Research ICT Solutions IMPACT OF UGANDA S ICT TAXES

Research ICT Solutions IMPACT OF UGANDA S ICT TAXES

EXPECTED IMPACT OF THE SOCIAL MEDIA (SM) TAX Social Media Tax: = less data consumption = less MNO revenues = less VAT = less custom excise = less corporate tax Study aims: To put a number to the net tax effect Estimate impact on GDP growth and job creation Side effects: Wider mobile money use (to pay taxes) Increase in consumer VPN skills

DATA AND MOBILE MONEY REVENUES KEY FOR MTN S PERFORMANCE Total Revenue in R(m) 2,051 2,416 2,624 2,665 2,540 2,608 2,804 2,661 2,506 2,687 2H17 1H17 2H16 1H16 2H15 1H15 2H14 1H14 2H13 1H13 351 519 649 Data + Digital revenue in R(m) 792 844 655 663 878 848 970 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17

IMPACT OF SOCIAL MEDIA AND MOBILE MONEY TAX Data use mobile money transactions Without Tax With Tax Mobile broadband and mobile money are still going to grow after the initial shock, but from a lower base and potentially also at a lower rate

IMPACT OF EXCISE TAX ON VOICE AND SMS TRAFFIC - EXAMPLE GUINEA Total voice traffic (millions of minutes) SMS traffic (millions of SMSs) Intro of tax on voice Intro of tax on SMS Q3 2016 Q2 2016 Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Source: IMF, 2017

INTERNET AND SOCIAL MEDIA ARE SYNONYMS

RIA S NATIONAL SURVEYS: SHARE OF SOCIAL MEDIA USERS AMONG INTERNET USERS SHOW THAT MOST INTERNET USERS USE SOCIAL MEDIA 99 97 93 93 90 78 66 Figures for Uganda will be released in August -survey is still ongoing Rwanda South Africa Tanzania Nigeria Kenya Ghana Mozambique Source: Research ICT Africa 2017/8 After Access Survey https://researchictafrica.net/2018/07/23/impetuous-policies-increasing-digitaldivide-in-uganda-social-media-tax/

SOCIAL MEDIA TAX OF UGX 6000 PER MONTHS AS SHARE OF AVERAGE INCOME BY SUB REGION Kampala Central I Kigezi Central II Ankole Bunyoro Tooro Lango West Nile Teso Elgon Busoga Karamoja Acholi 2.4% 4.5% 5.7% 5.8% 5.8% 6% 6.6% 8.3% 9.2% 10.3% 11.1% 13.2% 14.2% 19.6% Bukedi 22.6%

MONTHLY SOCIAL MEDIA TAX AS & OF AVERAGE INDIVIDUAL INCOME Average HH income in UGX Average HH size Average Individual income SM tax as share of Individual income Kampala 938,000 3.7 253,514 2.4% Central I 569,000 4.3 132,326 4.5% Central II 463,000 4.5 102,889 5.8% Busoga 222,000 4.9 45,306 13.2% Bukedi 141,000 5.3 26,604 22.6% Elgon 260,000 4.8 54,167 11.1% Teso 357,000 6.1 58,525 10.3% Karamoja 220,000 5.2 42,308 14.2% Lango 370,000 5.1 72,549 8.3% Acholi 168,000 5.5 30,545 19.6% West Nile 294,000 4.5 65,333 9.2% Bunyoro 468,000 4.7 99,574 6.0% Tooro 436,000 4.8 90,833 6.6% Ankole 489,000 4.7 104,043 5.8% Kigezi 476,000 4.5 105,778 5.7% 2016/17 Uganda National Household Survey (UNHS)

IMPACT OF SOCIAL MEDIA TAX ON PREPAID DATA PRICES

MTN - PREPAID DATA PRODUCTS Bundled Data MB Validity Once off Price SM tax for validity Cost incl. SM tax Price increase 25 30 1,500 6,000 7,500 400% 300 30 5,500 6,000 11,500 109% Monthly Weekly Daily 600 30 10,000 6,000 16,000 60% 2,000 30 20,000 6,000 26,000 30% 10,000 30 50,000 6,000 56,000 12% 30,000 30 100,000 6,000 106,000 6% 500 7 5,000 1,400 6,400 28% 1,500 7 10,000 1,400 11,400 14% 5,000 7 20,000 1,400 21,400 7% 15 1 250 200 450 80% 40 1 500 200 700 40% 100 1 1,000 200 1,200 20% 300 1 2,000 200 2,200 10% 1,000 1 5,000 200 5,200 4% WTF 1 250 200 450 80% Social bundle SWIFT 1 500 200 700 40% SWIFT 7 2,500 1,400 3,900 56% SWIFT 30 5,000 6,000 11,000 120% Average 62%

