The following are the outputs of the real-time captioning taken during the Fourteenth Annual Meeting of the Internet Governance Forum (IGF) in Berlin, Germany, from 25 to 29 November 2019. Although it is largely accurate, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors. It is posted as an aid to understanding the proceedings at the event, but should not be treated as an authoritative record.
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>> MODERATOR: Good afternoon, everyone, my name is Deborah Brown. I work with the Association for Progressive Communications, and it's my pleasure to welcome you to what has promised to be an exciting discussion.
The taxation of popular Internet services including various social media platforms and VOIP calls is becoming a more prevalent trend in many countries and regions. While the reasons and motivations for taxes differ in each case, it is a worrying trend that deserves more attention including to the global implications and risk of setting precedents for taxation and other relations of Internet services.
For example, in developing regions like Africa, these measures are imposed for a range of different reasons ranging from the need to augment and link teleco revenue, stifle dissent or gossip in certain countries. This has huge implications for digital inclusion, rights and socioeconomic development.
So this session will explore this trend that aims to unpack different types of taxes, how they are structured, posed and levied and whether Internet services deserve a sin tax. Our first speaker today is Dr. Alison Gillwald, Executive Director of Research ICT Africa which works across 120 African countries. She is an adjunct Professor at University of Cape Town and supervisors doctoral students research in digital governance and policy implementation so over to you, Alison.
>> ALISON GILLWALD: Thank you very much. I think it's important to understand the introduction of social networking taxes in the context of quite, you know, a pernicious taxation in the context of rolling out services across the African continent, but also in the context of the political economy of the countries in which we are seeing the introduction of social networking taxes.
So in many countries, Developing Countries in the Least Developed Countries, the mobile network operations are sometimes really the only kind of significant company tax that is coming in, and, therefore, it's often used in a range extractive way to deal with loan repayments, debt repayments and that kind of thing. Many countries although the mobile operators especially the bigger across Africa operators are quite profitable, they have been putting a significant amount of these investments back into network extension, which has obviously enabled lard numbers of people to come online. Obviously not always as cost effectively as they might do, and this sort of certainly a large amount of profitability on their side that could come down, but it has had a critical function in economic growth and in getting people online.
So various countries have had already quite high by African standards and quite high by company tech standards as much as 40% taxation of the operators, which is one of the contributors to the high prices where there is not really effective regulation.
So those prices are obviously not carried by the operators themselves. Those taxes, et cetera, are put back into the cost of the organisation. So I think it's important to understand the issues of taxation in terms of the political economy of the countries, the challenges they face, and also in the context of global platforms, and the inability of Governments to actually tax these large platforms that are generating revenues in countries, obviously at the national level, and there are the need to explore more and perhaps we can discuss this later, but explore more the possibilities of some of the global taxation regimes that have been proposed that would allow for the revenues that are generated in that country to be taxed either at that country's tax rate or the flat rate.
The impact of social networking on these taxes on users is a highly retrogressive tax. So this very small what seems like a very small 0.5% tax daily on certain networks, on certain platforms, I should say, sorry, is actually an enormous part of the income that people have, discretionary income that people have to spend on communications. And we see the implications of this with the drop in a country like Uganda, for example, significant decline in data use and, of course, in revenues which raises the question of, you know, the purpose of the tax because, you know, it is highly, besides being retrogressive, being a double hardship on the poor, it is also irrational. The tax is meant to generate income for debt repayment is the explanation given for it.
At the same time, it's actually pushing people offline and reducing the revenues that the mobile companies are operating. So it's not actually effective, it's not driving the kind of rents that they are opening to extract from the process. It's not sort of having that effect. And on the other hand, it's really working like you would use for a sin tax. It's a tax you would use for tobacco where you are trying to dissuade people from doing a certain thing.
And in that sense it is irrational and very contradictory. In the Uganda case specifically, the Gazelle actually referred to the need to stop gossiping in actually the regulation actually refers to this. So as I said, it's got this economic imperative, which is being undermined by actually reducing the use in the way it's applied, and then it has this social aspect which needs to be understood not only as a kind of moral kind of gossiping thing, but very much as the intersection really of rent extraction with social control.
I think for the first time in many of the taxes that we have seen because we know from the Uganda household surveys that the people who are online, you know, the significant number of people who are online are young urban youth and so people between 15 and 30. And these are also known to be the people who are involved with, in social and political dissent. So certainly this taxation is aimed, I would think, and I'm sure Juliet will have points to comment on this, are aimed at that as well.
So trying to achieve clearly contradictory outcomes with the taxation. And, of course, first introduced in Uganda, it was introduced or they attempted to introduce it at a very similar time in Benin, absolutely remarkable civil society response to that literally brought thousands and tens of thousands of people onto the street and within days the intended taxation was withdrawn by the Government.
Of course, the East African region is very integrated. East African community, and very shortly after Uganda or maybe it was actually in the time we had the introduction of a bloggers tax of $900 a blogger's license effectively in Tanzania. Again, very much aimed at managing political dissent at the then reasonably new administration, but it had already made certain political repressive moves over a period of time.
So I think as I said, I think what would be important, I'll end this so other people can comment but what I would really lick us to come back to is if we go to, you know, at the same time that this tax was being introduce in Uganda, we were working with the South African, with the Uganda Government on the digital Uganda, this vision for Uganda to, you know, go entirely digital. And at the same time, we were actually, you know, or very shortly after the social networking tax was pushing these large numbers of people basically off the network.
So as much as a 30% reduction in data usage and associated revenues over the last year that we have seen, we have had this taxation in place. So engaging with, I mean, as I said, there is kind of an irrationality, you have a policy where you are trying to bring people online, you engage with the Government in that regard. The policy makers in this area, obviously there is a tension with the finance department or the treasuries that are, you know, completely sort of quite honestly don't seem to get it. So I think we need to engage from a policy point of view, if we want to assist Governments, get legitimate taxation from very profitable businesses including platforms, then we need to explore these ways in which they can Levy or receive the appropriate taxation from big companies, platforms that are generating, you know, revenues in their jurisdictions.
