taxes is wrong.

There have been many submissions in this regard. Some citing double taxation and the regressive and unfair taxes with no equity.

Though to me the bigger worry is different. That is that there seems to be a deep lack of understanding, on the part of the Country’s leadership, of the digital economy we are living in today. There is little appreciation of how value is created and the flows of this value. As well as the skills required to play or take part in the new digital economy.

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So, Uganda’s leadership are looking like the proverbial deer caught in the headlights.

The digital economy is estimated at US $3 trillion globally. And growing at 5% — 6% annually. That's according to the US Bureau of Economic Analysis. It is also worth noting that the Digital Economy has grown over the last 20 years only!

What, then, is the Digital Economy?

The Digital Economy encompasses all information communication technology hardware and software. Including all transactions, platforms and digitized products and services transferred through digital channels.

Networks such as the internet and mobile communications are the foundation of the Digital Economy. At the heart of the digital economy are e-payments and e-commerce as a way of exchanging and moving value.

Several businesses reflect the digital economy. Such as Uber (transportation), SafeBoda (transportation), Airbnb (housing), Facebook (social network), Jumia (retail/e-commerce) and Microsoft (cloud).

Over the last 20 years digitization has been happening and continues to happen. With technologies such as Social media/ Digital platforms; Big data and analytics; Cloud; Mobile devices and applications; Enterprise systems; and the Internet which are all growing.

Yet, the most disruptive technologies are yet to mature. This is expected to happen in at least the next 10 years. These include the Internet of Things, Robotics, Artificial Intelligence/Machine Learning, Conversational Computing (for example chatbots), Augmented and Virtual Reality, Blockchain, Autonomous Agents and 3D Printing.

The impact on society and economies of this digitization needs to be anticipated and managed appropriately.

Also read: Here’s what ICTAU and PSFU proposed to parliament before OTT and Mobile Money taxes came into effect

We are on an evolutionary journey and the evolution of the digital economy can be traced through from digitization of the physical world to the eventual augmentation of human capabilities.

The steps of this evolution journey may be summarized as:

  1. Digitization — knowledge, and information become digitized, democratized and the volume of information increases exponentially.
  2. Combination — standardized digitized information from different sources can be combined based on common denominators;
  3. Automation — routine knowledge work, characterized by information handling and processing can be captured in algorithms and rules and fully automated.
  4. Augmentation — digital technology used to augment human physical capabilities, to be able to perform tasks that require more strength, more precision. Each of these stages builds on each other.

In Uganda and most of Sub-saharan Africa, we are largely at stage 1. With some sectors such as financial services, media and telecoms more advanced along the evolutionary journey.

We are creating a digital overlay of our physical world which has been happening over the last 20 years. When mobile and internet started to proliferate in our societies and economy.

Digitisation should bring all aspects of the economy into the digital sphere with all the benefits around tracking, connectivity, KYC/AML, customized solutions, convenience, lower costs and efficiency. Most importantly digitization leads to greater knowledge of flows of value and who holds this value.

Yet the proposed taxes do not recognize and appreciate the full effects of this digital transformation journey. By not allowing digitization to happen, we kill the digital economy before it fully takes shape.

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Furthermore, we do not allow the development of skills required for this economy. Thus, cannot take part in the economy of the future.

Our hope lies in educating our leaders and our society about the digital economy value chain. And showing them how the value is created and can be harnessed together with preparing for a digital economy future.

Public sector participation in the development of a digital economy should focus on creating a suitable environment for the digital economy to grow and in harnessing the efficiencies such an economy brings.

There are examples abound on how this is being done. For example;

1. Ensuring data privacy and protection (EU)

2. Supporting digital initiatives (Singapore Autonomous Vehicle Initiative)

3. Taking a wait and see approach (China allowed Alibaba and Tencent to grow and only recently monitoring and restricting of peer to peer lending platforms).

4. A growing sharing economy working with regulators (USA).

In contrast, the risk-averse and regulation-centric approach to managing technological change and a strong government involvement has resulted in the failure of digital payments to takeoff in Japan against a backdrop of conflicting legacy technologies.

Levying the mobile money transaction tax and social media tax is not the way to create a suitable environment to grow and harness the digital economy.

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A more sustainable approach while also widening the tax base and grow tax revenue would be:

  1. Convene relevant actors
  2. Agree on an understanding of the digital economy ecosystem, including what aspects the government should seek to grow in line with the national strategy.
  3. Identify the flows of revenue and value in the digital economy and who is responsible.
  4. Target policy towards revenue and value with the aim to increase and then sustainably tax.
  5. Continue to invest in digital infrastructure, empower participation in the digital economy largely through the provision of relevant digital infrastructure and local skills.

By debating whether to tax or not to tax mobile money without addressing the wider digital economy implications, we risk not seeing the wood for the trees.