AIRTEL - PREPAID DATA PRODUCTS Bundled Data MB Validity Once off Price SM tax for validity Cost incl. SM tax Price increase 25 30 1,500 6,000 7,500 400% 300 30 5,000 6,000 11,000 120% 1,250 30 15,000 6,000 21,000 40% 1,000 30 10,000 6,000 16,000 60% 1,750 30 20,000 6,000 26,000 30% 5,000 30 30,000 6,000 36,000 20% Monthly 12,000 30 50,000 6,000 56,000 12% 7,000 30 60,000 6,000 66,000 10% 25,000 30 90,000 6,000 96,000 7% 15,000 30 105,000 6,000 111,000 6% 20,000 30 75,000 6,000 81,000 8% 35,000 30 225,000 6,000 231,000 3% 51,000 30 150,000 6,000 156,000 4% 100,000 30 550,000 6,000 556,000 1% 100 7 2,000 1,400 3,400 70% 350 7 3,500 1,400 4,900 40% Weekly 850 7 10,000 1,400 11,400 14% 5000 7 20,000 1,400 21,400 7% 1000 7 7,000 1,400 8,400 20% 3000 7 15,000 1,400 16,400 9% 3 days 400 3 3,000 600 3,600 20% 1000 3 5,000 600 5,600 12% 10 1 250 200 450 80% Daily 40 1 500 200 700 40% 100 1 1,000 200 1,200 20% 300 1 2,000 200 2,200 10% Average 41%

AFRICELL - PREPAID DATA PRODUCTS Bundled Data MB Validity Once off Price SM tax for validity Cost incl. SM tax Price increase 25 30 1,450 6,000 7,450 414% 100 30 4,400 6,000 10,400 136% 125 30 4,900 6,000 10,900 122% 250 30 9,750 6,000 15,750 62% 350 30 13,500 6,000 19,500 44% 500 30 19,500 6,000 25,500 31% 1,000 30 34,500 6,000 40,500 17% 1,500 30 44,500 6,000 50,500 13% Monthly 2,000 30 49,500 6,000 55,500 12% 3,000 30 59,500 6,000 65,500 10% 3,500 30 75,000 6,000 81,000 8% 5,000 30 89,000 6,000 95,000 7% 7,000 30 104,000 6,000 110,000 6% 10,000 30 124,850 6,000 130,850 5% 40,000 30 315,000 6,000 321,000 2% 100,000 30 480,000 6,000 486,000 1% 80,000 30 430,000 6,000 436,000 1% 50 7 1,750 1,400 3,150 80% Weekly 80 7 2,500 1,400 3,900 56% 200 7 5,500 1,400 6,900 25% 800 7 21,900 1,400 23,300 6% 20 1 250 200 450 80% 50 1 500 200 700 40% 120 1 1,000 200 1,200 20% 320 1 2,000 200 2,200 10% Daily 600 1 3,200 200 3,400 6% 900 1 4,500 200 4,700 4% 1,200 1 5,000 200 5,200 4% 1,500 1 6,500 200 6,700 3% 2,000 1 8,500 200 8,700 2% 3,000 1 12,000 200 12,200 2% Average 40%

UTL - PREPAID DATA PRODUCTS Bundled Data MB Validity Once off Price SM tax for validity Cost incl. SM tax Price increase 500 30 14,500 6,000 20,500 41% 1,000 30 28,000 6,000 34,000 21% Monthly 3,000 30 65,000 6,000 71,000 9% 5,000 30 100,000 6,000 106,000 6% 10,000 30 115,000 6,000 121,000 5% Weekly 100 7 2,000 1,400 3,400 70% Daily 50 1 600 200 800 33% 100 1 1,000 200 1,200 20% Average 26%

ASSUMING DATA IS USED EVERY DAY FOR SOCIAL MEDIA Prepaid data increase across all prepaid data products due to SM tax 62% 40% 41% 23% MTN Airtel Africell UT Number of products 18 26 31 8 MTN Airtel Africell UT

SOCIAL MEDIA TAX DISCRIMINATES LOW USAGE DATA BUNDLES - I.E. THE POOR MTN Airtel Africell UT Price increase through SM tax 500% 375% 250% 125% 0% 0 1250 2500 3750 5000 Monthly data in MB for data bundles below 5GB