>> MODERATOR: Thank you Alison, I think you raised some thought provoking points there and just the contribution of imposing taxes to generate debt repayment and revenue nor the Governments that are actually disincentivizing people from using the exact platforms so you have to wonder if these types of taxes are actually operating as sin taxes and if that is beneficial to societies. Our next speaker I think will build on some of the same cases and analysis is Michael Kende, who is Senior Advisor at Analysys Mason and Senior Advisor to the World Bank and he has been teaching a course in world economics at the graduate institute and has done a significant amount of work and published a paper the impact of taxation in Africa.
>> MICHAEL KENDE: Thanks very much. I will just build with some numbers on what the cases that Alison was talking about, but so we were asking to do a report on a number of these taxes that were coming up in Africa on both social media and over the top on social media, raising revenue, reducing gossip and in the case of Internet calls the idea is to that it's a way of getting the revenue back for the telephone operator that's are losing revenues to Skype or to other over the top calling services or messaging. We looked at five countries. Can you give me your card? I can happily send you the link. We looked at an excise tax, Zambia, Cameroon, Benin talked about imposing taxes on Internet calls. In Cameroon it was going to be on the download of apps that weren't created in Cameroon.
When we wrote the paper, those two hadn't been implemented and in Benin it was overturned, but the one in Uganda which was five cents a day for the use of social media was imposed on the 1st of July 2018, and Julian may be able to comment on the politics that went around it, but I will just talk a little about the economics.
In Uganda affordability was already low. You know, there is this target of 2% of income for one gigabyte of data per month, and here it was around 6% of average daily revenue. Healthy chunk of which was the taxes on the mobile operators was about 30% of average usage and with this new social media tax that took affordability to 7.8% of average income. So quite a bit higher.
And, of course, like every country social media was being used broadly not just for gossip used loosely but people use it for selling things. People use Facebook for selling for classified ads, for job searches, businesses use it as well, Government. In all of the countries we looked at, the leader of the Government has their own Twitter or Facebook or some social media account. So everyone is using it. And what was interesting about this one is that these services are free. So it's not a case of adding a 10% tax on excise tax on mobile data because you can't tax something that's free at any percent obviously because that would still be zero.
So you have the problem of house are you going to tax it and how are you going to impose the tax. And in this case it was imposed that the mobile operators would charge the tax and if you paid it for that day or for that month, then they would allow you to use social media for that period of time. So it all went through the mobile operators who had this additional burden because, of course, the social media companies had no way of charging for using the services. Since they weren't charging. And the result is, this is where the economics comes in, it turns out that having something free not surprisingly is a special price and there is a lot of behavioral economics and people are winning Nobel prizes, economists are winning Nobel prizes because they do experiments that if you drop a price down to free it increases demand much, much more than you would expect. You can have two different things at different prices and people might like the more expensive one, but if you drop the price of the cheaper one down to zero, even if you have the price difference is the same, people will take the free one.
They don't have to dip into their pocket. They don't make a commitment. This experiment is with chocolate, but the general trend holds that free is a very special price and imposing a small price on something that's free makes people suddenly think about making a commitment, of course, there is the cost as well, but it's not just affordability, there is something psychological going on. Within three months the results were out and there was a 15% fall in Internet subscriptions because people were using the Internet for social media and if they didn't want to use social media, some of them just gave up. And a 30% drop in the tax.
So it started out at whatever level of tax, and they lost 30% of the tax revenues that they expected within three months because people were using the Internet less, using social media less. And so that's quite a problem for the finances, right, because they were making money off the data, and now they were selling less, the mobile operators were selling less data so there was less revenue off of that. The social media companies, some of them were making money off of advertising, and, of course, there is going to be less of that. There is the challenge which I'm sure we will talk about of taxing the global companies for their revenues in a particular country, but the sum was a lot less revenue and then, of course, users were using it less and they were generating less economic benefits as well.
So we just kind of concluded in the paper that if you look at any kind of principles of taxation, it's a very regressive tax because it's the same on everybody, so for those less well off, it hits harder. In this case it was relative, for some people it was easy to avoid. It turns out if you used WiFi or a VPN, you could get around the block on using it if you didn't play the tax. So that generates a feeling of inequity that the technological halves it still use it without paying and the others are still paying this tax.
It's a double tax because you were already paying to use the data and you are paying additional tax and these other spillovers so we just thought and we can discuss here that better to generate as much economic activity as possible for the mobile operators, advertising revenues for the people using social media for their business and take a much broader but smaller tax after the economic activity has been stimulated rather than before and cutting it off.
>> MODERATOR: Thank you, Michael. I think it's a very valuable perspective looking at, you know, the different economic cases, and I think your paper concluded that this type of tax is harmful, and it falls short of internationally accepted digital taxation policies. And ABC put out an issue paper this year that looked at some of the taxes that concluded that it's inconsistent with national human rights law, so we see in different ways how these types of taxes are new and not really rooted in traditional international norms. And I think Juliet will talk a little more about that and will bring about perspective. I know she has been working on this in Uganda. She worked for the policy in central and East Africa. She is involved in research and communications and has a background in journalism and media and has been closely looking at these issues in Uganda and elsewhere in the region.
>> JULIET NANFUKA: Thank you. So we have spoken about the numbers. We have spoken about the various high‑level look or rather perspectives, but I wanted to take it back to the human being behind the tax. Who is the person affected by the tax that we have been going on about? And for a long time in the lead up to the discussion around the taxes and during the enactment of the Excise Duty Act of 2018, the human being fell short of the conversation or was largely left out of the conversation because they already weren't part of the conversation to set up with.
And that is a community that has been further pushed away from the digital society, the online community, the opportunities afforded by being online. But the Excise Duty Act introduced an increase in mobile manual transactions. So we have, I'm looking at talking to the case of Uganda.
We have a tax introduced to social media, but also an increment in the transaction fees for mobile money. Mobile money is a mobile enabled platform for financial transactions. It is, it has enabled the largely informal sector of the country to be part and to have some sort of bankable approach to the financial services. So with introduction of the taxes we had an increment in the amount of money people are going to be spending to access their data and largely affected were going to be women, persons with disabilities, and the youth.
The latter being quite a dominant player in the Ugandan online arena. But when we look closely and these are figures coming from the Uganda communications authority that regulates the sectors, we found from the data themselves that with introduction of the taxes a few months in, at least five million people dropped off. They either went offline completely or they turned to the use of VPN so we went from having Internet penetration of 47% down to 35%. Let me make sure I'm giving the right numbers, yes, from 47% to 35% and that was the equivalent of losing some 5 million people.
