New taxes on OTT services will damage Africa’s digital transformation and its benefits – Uganda’s “big man” says:” Social media chatting is a luxury”

6 July 2018

Top Story

Digital content and services is Africa’s next wave of growth. The largest mobile operators have “got it” but some of Africa’s Governments seem to see many of its key services as a threat. Russell Southwood looks at how Uganda’s new taxes on OTT services and mobile money will impact this new and growing industry sector.

The new digital services sector in Sub-Saharan Africa is growing but is less visible than its telecoms and Internet counterpart. For example, Jumia has 4.2 million customers for its e-commerce business. MTN’s mobile games business has a US$100 million turnover and 9.3 million subscribers. Its Music + service has 1.5 million subscribers. In the mobile money field, there are an estimated 2 million plus mobile money agents. The figures are growing but are only the beginning.

These new digital services have the potential to: make people’s lives easier; make services more accessible; allow citizens to take part in a conversation about what they want; increase efficiencies in the public, private and development sectors; and generate new jobs and investment. So whatever happens in regulatory terms has to ensure that these positive social and economic impacts are maintained.

But they are also not just about things that “do you good” but also things Africans everywhere can enjoy like music, film, comedy, TV series and gossip. They provide the platform and distribution channels over which Africans can see themselves: both the good and the bad. And all this over one of Africa’s most widely possessed devices: the mobile phone.

Whilst there is considerable excitement about some of the African start-ups involved in the new digital services sector, it tends not to be seen as a new and vital area of business activity. However, the companies involved in it – whether African or international – are beginning to attract investment into the continent. The sums attracted may be smaller than those invested in telecoms infrastructure but they do bring investment and jobs. Mobile news platform Opera announced at the beginning of the year that it will invest US$100 million to develop its African services. Over US$25 million has been invested in irokoTV. A third of all venture capital invested in African start-ups in 2017 – US$65 million – was invested in Fintech services.

There is even infrastructure investment from the OTT providers: After creating two metronets (one in Uganda and the other in Ghana), Google (and its co-investor Convergence Partners) have committed US$100 million to develop infrastructure. Facebook has partnered with Airtel and BCS to lay 800 kms of fibre in North West Uganda.

Against this backdrop, Uganda’s President Museveni has been the moving force behind a new tax that has just been implemented on OTT services. They include popular social media platforms like WhatsApp, Facebook, Twitter, Google Hangouts, Yahoo Messenger, Instagram, YouTube, Skype and others. A tax of this kind combined with already high data prices (relative to income) is bound to have a serious impact on the use of social media and the internet.

In addition, the Government is levying a 0.5 Ugandan cents tax on both the senders and receivers of mobile money transactions. Again this adds to the cost of using digital services and is straightforwardly a tax that will impact hardest on the poor.

Museveni claimed in his folksy, familiar way in a recent statement on the taxes that:” Many citizens are still in subsistence agriculture (okukolera olubuto kyokka, Itiyo pi ikeni ) and informal sector (juakali) and I always oppose taxes on those sectors (gonja roasters, mchomo sellers, mechanics, carpenters etc); in any case, it is difficult to know how much they earn.”

Nevertheless he is now asking some of his poorer citizens to pay tax:”… is it too much for users of the mobile money senders and receivers to also make a modest contribution to the development of their country?” Many citizens might greet that with a hollow laugh and wonder when Government politicians will address corruption that lowers existing Government revenues.

He has also sought to portray the use of OTT services as a luxury good like wines, whiskies, artificial hair, furniture, textiles and shoes:” Mobile money transfer is, of course, different from the social media chatting. Social media chatting is a luxury by those who are enjoying themselves or those who are malicious”. So Facebook is a luxury used by 2.6 million Ugandans? And shoes are luxury foreign goods? And although he claims that mobile money services are different he is still taxing both senders and receivers.

The technically more sophisticated Ugandans have already worked out that you might be able to evade the social media tax by using a Virtual Private Network (VPN). The VPN uses encrypted protocol tunneling to avoid port blocking. Every time bans of this kind are put in place VPN use goes up, as for example it did when Museveni banned Facebook for a while.

But this time the Government has come prepared. According to the Executive Director of the regulator, Uganda Communications Commission (UCC), Godfrey Mutabazi: “We have technology that will block the VPN services so that no one dodges the taxes. Different VPN systems continue to come with more advanced features to circumvent government crackdowns but governments around the world have continued to block them.” Those Governments include China, Iran, Russia, Syria and Egypt so Uganda is going over to the “dark side”. There are some VPN companies (like Golden Frog with its VyprVPN) that claim to be able to avoid deep packet inspection software. Mutabzi also threatened possible surcharges for those who seek to avoid the taxes.