IMPACT OF SOCIAL MEDIA TAX ON OECD BASKETS

CHEAPEST PRODUCT FOR 1GB PREPAID PER MONTH 5.9 5.8 5.6 5.2 SM tax impact 4.0 3.5 3.5 3.6 3.6 3.8 3.7 3.6 2.8 2.8 2.8 4.3 0.3 2018_Q2 2018_Q1 2017_Q4 2017_Q3 2017_Q2 2017_Q1 2016_Q4 2016_Q3 2016_Q2 2016_Q1 2015_Q4 2015_Q3 2015_Q2 2015_Q1 2014_Q4 2014_Q3 2014_Q2 Uganda was briefly the cheapest in Africa with offer from Smart with product Twemal Egogga Offering 100 MB daily for a month for a once off payment of UGX 1,000

CHEAPEST PRODUCT FOR 1GB PREPAID PER MONTH SM tax impact Ranked 10th cheapest without SM tax 17 8 9 10 7 7 9 2 2 3 5 2 1 2 3 4 1 2018_Q2 2018_Q1 2017_Q4 2017_Q3 2017_Q2 2017_Q1 2016_Q4 2016_Q3 2016_Q2 2016_Q1 2015_Q4 2015_Q3 2015_Q2 2015_Q1 2014_Q4 2014_Q3 2014_Q2 Uganda was briefly the cheapest in Africa with offer from Smart with product Twemal Egogga Offering 100 MB daily for a month for a once off payment of UGX 1,000

CHEAPEST PRICES FOR PREPAID MOBILE BROADBAND FOR Q2 2018 Monthly prepaid data without SM tax Price in USD with SM tax Price increase in % Ranking in Africa without SM tax with SM tax 100 MB 0.67 2.27 240.1% 10 17 500 MB 1.60 3.20 100.0% 10 17 1 GB 2.67 4.27 60.0% 10 17 2 GB 3.99 5.59 40.1% 10 17 5 GB 6.39 7.99 25.0% 10 17 10 GB 7.99 9.59 20.0% 10 17 20 GB 22.86 24.46 7.0% 10 16 Average 70.3% SM tax adds UGX 6,000 per month to the bill, assuming every day SM use.

IMPACT OF MOBILE MONEY TAX

COST RELATIVE TO TRANSACTION AMOUNT AMOUNT MTN without tax MTN with tax Airtel without tax Airtel with tax 500 2501 5001 55.2% 72.9% 51.6% 65.7% 232.0% 232.3% 500 2501 5001 57.6% 75.3% 54.0% 68.1% 266.0% 266.3% 15001 30001 18.4% 24.3% 11.7% 15.8% 15001 30001 20.5% 26.4% 13.4% 17.4% 45001 8.5% 11.8% 45001 9.6% 12.9% 60001 125001 8.7% 12.0% 6.8% 9.7% 60001 125001 10.5% 13.8% 9.6% 12.5% 250001 5.7% 8.5% 250001 7.2% 10.0% 500001 1000001 5.0% 7.5% 4.2% 6.2% 500001 1000001 6.7% 9.2% 6.0% 8.0% 3.6% 2000001 5.4% 2.6% 4000001 3.9% 5.3% 2000001 7.1% 3.0% 4000001 4.2% Cash to cash transaction to unregistered user

AVERAGE COST RELATIVE TO TRANSACTION AMOUNT Without Tax With Tax 40.9% 31.9% 36.6% 36.1% MTN Airtel Cash to cash transaction to unregistered user

AVERAGE COST RELATIVE TO TRANSACTION AMOUNT MTN Airtel 14.9% 13.2% Price increase across all transaction amounts due to mobile money tax

CONCLUSION Social Media tax lets Uganda slips from 10th to 17th rank in terms of prepaid data prices Across OECD data baskets the SM tax results in a 70% price increase on average Across operator products the SM tax results in 23-62% price increase on average Mobile money tax results in a 13-15% price increase for cash to cash transactions to unregistered users.

NEXT STEPS Expand price analysis Estimating price elasticities Calculating net tax effect Estimate impact on GDP growth and job creation

Research ICT Solutions DR. CHTOPH STORK PARTNER, PHD, ECONOMICS www.researchictsolutions.com +27 84 999 000 2 christoph@researchictsolutions.com STEVE ESSELAAR PARTNER, MBA www.researchictsolutions.com +1 778 865 5695 steve@researchictsolutions.com