Of the 5 million people were persons with disabilities, again, data revealed that at least 60% of the persons with disabilities in Uganda who they have data on were largely affected by the social media taxes and at least 26% of the community stopped using social media. And when we look a bit deeper into that, we find that this is a community that was relying on social media for basic access and communication. If someone is unable to work, it's a simple mobile message or a WhatsApp message away from one service or the other.
But also their financial transactions were largely affected or largely done on mobile money. This is a community that is already largely affected by financial exclusion. There is a very cultural or rather a deeply rooted exclusion of persons with disabilities in the country. So they are less likely to get access to jobs, they are less likely to get basic education. So their struggles are on very many fronts and the taxes both sides on social media and mobile money did not help them much.
So we now have them needing to seek much more money to do basic mobile money transactions and, again, more money to access mobile money rather than social media. That's a community whose plight went largely unrecognized when we are talking about the social media tax. Of course, the women also another vulnerable group who were affected by the taxes similar to persons with disabilities, they are likely to not have as much economic opportunities as men in the country, even though they are the larger percentage of the population in comparison to men.
But across all groups, women, youth, and persons with disabilities, there is also the issue of local content. Social media has been a platform where people have found content relevant to their interests, their needs, their languages a whole lot more readily available than in the broader Internet. This is why social media also ended up being an entry prep and a staying point for many people when it comes to Internet use. The larger Internet arena does not readily speak to the needs, the content, interests and the more local desires.
And that was more readily found on social media platforms. So we see a missed opportunity in the generation of content, more relevant to communities. We see missed opportunity in promoting a culture of inclusion, particularly in a time when was mentioned earlier that many states are talking about digital inclusion, digital visions and digital transformation.
So what are we doing all of this for when we are working towards excluding communities from the very opportunities that we as a Government are trying to promote? So that is largely the language that we are seeing, we are including but also excluding at the same time, a very mixed persona that is coming through.
So in that case, we are creating a rather negative perception around the taxes. Earlier mentioned was the language used when the taxes were introduced. It was something introduced as something to curb gossip. The language used were that the taxes were to grow the tax base so mixed messaging coming from the state. But the popular narrative that is sometimes used is it's a good tax to have because there is too much gossip going on taking place online, and that is shaping people's perceptions of the online arena and it's fueling some of the arguments against being online.
So very dangerous speech and perceptions being shaped by the language of the leader. Again, to the detriment of the whole vision of what the Internet could potentially be and should be, but also another community I didn't mention is the refugee community in the country which is quite large and whose needs are left out of discussions when you talk about digital rights.
But in an era where in the countries like Sudan, Eritrea, often being caught in a state of stateless in because of the essence of having a national ID because they don't quite belong here nor there, they are also then left out of the basic mobile money transaction economy and also sometimes included excluded from basic access to certainly media tax. In order to access the tax, one has to have a mobile money account and to have a mobile money account one has to part with a lot of personal data in order to get a national ID. Even though we have data privacy and protection act, there are still many questions around it. It's great to have it, but we need to see some of the safety guarantees around it implemented a whole lot more readily.
So particularly in a time when there is a whole lot of very strong perceptions around surveillance and that is also fueling a culture of censorship and self‑censorship, so very, it's a very intertwined argument that we have around the narratives or what is shaping the language around social media tax in Uganda, and that is something we are seeing in other countries such as Tanzania which has online regulations.
Again, excluding people from online content generation, but also shaping negative perception about being online. So what we are seeing is the taxes being used as a form of dissuading the consumption for the use of social media, which is rather contradictory to what the state has for many years been claiming its goals to be, but beyond that is also another avenue of preventing too many questions being asked of the state and we can look at this through the lens of transparency, so we are collecting all of these extra taxes but what are we doing with them? What have we done with the previous taxes that have been collected. So don't ask questions like that, it may be gossip. Don't ask too many questions. That is one of the undercurrents of the introduction of the various forms of online content regulations including through the social media taxes. Gossip comes in many forms. Sometimes it's in the forms of questions, sometimes it's in the form of poetry as we have seen with the Stella Nyanzi.
So very dangerous and the currents come alongside the introduction of sin taxes. Many questions around that as well, but one of them, rather, what we need to really keep in mind is that other countries don't take heed of this it is great to see that Benin pushed back against it, but we have countries like Zambia which has VOIP whose argument is to collect the moneys lost by traditional telephone calls, but nonetheless, the argument for economy, economics over human beings is one that really needs to be reconsidered. When you talk that data is the new oil,, for example, we take the human being out of the argument of digital rights and the human being needs to be, needs to come out a whole lot stronger when you talk about social media tax.
Who is the person affected by this, how and why. Thank you.
>> MODERATOR: Thank you, Juliet, I know there are a lot of questions for you. I know I have a few. Let's move onto the final speaker before opening up the floor. Our final speaker is Franz von Weizsäecker who is heading the tech and innovation lab at GIZ, the German International Development Agency, if I got that right. He is advising Government and business organisations worldwide on cybersecurity, Smart cities, among other issues and Franz has been looking at this issue from the perspective of what were going on in the OECT in G20 and give some important reflections on conversations in those arenas.
>> FRANZ VON WEIZSAECKER: Thank you so much. First of all, I would say tax is necessary evil unfortunately and it causes harm in most places where it appears in most parts of the economy that are taxed do experience some form of damage or negative damage through taxation. The question is what form of taxation is the one with least collateral damage? And, of course, GIZ is advising to Governments worldwide on domestic revenue mobilization, so basically generating these revenues which are to some extent necessary for statehood. I'm not saying that all of the spendings are spent for very good thing, but without having any tax revenues, there are very few countries that have the luxury of having enough oil or other resources to be able to have zero taxes but most do require taxation.
Therefore, I would argue we need taxation, and probably most of the form of the social media taxation that I have seen here that you have been reporting on may have more collateral damage than other forms of taxation. We must admit, Governments are struggling these days. Governments are struggling with generating necessary tax revenues because there is a lot of erosion of the tax base essentially it often has to do with large multilateral corporations that move or that are shifting their profits abroad and, therefore, all you can tax is the profit that leaves me economies derived of taxation. Inside European Union we are struggling with this phenomenon if you look at Google, generating their revenues to be taxed in Ireland with the tax rate of less than 1%.