Meanwhile in Tanzania the Electronic and Postal Communications (Online Content) Regulations 2017 came into effect during March 2018.

Against a wide range of objections, Dr. Harrison Mwakyembe, Tanzania's Minister for Information, Culture, Arts and Sports, has gone on to sign the regulations into law. The Government has said that the regulation will help to put a stop to the "moral decadence" cause by social media and the Internet in the country. It has also said that it sees social media as a threat to the country’s national security.

Online content publishers (blogs, podcasts, videos) will apply for a license at a fee of 100,000 Tanzanian Shillings, pay an initial license fee of 1,000,000 Tanzanian Shillings and an annual license fee of 1,000,000 Tanzanian Shillings. This means to run something as simple as a personal blog (text) if you live in Tanzania, you'd have to spend an initial (approximately) $900 in license fees. Again payment of this level of taxes is an attempt to curb free speech.

The difficulty with these rather Trump-like regulatory interventions are that they do not take account of how interconnected things are globally in business terms. In March last year Nigerian Murphy Anawana, CEO, Aforevo woke up one day to find that the advertising revenues from his Nollywood You Tube channels were dropping like a stone.

Anawana runs a TV distribution company and has one of the biggest set of You Tube channels in Africa. When I spoke to him at DISCOP in November 2016 he told me he was making money from You Tube:“It runs to hundreds of thousands of dollars monthly. We get 100 million views monthly and have over 300 channels. We have a presence in lots of countries. Most African countries have not yet been monetized by You Tube. We are premium partners so we can do the countries that are not covered.”

On 17 March 2017 Havas UK, the world’s sixth largest marketing services group that spends about £175m on digital advertising on behalf of clients in the UK annually decided to pull advertising for the brands it handles from Google. Its brands include Dominos, Emirates and the BBC. It said that the blacklist applied to all YouTube and digital display advertising on Google’s network.

The UK government joined a number of organisations, including the Guardian, BBC and Transport for London, in pulling advertising from Google and YouTube. Google was summoned to the Cabinet Office. Top US brands including GSK, Verizon, AT&T and Johnson & Johnson also followed suit.

The reason for the blacklisting was that their ads were appearing alongside things like ISIS videos on You Tube and generating income for those running these channels. A Wall Street investment firm estimated that Google might lose as much as US$750 million a year. Google has said that it is working on fixing the problem.

At that point, Aforevo’s views had risen to 140 million a month with most coming from the USA, UK, Germany and France. So he has been hit hard by the Google ad boycott:”Revenues are 25% of what we used to make…the impact was immediate. The figure nosedived over a day or two.” But he’s also at pains to point out that it’s hitting all You Tube channel operators and content creators, including in other emerging markets:”We know Nirvana in India which is one of the biggest aggregators there and they are having the same issues. All the creators I know in Nigeria are having the same problem.”

The impact on the company’s income is huge and if it continues he may have to lay off staff. He hopes Google will come up with a solution and that the brands will come back to You Tube. Eventually the boycott was lifted when You Tube promised to address the problem.

“Advertisers need to know that when they pull ads, You Tube is providing lots of business around the world and particularly in Africa. These are honest people doing what they love to do. We have hundreds of people employed doing the You Tube channels part of the business. There is a direct and indirect impact (on the creators and makers) on jobs. We have not had to lay people off yet but if it continues for much longer that will be the case”.

When the telecoms and Internet industries started in Africa, the most successful countries were those who created the much mentioned “facilitating environment”. If some African Governments choose to over to the “dark side” for their responses to the new digital content and services sector, Africa’s businesses and citizens will be the poorer for it.

 

______________________________________________

ANRTIC

ANNOUNCEMENT

Opening of market for Internet Access and Service Providers in the Union of the Comoros.

As a part of the market liberalization of the Electronic Communications sector in the Union of the Comoros, the regulatory body, ANRTIC, welcomes all firms and individual wishing to set up as an internet access and services provider, to send a declaration of interest for installation and operation of the following activities, in line with the Comoros Communications Act (2014):

  1. The provision of internet services in the framework of independent (standalone) networks;
  2. The provision of internet access to the public using facilities provided by Comoros Telecom and / or TELCO S.A .;
  3. The provision of closed-user-group internet services to specific customers (banks, hotels, Universities, hospitals etc), using facilities provided by Comoros Telecom and / or TELCO S.A .

ANRTIC Moroni - Oasis Grande Comore

Contact ANRTIC: contact@anrtic.km

Tel: 00 269 337 08 92 or 00 269 334 13 76


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