Do internet services deserve a sin tax?

Event report

[Read more session reports and updates from the 14th Internet Governance Forum]

The session, moderated by Ms Deborah Brown (Global Policy Advocacy Lead, Association for Progressive Communication (APC)), centred around policies that impose levies on Internet service providers and other Internet services; and their consequences for digital inclusion, human rights, and socio-economic development. While the reasons and motivations differ (political issues, revenue base, ‘gossip’), the taxation of popular Internet services is becoming a prevalent trend in many countries/regions and this poses global implications.

Mr Alison Gillwald (Executive Director, Research ICT Africa and Adjunct Professor, University of Cape Town) provided background regarding the introduction of ‘social networks taxes,’ noting that in developing countries and the least developed countries, sometimes mobile network operations taxes are the only significant tax collected. First introduced in Uganda, other countries in Africa followed suit, though in the case of Benin, civil society fought back and the tax was removed. In Tanzania, a US$900 blogger’s licence was introduced, aimed at managing political dissent at the then new administration. In the case of Uganda, Ms Juliet Nanfuka (Communication Strategist, Collaboration on International ICT Policy for East and Southern Africa (CIPESA)) explained that a 0.5% reduction was made to the tax, although the Over the Top (OTT) service tax remains unchanged.

Consequences of taxation in Africa were also addressed by Mr Michael Kende (Senior Advisor at Analysys Mason and Senior Advisor, World Bank) when sharing findings from a published paper. Five countries, including Zambia, Cameroon, Benin, and Uganda were studied. He highlighted that Internet cost was already low in Uganda, yet a US$0.005 tax was introduced to access social media services daily. This increased the cost to 7.8% of average income, yet people were using social media for businesses, classified ads, and job searches.

Gillwald explained issues of taxation in terms of the political economy of the countries, the challenges they face, the context of global platforms and the inability of governments to tax large platforms that are generating revenues in countries. The effects of social networking on taxes is highly retrogressive and what may appear a very small 0.5% tax daily on networks and platforms is an enormous part of a person’s income. The irony, as explained by Kende, is that government offices were also using social media accounts for their offices.

Mr Franz von Weizsaeker (Head, Tech and Innovation Lab, German Agency for International Cooperation (GIZ)) argued that countries need taxation to generate revenue. He spoke about forms of taxation with the least collateral damage, an issue that GIZ focussed on because governments struggle to raise necessary revenues, since multilateral corporations are shifting their profits abroad.

In discussion with the audience, Gillwald, Nanfuka, and Kende highlighted the use of Virtual Private Network (VPN) applications, and a consequent decline of 15% in data use and 30% in revenues, which raises the question of the purpose of the tax. They stated that users are double-taxed and this pushes more people offline, hence reducing revenues for mobile operators, who collect taxes on behalf of users.

On the question about taxing global companies, Weizsaecker highlighted the difficulty of taxing companies that do not have a physical presence, hence the need for international cooperation. He gave the example of the Organisation for Economic Cooperation and Development (OECD) and the G20-led initiative, Base Erosion and Profit Shifting (BEPS), which consists of 134 members and is building an inclusive framework to collaborate on dealing with issues of tax avoidance for digital services without physical office presence in countries.

Women, persons with disabilities, and young people were affected by the tax in Uganda, yet social media was an entry point for many people for Internet use. According to Nanfuka, the generation of content relevant to communities and useful in promoting a culture of inclusion is missing. She also talked about the need for national identity cards for refugees to access financial services through mobile money and sim cards.

In an era where countries are talking about digital visions and transformation, conclusions and recommendations were made that centred on engagement with governments, alternative taxation options, alternative solutions to providing Internet access, and a global fund to promote access to Wi-Fi.

By Sarah Kiden