That's, of course, a situation that is not very fortunate for the economies affected where the revenues are actually generated. Now, the entire, in the entire world the taxation regime has a long history of taxing only companies where they are based physically. And that's quite a tricky thing to overcome that long heritage, and this is exactly why I believe we need international cooperation. There has been, there is a very good international club of 134 countries who are joining the inclusive framework for, against tax‑based erosion and profit shifting to the BEPS, four letter world very ugly phenomenon of the economy in general, but in particular of the digital economy.
So this OECD and G20 led club of countries is looking for new ways now to deal with the digital economy where there is no physical representation of that company in the economies affected. Now, there will be two core questions to be addressed. One is what is the revenue base first of all, because it can only, let's say, if Google is based in Ireland and there is a certain revenue generated in Germany so you only want to, I mean, the general consensus is you can only tax companies that generate significant revenue in your country. You typically launch international Internet companies and how do you measure that. So that's the one question at hand that needs to be addressed and the other question is how do you measure where the profit is made, because after all in those economies affected you might not have any actually economic activities, but it's only the users and only their eyeballs affected so to speak whereas the customer sitting somewhere completely different and the company generating these revenues is also sitting somewhere else.
So you need to find a way how do you determine the profit allocation between the different economies involved here. So that's a tricky one, a tricky question to be addressed in the framework of the OECD proposal which is currently under consultation, and I think we need to advance this cause with a lot of pressure in order to avoid countries feeling pressured to generate tax revenues through other means because basically we need to advance the solution because not being able to collect taxes is not an option and, therefore, I strongly endorse the push towards this international cooperation in that sense.
>> MODERATOR: Thank you, Franz. I'm wondering if there are any questions from participants? I see at least one. Others raise your hand and we will come to you and if you could please introduce yourself.
>> AUDIENCE: My name is Eleanor Sarpong, Deputy Director and policy lead for the Alliance for Affordable Internet. AFAI is an initiative of the work foundation, and we are the leading advocate for affordable broadband across the world. We are made up of 80 plus members for Government, civil society, and private sector.
The reason why I'm very happy that we are having this conversation because in the work that we do generally across Asia, Latin America and Africa, we have seen particularly in Africa, we have seen the wave of consumer‑facing taxation. We have always had an issue with that and the work I'm happy to see Juliet here talking about some of the outcomes and impact it has had on, for some marginalized groups and women as well, but it's more of a contribution, actually, is on the gentleman from GIZ. I was in Paris last week for the OECD conversation on the unified pillar, and I was quite concerned that there was one aspect that we are looking at consumer‑facing aspects of taxation.
I had to stand up and speak about some of the outcome of the research from our work with organisations, our research on Benin and Tanzania and countries. And we are not familiar with that, so I had an issue with the definition of how do we define consumer‑facing taxation. The other thing was I didn't see a lot of representation of various African reps in that place. So I think we were talking about this conversation, I really encouraged that we have a lot more input from various stakeholders because the implications, the companies that are put into these places even though they are global, but the decisions and the impact they make is on a local level. Thank you.
>> MODERATOR: We will take a few more, and I know that was more of a contribution than a question, but in case anyone would like to respond to that. I see two hands on this side of the room. So I will do a round of questions and then a round of responses. Introduce yourself, please.
>> AUDIENCE: Hello. My name is Beatrice, I work for the pathways for prosperity commission which is I commission on digital technologies and inclusive growth. I think that maybe the issue with taxing companies that are not in the country, they don't have a physical footprint in the company is not new. It didn't come with the digital economy. I think it's an issue brought by globalization. So the issue of taxing digital companies like the M and E's model, data and use of technologies make it even more pervasive model where companies are not based in the companies they operate, and what we have seen at our work at the pathways commission is that many countries are concerned with the fact that this big companies come to the country, harness data from their users, have this big database, they make millions and billions of dollars out of it and the countries get nothing.
So on the one hand I understand the point from the gentleman that tax is not good and taxes are an evil somehow but on the other hand Developing Countries in particular, they use the revenues from the tax to improve services, to improve hospitals and education and they need the revenue somehow. So even though some of the measures that have been applied to tax these companies and vary below the optimal measure quite blunt somehow, like the Uganda example is one of them. I think the Developing Countries is specifically struggling to tax the countries that are harnessing the data.
And while there is no perfect model I'm a bit concerned like the colleague on the other side of the room whether the OECD model, the OEDD framework is the bet developing feed for in of the countries. I think in certain ways there is a concern whether the model imposed by OECD countries that come from a different background and have a different institutional setting would be the best feed for many of the countries that are struggling with this very pressing problems of companies coming to the countries, harnessing the data, creating a digital value that we cannot really measure and going away without contributing to the society. I mean, it's, again, it doesn't have a question mark at the end of my contribution, but that was I was wondering is OECD the best framework for many of the Developing Countries and is there alternative model that Developing Countries can maybe view together to tackle the problem.
>> MODERATOR: Thank you. There is another question on this side of the room. Please go ahead.
>> AUDIENCE: Thank you very much, my name is Innocent Adriko. I am from Uganda. Mine is more of a comment on the issue of the OTT tax in Uganda. So we do realize that the tax has an impact on, negative impact anyway on the number of Internet users, but then the question is we as the community, the Internet community, people who have something to do with discussing people who are here at the IGF like what control do we have in ensuring that maybe we have something to do with talking to legislators, for example, because when you do realize, I don't think there is any Ugandan legislator at the Forum here because if there was one, maybe I would be engaging the legislator on some of these issues personally, but unfortunately there is none.
If there is no legislator here and he could be having clear answers to some of these issues, to some of the reasons as to why the tax is there and then what can we do? Thank you. And how do we see that more Governments do not ad hoc to such kind of taxes? Thank you.
>> MODERATOR: I will turn the comments into questions for the panelists. There is a question around in the OECD context how you are dealing with consumer‑facing taxes and what sort of considerations go into that. So I think that would be a great question for Franz. If either of the other panelists have responses around alternative models for countries in developing regions, that would be great to hear from, and then for Juliet, the last question I think would be great if you could address that and tell us about some of the efforts to challenge the Ugandan law in court.
Thanks.
