Written by Philip Deweyi
Uganda’s leaders are failing their country. This failure is caused by a cavalier government attitude about the needs of its citizens and is symptomatic of a country steadily veering off the principles of a democratic state.
In his book Public Opinion, American philosopher Walter Lippmann categorises a democratic society into the “bewildered herd” and the “specialised class”. This categorisation is pertinent to today’s argument. According to Lippmann, the masses function as the “bewildered herd”. In policymaking, the ‘common interests’ elude them as they are self-centred, and incapable of accurately understanding the complexities of governance. Policymaking, then, can only be managed by a “specialised class”, an elite class with the intellectual capacity to manufacture ideas “whose personal interests reach beyond the locality”.
If he were alive today, Mr Lippmann would surely be confused by the Ugandan case; who is the real bewildered herd?
The proposal of the Excise Duty (Amendment) Bill 2018 is a reflection of this. It is detrimental to the common interest in numerous ways, and makes apparent the inefficiency of the guards in accurately evaluating the needs of its masses. We will be looking at one particularly controversial part of the bill, that introduced a levy of 200 shillings ($0.05) per day for access to a range of online services, including Facebook, Twitter, WhatsApp, Google Hangouts, YouTube, Skype, and Yahoo Messenger.
Dissecting the Bill
According to the government, the newly introduced tax is necessary for domestic revenue mobilization. Over the past five years, the domestic debt has grown to Shs 12.5 trillion, with interest payments alone being the largest part of the country’s budget. Further, the ratio of tax revenues to the Gross Domestic Product (GDP) is very low; It is 14% to a miniscule GDP of $27 billion. In contrast, for countries like Sweden, the revenue collected from taxes forms 43-45% of its $539 billion GDP. Before moving forward, it is important to consider the reasons for Uganda’s low tax base.
First, the informal sector is a major hindrance to domestic revenue mobilization. According to the Uganda National Household Survey 2016, “during the period 2012/13 and 2016/17, the proportion of the population living in poverty increased from 19.7% percent to 27% percent which translates into about 10 million people.” The government wants to become a middle income country by 2020, yet as of 2017, Uganda’s GDP per capita was at $699; it will require a leap to $1,000 for it to achieve its agenda.
With limited employment options and the unemployment rate among the number of people below the age of 30 at 64%, a large proportion of the Ugandan population does not have any other alternative than to join the informal sector. It is this very informal sector that then becomes a threat to tax collection, as it is entirely unregulated.
Second, the country is administered by poor tax policies. It takes just one example to understand thus; a whopping 75% of imports are exempt from tax! Further, as per the 2016 income tax amendment bill, members of parliament are exempt from paying any income tax. Policies such as these, are only scratching the surface of the poor planning that has become an everyday part of Uganda’s economy. The new bill is just another in a line of poor decisions, which negatively affects the populace.
The Effects are Obvious!
It is an economic truism that more is the disposable income of the citizens, the more likely they are to consume. An increase in their consumption stimulates business growth. When the citizens spend more, the tax base of the country grows. For when businesses produce more to meet the growing demand, they pay more taxes to the government because of an increase in their income. However, taxing the use of online services reduces the disposable incomes of citizens. This reduces their consumption, which impedes the growth of businesses, and, in turn, the growth of the entire economy.
Taxing the use of online services also limits entrepreneurial spirits, especially among the youth that form a huge proportion of the population. According to the Global Entrepreneurship Monitor, Uganda was the most entrepreneurial country from 2014-2016. One of the major drivers for this was an accessible channel of distribution. Many entrepreneurs interact with their customers — both global and domestic — through online platforms. This tax can limit this interaction.
As previously discussed, it was because of limited employment options in a poverty-stricken country that a large proportion of the Ugandan population joined the unregulated informal sector, which was a threat to government’s revenue collection. Numerous companies use platforms such as Whatsapp, Facebook and LinkedIn to advertise jobs. If access to these platforms is restricted through the imposition of a tax, the employment rate in the country is unlikely to change for better, thus leaving no choice for its citizens but to continue to join the informal sector.
Where Do We Go From Here?
It is apparent that the low tax base of the Ugandan government is detrimental to the economic growth of the country. However, in view of the effects of the newly passed bill, taxing the use of online platforms is hardly the solution. The disposable income of the citizens should not be further reduced, and there ought to be better strategies.
The tax base has to be broadened, by simultaneously undertaking measures to increase productivity and reduce hindrances to the entrepreneurial spirit. Online channels of distribution should remain free, and any hurdles to the same should be omitted. By doing so, the government will create more incentives and employment options to facilitate a transfer of people from the informal to the formal economic sector. The bill, by limiting the use of online platforms, is inimical to this interest.
Quite simply, Uganda’s legislative crisis can be resolved if the guards begin to accurately evaluate the common interests of its citizens, and move beyond their personal interests. With bills such as this that stifle spirit, the guards are just holding the economy and future economic actors back. The policy makers need to take a step back, make the most out of internet based activities, and not suffocate them. With bills such as this, Uganda’s quest for economic growth and development will remain nothing but a dream.
Featured image courtesy Uganda Journalists’ Resource Centre