Sh720b social media revenue is attractive but risky

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A recent research finding shows that Ugandans in general subscribe to over a dozen social media platforms—including Facebook by 34%, WhatsApp (31.9%),Twitter(12.1%)among others.

TAX

By Swaib K Nsereko

KAMPALA – Thank you President Museveni for opening up this debate. I will focus my views on the more logical rationales behind the new tariffs that ‘reduce effects of capital flight and improve our nation’s Tax-to-GDP ratio —from,’ as you stated, 14%, to near or equal the African average of 18% and the European 30%.

Mr President, I contend that our biggest challenge has, over the years continued to be the failure to learn from the erroneous priorities we make.

ITC industry very porous

In lieu of these tariffs, we risk to factor the estimated sh720b revenue into the national budget frameworks of at least three fiscal years—2018/19, ‘019/020 and ‘020/’021.

But we can’t claim clear-headedness and then go ahead to peg our economy on a potentially and globally porous industry that the information technology communication (ITC) is, given our limited global control over it.

It rapidly changes shape at a pace we may not yet have the competence to match. This is not to undervalue our technologists. But its certain they are not privy as to when the three identified platforms—Facebook, WhatsApp and Twitter will cease to be popular.

A recent research finding shows that Ugandans in general subscribe to over a dozen social media platforms—including Facebook by (34%), WhatsApp (31.9%), Twitter (12.1%), Instagram (5%), Google+, LinkedIn and Skype are each at 3.5%.

Other popular but previously less used social networking engines include Messenger, YouTube, Flickr, imp, Viber, Imo and website by blogging.

Virtually, all of them offer similar real time functions—of text, image, video and audio. What if other social media sites leapfrog in terms of popularity one or all the three of those identified for taxing next year?

It’s easy to say the law will immediately be reviewed by parliament—the same way it is to be, hardly a month after implementation in regards to mobile money tax.

And then before long a new app could be developed or an existing one upgraded to enable socializing with only the necessity of accessing internet.  

You remember Mr President that even though Mr Mark Zuckerberg had already launched Facebook (FB) by February 2004, you couldn’t, in 2006 use it to reach your campaign messages to the millions of voters.

You used SMS—short messaging services that ruled the terrain then. Only five years later in 2011, the same audience had migrated to other platforms.

SMS had ceded ground to FB. But even before then, in 2010 WhatsApp had emerged and posed a serious threat to FB—thanks to Zuckerberg’s quick reaction to save the situation.

By early 2014, Zuckerberg had successfully negotiated a majority purchase of WhatsApp from its founders in 2009, Jan Koum and Brian Acton to contain the threat.

This is the industry where we want to anticipate an improvement to our Tax-GDP ratio. Little wonder of all the 193 nations in the United Nations system, its only us!

Despite the estimated sh170b sounding attractive, Mr president, the policy is ill-conceived and as a priority it poses serious risks to upset our economic planning processes.

 Another debate

The Ugandan experience provides a good case study to the on-going discourse in emerging economies: public infrastructure development or social sector investment, which one should take the priority?

For over ten fiscal years, we have prioritised public infrastructure (transport, works and energy), despite the Maputo (2003) and Abuja (2001) Declarations that respectively advise for 10% and 15% investments in agriculture and food science as well as healthcare.

The improved national roads and national power grid are evidently positive even though oil and gas are uncertain when exactly to hit the market.

However, due to longer timescales, poor project selection (priority) and execution as well as absorptive capacity challenges, maximum gains from these investments are not being realised.

The fear of high risk debt-to-GDP Ratio

We are currently distressed by the value of the public debt-to-GDP ratio at 38.6% (compared to 19.2% in 2009).

Although this rate is the medium debt-distress risk countries and is still sustainable, the 12% debt servicing it takes off our budgetary allocations bears a significant impact. This debt level is majorly on account of the character of our often questionable economic priorities.

It partly explains our present attempts in sourcing for additional consumer taxes. Or else, taking more debts risks to be unmanageable, leading to seeking international debt relief that carries dire consequences.

By default, there arguments that we have a wealthy amount of forex inside the country because we import goods worth $7bn.

The fact is that we are also rechanneling huge borrowed funds in accessing construction materials for roads and dams offshore.

The need for radical shifts

From the infrastructure approach we now have better highways like Kampala-Masaka.

In the process of obtaining it, however, we let a beverages factory, Creps dilapidate. With it, went its corporate tax, and the pay as you earn tax from its former employees as also did the domestic aggregate demand from pineapple out growers in the greater Masaka region.

This would be the case for over a decade years and looks certainly to continue for another decade because the remaining workload for roads is over 70%.

On the other hand, if we had identified early shifts to equally balance the vote allocations for infrastructure and social sector, tens of Creps (agro-processing factories) across the country would not stop at increasing potential tax payers, they would also expand dollar receipts in addition to those of coffee, cotton and copper.

Public contributions make more sense  

There is a marked difference between tax obligations and individual contributions. The former is mandatory and the later by choice.

In the short term, if need be in order to reduce internal and external borrowing, Uganda can go the Burundi model where citizens are being mobilised to contribute 100% for the 2020 scheduled national elections.

As it is, the target set by Bujumbura is due to be realised by next financial year. Motivated by a sense of nationalism, this would be an activity for Ugandans to proudly participate in through social media for as long as the technical mechanism to coordinate it remains in place as a temporary measure.          

 Way Forward

In the 2018/19 budget framework, therefore, its pertinent that we consider expanding to 10% the investment in the agricultural sector with a view of reviving dilapidated agro-processing industries, provision of mechanized farm implements, fertilisers and cold storage facilities.

We can then be sure of eventually making 70% of our population economically purposeful and self-assured to sustainably expand the ratio of Tax: Gross Domestic Product as well as narrow the debt-to-GDP ratio.

The writer is a lecturer in Mass Communication Department, Islamic University in Uganda/National Coordinator Moral Reform Movement (MRM)

 

 

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