>> FRANZ VON WEIZSAECKER: So my claim was that if we want to avoid the harmful effects that you have mentioned around taxation, which are mostly related to consumer‑facing taxes, then we have to generate an effective regime of generating tax revenues in some other ways, and there is a number of ways how to raise domestic resource mobilization. One of them is introducing mobile payment. That massively increases tax compliance. Another one is maybe improving the administration for land tax because land tax tends to be a tax that doesn't diminish the economy because you can't shrink the land and there is a number of other ways how to generate tax revenues, and then plus what is the tricky part is taxing the digital economy where you don't have physical residents. And this is where I claim we need international cooperation, and I'm not sure if we will have a consensus of a clear statement whether we should abolish any form of consumer‑facing taxes.
Maybe there is not consensus to be made among the 134 countries, but I believe we have a number of ways how we can basically tax profits of the digital economy without going into that field of consumer‑facing taxes.
>> JULIET NANFUKA: Thank you for those questions. I think there seems to be sort of a conflation of the consumer‑facing taxes and the purpose of the OECDG20 proposed tax, which is actually suggesting an alternative to that problem. So I mean the retrogress of tax, quite honestly, the irrational tax that we have seen with consumer‑facing taxes in Uganda is because you are actually taxing the wrong people. So you are trying to tax the platform, and you are actually taxing the end users.
It has no impact on Mark Zuckerberg's bottom line he doesn't lose a night's sleep because the number of users in Uganda is much smarter than the UCC says they are. So I think we really have to engage with, the proposed international tax non‑presence‑based tax is precisely an alternative that can, a global governance solution that can support countries where there isn't the infrastructure and there isn't the means, honestly even for the mature economies there isn't means other than through some global treatment to get those rational taxes, those productive taxes from the platforms from that country.
So it seems to me that this is really, you know, a very positive form of providing Least Developed Countries, indebted countries and a range of emerging economies, sorts of people that can't get the much needed taxes to be able to do so. I think we also need to think about this in terms of the longer term things. So at the moment, it's about, and I also don't think the challenges of doing so are as difficult as it's been suggested. I think the enforcement is difficult, but I think, you know, literally with big data and everything that goes with it, Google literally with the click of becomes whether you pay a flat rate where if it's global governancing may be the best way to go or probably what is more from a social justice or a kind of national sovereignty issue, you actually pay the tax of that particular country.
So I think, I really think these are really kind of critical ways of addressing.
These are the only alternatives we have, and the failure, just to address the last question, the failure of African Governments to engage, you know, actively in these global Forums and continue to resort to very old multilateral member state activities that have possibly not been as successful, we need to get that kind of engagement and then you have got a real alternative for them. I suppose the quid pro quo for a lot of activists and people who are concerned about those taxes then being generated, and possibly in some way creating a negative impact of being picked up somewhere else in value chains and those kinds of things is also that all countries who have had an exploitive range of extractive taxes going to be using those for the kind of social protection we have seen? And perhaps this is where you could begin to tie in some quid pro quos.
If this is a globally agreed way of getting taxes from, you know, legitimate taxation, then perhaps one could also tie the uses to which that tax is put so that that tax is used, for example, to create social protection on national incomes or national safety nets that don't exist in most economies. And I think at a global level that becomes even more important as we move into digitized online work where we have no control over the labor conditions of people coming online and our early evidence suggests that we are seeing the same patterns of exploitation globally around people coming on line, that this would also be a way of providing social protection at a kind of global level for, you know, that people could then use at a national level to support the citizens of their country, the people in their country, not only citizens, refugees, et cetera, people in their country in a very positive way.
I think the concern is just that we don't historically, the social, the taxation for social protection has not always been evident in many of the more repressive countries or not socially just countries.
>> This is going to be a tricky one. The consensus on the spending side is a tricky one in international cooperation. I'm hoping that the first step is on the revenue generation side.
>> Yes, so clearly there is a big debate to be had still, and I think if, even at a global level, there is a level of confusion or uncertainty. It is just as present at a national level, and we saw that even in the case of Uganda where on the one hand the Ministry of Finance is saying one thing, the President is saying something else, and the Ministry of ICT is saying, it, again, something different. I have spotted some representation from the Ministry of ICT here, but I'll also add that in the wake of the introduction of the social media taxes in Uganda, we did have some interventions with the ministry as well as with Facebook trying to see what the way forward should be.
What is the thinking behind this? There a way of doing it differently or removing it altogether? We made a set of recommendations that was submitted to the ministry and to Facebook. Not much has come of it, but it's good to document all of these initiatives not only in Uganda, but beyond to other countries as well. There was also a court case that came up after the taxes were introduced and very little has come of it. Again, probably as a result to the confusion that exists in the country and what to do, what, how should we go about this.
I do agree with the idea that global approach to the whole taxation framework would be helpful and a bit more ‑‑ it would also perhaps help with the transparency around the delivery, the delivery of the taxes collected. Social protections is a big issue that we have, and that we are dealing with rather not too well in Uganda, but perhaps this is a way of exploring that if that was a route taken.
But, yes, I think that was it from my side. Yes. So there is a court case. Little has come of it, but it's not completely dead, so there is still a way to push for it. We can always talk about that a bit more. And, yes, the taxes, you know, actually, taxes are something that people would be happy to pay, but we currently have them as a grudge payment.
We don't want to pay them in some of our countries because we do not see where the money is going and when you can't tax something as obscure as social media in a country like Uganda, the opposition is a whole lot bigger. We have this little country, which is doing, contributing very little to the profits of some of these entities but paying a much bigger price than countries or individuals in countries who generate a whole lot more profit for some of these entities. But the playing ground currently is not particularly level and the poorer countries are paying a big price or rather the individuals in some of the poorer countries are paying a much bigger price which is why it's all the more important to have a global rethink on how this all takes shape.
>> MODERATOR: Thanks Juliet, and just to add to that, the case in Uganda has gotten international attention from human rights mechanisms so the Special Rapporteur on freedom of opinion and expression and on freedom and association wrote to Uganda specifically about this law. I haven't checked lately, I don't know if you are up to date if the Government has responded? I think not. And also another Rapporteur wrote up the case in one of his reports to the Human Rights Council. So there is international pressure. There is obviously a lot of domestic pressure from civil society, but so far I guess no change yet. I saw some questions in the back row. And more questions on the side. So I will take the two in the back and the one on the sides.
