The Impact of Digital Taxes in Africa

Professor H Sama Nwana, partner at Cenerva and a technology and telecommunications expert, was recently asked to participate at a workshop organised by the Collaboration on International ICT Policy for East and Southern Africa (CIPESA).

This workshop focused in on the impact of digital taxation on digital rights in Africa, sharing perspectives from platform operators, national and regional regulatory bodies, tax authorities, and policy makers.

Participants looked at issues around good digital taxation practices and the impact of taxation on users and national ecosystems.

Professor Nwana explained to the attendees how digital taxes in various forms are not only regressive, they disenfranchise poor and marginalised groups such as women and young people.

“If you apply a flat tax, it is going to affect the less privileged and people who need the internet the most, such as women in rural areas. The social media tax in Uganda impacted some of the poorer provinces more than people in urban areas such as the capital Kampala,” he explained.

Countries that have implemented digital taxes have seen a subsequent reduction in internet use and usage, resulting in lower government revenue.

“This is paradoxical because when you try to drive up your tax revenue by putting up more taxes onto the system, people stop using data services to transact or carry out other businesses such as agriculture and financial services,” said Nwana.

Across Africa, the Information and Communications Technology (ICT) sector is growing. And governments are looking to this market as a source of new revenue.

The introduction of digital taxes in Uganda was featured as a case study in the workshop. A tax on social media use, introduced in 2018, lead to rapidly falling internet subscriptions and failed as a source of government revenue. This was scrapped in 2021 and replaced with a tax on internet data. While too early to see the effects of this, it is anticipated to have a continued affect on internet access.

In general, there appears to be no agreement among stakeholders on digital tax regulations, with lobbyists, economists, technologists, and innovators clashing with tax agencies and communications regulators over how to support economic growth while accelerating digital transformation and protecting digital rights.

Prof. Nwana explained how research shows that for every 10% increase in mobile broadband penetration, there is an increase of between 0.82 to 1.4% in Gross Domestic Product (GDP) of developing countries in Africa.

“Why do we want to forego this growth by increasing taxes which drops the number of people using broadband data services, which clearly adds significant value and GDP growth to our economy?”

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