The media is awash with the taxation of Over the Top Services (OTTS) or rather the social media tax that was included in the 2018 Excise Duty Act. This tax took effect July 1, 2018. The OTTS is Shs200 per day to access social media platforms. The law further provides that there shall be NIL tax on Internet data.
The burden of accounting for tax is on the telecommunications service provider.
The law specifically provides that OTTS mean the transmission or receipt of voice or messages over the Internet protocol network and includes access to virtual private networks. However, it does not include educational or research sites prescribed by the minister by notice in a gazette.
The levy aimed at increasing the tax base given that many people in Uganda are connected to the Internet and use the said OTTs. However, in order to understand the rationale of this tax, there is need to appreciate the definitions of OTTs and Internet Data.
Over The Top content (OTT), is the audio, video, and other media content delivered over the Internet without the involvement of a multiple-system operator (MSO) in the control or distribution of the content.
Consumers can access OTT content through Internet-connected devices, smart TVs, set-top boxes, gaming consoles and desktop and laptop computers and tablets.
Examples of these are mobile phones, play station consoles, apple TVs, etc. These OTTS may be voice, messaging and examples include Facebook, Instagram, Snap chat, WhatsApp, Viber, WeChat, Skype etc.
Internet data on the other hand, is information that has been translated into a form that is efficient for movement or processing. Relative to today's computers and transmission media, data is information converted into binary digital form. In the simplest of terms, Internet data is information that is shared through an internet medium.
Back to our legal provisions in the proposed law, Internet data carries a NIL tax whereas the OTTS carry Shs200 tax per day. Therein lies the first absurdity.
Data in itself is the information that is transmitted on the OTTs. In my opinion, there is no exemption of data per say as the use of the OTTs is primarily to transfer data/information.
What I imagine the law makers wanted to exempt is the bandwidth, which is the medium where data is carried. Unfortunately, in Uganda and many parts other of the world, we colloquially call bandwidth "Internet data" and this colloquial term has cropped into the national legislation. So, for purposes of appreciating the legislation, we shall refer to bandwidth as Internet data.
Be that as it may, the issue of taxation of OTTs is still very unclear. I will illustrate through the following examples. First, the law places the burden to account for the excise duty on telecommunications service provider.
The framers of the law may not have addressed the fact that many of the OTTs may be used on tablets, laptops and smart TVs. Whereas the routers and modems that power these devices have Sim cards, the mobile service provider may not know about their use. How then will they account for excise duty when they are not aware that there are such devices using the OTTs? In addition, the "Internet data" that these smart devices use is exempt.
In addition, the tax seems to be unfair in that it indiscriminately levies a fee of Shs200. The ordinary Ugandan who loads Shs 500 of data to communicate to his friend, shall have to pay Shs200 extra for the same. Juxtapose this with the moderately upper scale Ugandan, who can afford data of say Shs30,000. They shall be subjected to the same tax at a fixed rate. In my opinion, this levy should have been advoleram so that it caters for the different usages.
The mechanism of enforcement of what is educational and research is also a subject of debate. Whereas a research from the Institute of Social Research may consider a certain video shared as part of their research, an ordinary Ugandan may find the same video a leisure video.
How will the telecommunications service provider separate these uses? What then happens when one communicates educational material on their WhatsApp and then non-educational or research material on Facebook or Snapchat. Will the telecommunications companies follow this usage?
Those are some of the questions that government should have answered before levying the said tax. Without satisfactory answers, there is a risk of double, triple taxation or no taxation at all.
Mr Mutibwa is the head Tax, Banking and Finance, Signum Advocates. email@example.com