>> AUDIENCE: Thank you very much, very interesting conversation, my name is Carlos Romano from the association of communications. I couldn't heard Alison first so you could mention it to me, and I may derail a little bit from the sin tax that it was established in Uganda and in other countries for different reasons but at the end the bottom line is affordability is becoming more of an issue out of this tax. And there is a trend an ongoing trend in many engagements with regulators, particularly in Africa about how telecoms is the industry that need to contribute the most, not to contribute the most, but definitely an increase in the revenue collection in one way or another for the expenditure of the country, whatever it is.
And that certainly is having an effect on spectrum, how the spectrum has been more and more commercialized and out of the reach different players and how they are engaging with different, not even high on the spectrum but other sorts of the spectrum how with the different regulators you are speaking, Uganda, Kenya and others, some of the proposals that some of us are making around more public use of the spectrum end up nowhere when they, even the legislators and this is a private conversation yesterday, need to face the revenue authority and how the revenue authority has different, it doesn't matter what the regulator says, what the ministry says, but what the revenue authority actually ended up saying.
So at the end of the day, I have the feeling that there is something around the whole fiscal policy, the whole related with corruption, related with other things, how at the end of the day the poor are being taxed all in all for other things and in particular in the digital economy how they end up paying things that are not necessarily made for them.
So just it's a question embedded there. So that was any comment, thank you.
>> MODERATOR: Thank you. And the gentleman in the back row.
>> AUDIENCE: So I'm a Ph.D. researcher in Belgium. I have two questions. I will try to keep it brief. The first question is more a clarification. Could you please clarify the link between the political dissent and the taxation? Was the taxation a tool, as Juliet mentioned, political dissent freedom of expression or was it the contrary is the tax first being set up and it generated some dissent? As a second aspect is more of a curiosity from the Uganda or Tanzania or Benin perspective, whether the idea of the value creation which was much discussed in the project was discussed when the tax was being set up, or was the excise duty as in Uganda the first choice? Or was it a second choice which was it was the most easy way to enforce a tax on this kind of value creation because that are protected by platforms or other kinds of social media. Thank you very much.
>> MODERATOR: Thank you. There is one other question on the side here.
>> AUDIENCE: Good afternoon. I am Yoko from Uganda. I want to ‑‑ my question is really towards Juliet, Cpasa and another of others took Government of Uganda to court. My issue is do you believe the Government of Uganda has any interest in reviewing the social media tax considering that it only recovered about 14% of what was projected for the last financial year? And the amendment through which the social media tax came with mobile money tax and the mobile money tax was reviewed a week later after public outcry, and yet the social media tax stayed it despite the higher cost of collecting it. Do you believe the Government of Uganda is really interested in reviewing this tax?
>> MODERATOR: I think just please go ahead and respond. I think there was some directed towards Juliet, but if Michael wants ‑‑ okay. Perfect.
>> JULIET NANFUKA: If I understood the first question correctly you are asking if whether the taxes were introduced to curb dissent. Well, it depends on how you define dissent. Perhaps dissent is anything against them or dissent, anything called gossip is dissent. Gossip and dissent goes hand in hand in his mind, but whether it has done anything to curb that, I wouldn't believe that.
People talk offline as much as they do online. It's only a fraction of the population that is actually on social media. The content or rather the narrative online is not too far off from what is being said offline. So whether it has curbed dissent or opposing views, I personally wouldn't say so.
It's an attempt, but no form of technology can stop people from talking their mind. Word of mouth remains a powerful tool. We have seen it come into action a whole lot on a couple of times in history, and if the opportunity arises to revert to word of mouth, I'm sure it will still remain a powerful tool has it has been in previous instances.
Then you also asked whether there was discussion around value creation. Before the introduction of the taxes. The taxes were introduced by way of presidential directive. They simply showed up. And so there was no stakeholder engagement processes are anything like that. It was instructed and the language around it was the President had called for a small fee to, you know, curb gossip online, and the Ministry of Finance came up with the 200 Shillings that is charged on a daily basis to access platforms such as WhatsApp, LinkedIn, VPN sites, Facebook, and a couple of other, InstaGram, for example.
So, no, the conversation around value creation probably started happening in the aftermath, but it's a bit too late at that point. And that is probably why we are seeing a bit of gray area even in the response from the state, and it also goes back to the question around whether the state has any interest in reviewing the social media taxation alongside the mobile money transaction, or rather taxations. So the back story to that is when the social media taxes were introduced, mobile money fees were also increased and thereafter the percentage for withdrawing money from a mobile money account was then reduced by half a percent. But is that enough? Not so much, because people still have issues because of the 15% fee associated with mobile money transactions. And that is excluding withdrawals. It's a bit complicated for people who may not do mobile money transactions.
But in a nutshell, there are fees that are associated with mobile money transactions and the state reduced one of the fees by half a percentage, but for some, it is still not enough. Perhaps it was their way of saying we have listened to you, but the value it created for users of the platforms may have not been that much. Because they are still left with the burden of social media taxes and still left with the burden of other fees associates with mobile money transactions.
So, yes, we often do things reaction airy more than, you know, rather reaction airy manner than proactively and this is something that is very common with the state which makes decisions and then gets into a situation and does not know how to maneuver around it thereafter, but we are stuck with the decision that they have made. Thank you.
>> So I thinks did a much bigger discussion of this obviously the implications, you know, as I said, it's quite important to understand this in terms of the much larger tax issues prior to this as a main form of revenue for the state because as you were saying there is no, there is often in many of these countries, some of the countries that don't have natural resources, for example, it's the case of Uganda, a little bit of tourism, but otherwise the mobile operators that are generating any kind of income in these economies.
So the issue of taxation is obviously a much bigger one and also a much bigger one in relation to other countries facing similar problems or not to different extents, and one of the kind of irrational sometimes negative or, you know, issues we have seen ash taxation is around ‑‑ around taxation is spectrums and auction where the fiscal is concerned with getting the highest prices for the spectrum so you create artificial scarcity for the spectrum and people pay this premium price which is then, of course, in the case of the U.K. the services didn't even start off with 3G when they had those very high prices for many years because all of the money had been spent on the auction, so they couldn't deliver the services. We have seen it subsequently across a whole lot of spectrum options where even if the operators have got going, they have obviously had less money than to invest in network rollout and they have also, of course, recovered that money.
It doesn't just go to the Government. They recover that through these very high prices. So the balancing of these things, this is just another example of, you know, counterproductive policies and really sort of highlighted in the irrationality of the tax to go to the second question. You know, the purpose of the tax is actually to maximize rents from this activity, from this instrument in order to get the debt repayment, just assuming that that's a serious rationale, which I think it is, we are facing a debt repayment. But if you were wanting to, you know, maximize that, you should actually be encouraging the operators to roll out services and be getting very high company tax that they have. In fact, the effect of this was not just, you know, not reaching the anticipated amount that they had expected to receive from the social networking taxes, which was only 14% of what they intended to receive, but it had a negative effect in terms of company taxes because the data usage fell so low. So the productive contribution to rational taxes is also undermined by the process which has a double negative effect on the digital Uganda vision and effectively on the poor.
So these are profoundly anti poor or non-pro-poor policies, poly outcomes and policy impacts. That's why I'm saying, again, I think The Global Fund then provides a serious solution, because this is a conversation that you can have with a, you know, a treasurer general of a ministry or something. You want money, what you are doing here, you are not getting your money and you are having a negative effect on your poor ministries which are saying what are they doing, they are sort of undoing our policy, et cetera.
If you participate in this global fund, you will have serious money to be able to do serious things, including, you know, public provisioning of access to WiFi and things like that that we are struggling to provide.
>> So I will just put a slightly different spin on that, but kind of the same issues. So, you know, you mentioned that there is the revenue authority or the Minister of Finance has some obligations and they see the mobile consumer‑facing taxes as a sure form of income, so I mentioned in Uganda it's 30% of the cost of using the mobile is the taxes, the user taxes. So if you drop that it, demand would go up clearly. We saw what happened to demand just with the smaller social media tax. Demand would go up and there is many studies starting with the World Bank and others that have said for a certain percent increase in mobile broadband usage, GDP goes up by 1%, 2%.
So there is this transmission not just the mobile operators will make more money, clearly, but it trickles through the rest of the economy. Now, I don't know of my studies that have linked the two to say who would be the tax increase from the GDP increase from the lower prices, but even if you had that study, it would be very hard, I think, to convince a Minister of Finance who might be looking at a limited term to give up sure income today for a possible bigger income tomorrow. There may not be an office then. There may not be an office because they lowered the taxes on the mobile services today.
So it's a very tricky problem, I think, and I think it, you know, those studies would be good, but it's a political economy problem because the Minister of Finance doesn't have responsibility over, you know, for developing the digital economy and maybe not even developing the broader economy. They have a goal, and the mobile is a sure way to meet it.
>> So Germany generated $50 billion revenue out of the 4G frequencies year ago, that is a huge amount of money and today you can feel it in the prices. Basically, prices are way above European average. At the same time, it didn't really hinder investment, and it didn't really hinder adoption. So, I mean, still everybody is sort of able to afford a mobile phone and data.
So we are just paying a bit more, but that's because it's affordable. And I think what we need to look at is the at the curve of price elasticity, how did the demand go down as prices go up and that's a very different curve in Germany as compared to Uganda or other places. So for countries that have a GDP per capita of less than $5,000 per year, of course, there it really hurts and there it's stifling the entire economy. If you are taxing Internet connectivity, that will decrease massively decrease connectivity rates.
So I think we need to judge this by the context given and I think there are some interesting studies on estimating price elasticity for Internet connectivity and that needs to be a factor to be taken into account when you are taxing in that case it's not so much taxing the user, but rather taxing the telecom operators. It's typically a tax on revenue of teleco companies that will in turn need to pass the cost onto the user.
>> MODERATOR: Thank you. I'm wondering if there are any questions from remote participants? Okay. So there is a question over here. Please go ahead.
>> AUDIENCE: Okay. My name is Eberhard Blocher from Germany. I'm going to try to combine those different arguments. We had a very extensive reporting on how it's being done in Uganda with the social media tax, and the mobile phone payment tax, and I'm always keen to learn from other countries, and I'm trying to have a little bit of different focus on what you have just said, Juliet. Trying to adopt this what you have portrayed as a negative tax in Uganda back to Germany or Europe. I have within wondering across the IGF village and there was a study out by the Weizenbaum Institute how social media can affect mental well‑being.
So I think in Germany or other countries we have a big problem of people being addicted to social media, to Facebook or to other kinds of social networks, and so I was just maybe picking up from what was said just now on price elasticity. I was wondering if it would be a solution for a German society to have this kind of Ugandan tax in Germany to have people who want to use WhatsApp or Facebook or whatever, social networks in order to reduce the usage and also to reduce those negative effects because I do know personally many people in Germany who have negative effects by using too much Facebook, and all of the things which have been described in this paper here.
So perhaps you could connect and try to learn from what Uganda has done, but, of course, we have a different base in Germany so we are not going to perhaps exclude so many people from the Internet or from communicating, but rather we can help solve those problems which we have these days in Germany. Thank you. .
>> I will keep this brief I would like to pass this question onto my sister who is specializing in preventing media addiction. I believe money is not the lever that we need here because there are some very rich families, not so rich families, et cetera, and it's more about how to deal with the especially children and youth. It's a behavioral question more than a taxation question.
>> MODERATOR: And if I could ‑‑ I was just going to jump in on that to say I think this goes back to the question of whether the Internet is something that should be considered, would be a sin tax, something that you protect to help societies and people. It's hard to look at the Internet as something that is harmful at large. There are a lot of benefits of it. And to tax usage of it because it is a form of addiction and can have very negative consequences kind of discounts all of the good it can do including access to information on mental illness or accessing resources to help people through that.
So I think it's about the behavior rather than the use and also I'm not German, I don't know the dynamics here but in other wealthy countries there are still people who have less money who are also Reliant on these things and will be harmed and excluded if you start taxing and applying it evenly across society you are going to leave people out even in developed nations. So I think that's another factor to consider, but Alison, I think, wanted to jump in as well.
>> ALISON GILLWALD: Depending on what the rate is it is still going to have a more negative effect than the rich. The rich can pay their way out of the sin tax.
>> MODERATOR: I also am wondering if there is anyone from the private sector here who would like to jump in and respond on any of these issues or comment. We did try to get some platforms and telecos to join without much success due to various issues, but I don't see anyone jumping in on that. So I wanted to turn back to the panel to see if we could do a round of closing arches. Obviously a lot of issues have been raised around the legitimate need for states to Levy taxes as a necessary evil or however, you would like to look at it. Obviously there is companies who are benefiting financially in dramatic ways from usage in different countries and not paying taxes on it and ironically hold the data that would allow us to know how to calculate it, and there are, these taxes are being used to stifle free expression and dissent or pushing people offline in other context. So my question in, I guess, three minutes each, is if you could provide some recommendations for policy makers on how to approach taxation issues so that keeping in mind the legitimate interest of states to collect taxes, the large profit of companies and the use of the Internet to advance human rights and development and economic development too. We can go in any order, so, please, whoever wants to jump in first.
>> Okay.
>> JULIET: Tax isn't necessarily an evil. How we go about them and how we use taxes collected is something completely different. But we need to do a whole lot more thinking around the taxes associates with the online arena, particularly in Developing Countries. The continent only has a fraction of its population online. Your question around mental health in countries like Germany is something that we are also dealing with in some of the Developing Countries, but we exclude people from that?
Do we demonize social media platforms? So, yes, a whole lot more thinking to work around that, but we also have an opportunity, much as social media platforms have quite a couple of problems as we are seeing in many of the discussions emerging at the Forum, they still present quite a bit of opportunity for a continent like ours where millions have yet to come online.
But come online with a bit more savvy than those of us who found ourselves there at the moment. So maybe media literacy, digital literacy is still required and that is something that needs to be driven at a personal level, but also at a state level. How do we utilize social media platforms for media sustainability, for media viability. Many questions around that. Should the models we use on the continent replicate those in the western world, and what does that mean for the use of platforms like WhatsApp, Facebook and the likes. So a whole lot more thinking needs to take place, and a whole lot more Government involve will, and doing asking them the hard questions and trying to bring them into some of these spaces.
There are people within some of these Governments who are, who do have an affinity and an awareness for some of the challenges that we are facing, but the push back even within Government is present. So that is something that we also have to navigate. It's something that behave tried to navigate as an organisation. How do you get more people on your side as opposed to having one individual.
We see that in the number of people who do support activities such as this. We also have a form rum even Internet freedom in Africa and you will see more interest from Government entities wanting to be a part of these conversations at an African level which is exciting. A whole lot more need to be in that space but it's good to see an interest and willingness to be asked some of the hard questions and to respond to them with truth sometimes.
Yes, so my perspective is we shouldn't be afraid of asking the state the hard questions, sand we should have a whole lot more community around the work that we do in digital rights. We are still a very small group of players. We still have a very small data pool, a whole lot more is needed in that respect to support some of the arguments that are emerging around the online arena to support the arguments around taxation.
I just think that a whole lot more needs to be done and we are just tickling the surface of many of the elements at the moment. Thank you.
>> ALISON GILLWALD: Social networking taxes are wrong. I think we need to work very hard to get those removed and we need to look at what the alternatives are for companies to raise legitimate taxations for legitimate uses. I think just at the national level what we need to do is reduce entry costs into the market, we need to create incentives to get investments into the markets and we need to get, you know, once we get more people online we get more companies operating, we will be able to get much better company taxes that can be used, you know, and we will also see indirect benefits into the economy as well. So we have direct rational taxation, taxation of productive activity in the market.
And I think increasingly, we, as more people come online, we are going to have more bigger issues around platforms and platforms are about global markets, so we can't address all tax or address problems at a national level around these global markets and it's going to require Developing Countries to, you know, they are going to be integrated into these verbal economies and so they are going to have to engage in these global Forum.
Uganda or South Africa or even the big emerging economies are not going to be able to do this, put this pressure taxes or be able to enforce taxes on these platform companies. It's going to have to happen through global collaboration, global cooperation, and it has enormous prospects for Developing Countries in terms of generating revenues.
>> So, yes, I would just kind of repeat that message and make the point that it's not a good idea to tax free things. You have to find a means of taxing them, and if your goal is to reduce gossip or the mental health impact, a flat tax on accessing like in Uganda, a flat tax per day on accessing social media will block a few people from using it, but those who have paid can use it freely for the rest of the day and in fact may use it more to get their money's worth. So it might not even meet those goals and then, of course, how are you going to tax usage. You can't tax it by the hour for people being on Facebook or messaging on WhatsApp.
I think we also owe, owe it to pay more attention to those imposing the tax, particularly for revenue reasons, and it's easy to say don't impose taxes on free things or don't go after the mobile operators, but I do think we need to provide more data to back that up. What is the price elasticity? What is the impact on GDP of lowering a tax? Are there countries that have done this and had their tax base go up with broad based taxes. What would happen with the international tax I think if it worked is easier to forecast if the revenues are spread where the money is made.
But I do think we need more data so that you could go to a revenue authority, a Minister of Finance and say this is going to take guts, but, you know, there is light at the end of the tunnel if you lower these taxes, there will be more economic activity and more revenue.
>> So I'm afraid we are just at the very beginning of this debate and there is only very few countries that have started these efforts, and I'm afraid this will happen in the coming ten years we will see vastly more countries joining these groups and attempting to meddle some way or another with social media companies in order to extract revenues and each other goals that these Governments have. So to prevent that, I think we need quick action on the field of international cooperation.
We need, and in order to be successful, so we need to solve these two main questions of how do we measure the revenues and how do we measure profit allocation between different countries, and then a tricky part also how do we get United States involved. So that will be one of the major challenges and I think we need to work together in this regard.
So in order to decrease the pressure of Governments going into consumer‑facing taxes, so I think that's definitely the way ahead, and I would also put it in the larger context of industrial policies because there is a number of countries that basically try to domesticate certain digital economies and you see the example of China, you see the example of Islamic Republic of Iran, you see a couple of other examples where it's partly an attempt to move the digital economy to a domestic base, also to generate tax revenues, but also to increase, to generate jobs, et cetera, and I believe more and more politicians would be tempted to go in such directions even though economically speaking Islamic Republic of Iran hasn't been successful in that endeavor.
But I think there will be a stronger pull if we don't find a good solution for taxing international digital economy.
>> MODERATOR: Thank you very much. I think you managed to raise some huge issues in the last minute which we would have a whole Conference on how to get the U.S. involved and on board with these issues and the conflation of guilt economy issues and social control issues is also quite large, but thank you very much for your very interesting contributions, and the lively discussion. We are almost at time, so I will just thank everyone and have a good afternoon.
(Applause).