The falling out over Uganda’s recently introduced social media tax could intensify after Facebook warned it will hold back infrastructure investments worth millions of dollars it was planning in the country.
Kojo Boakye, Africa public policy manager at Facebook, said they have informed the Uganda Communications Commission that they will be taking their investments elsewhere.
Mr Boakye said the model on which they based their investment plan in Uganda will be affected by the tax.
A study by Research ICT Solutions found that Ugandans spend a monthly average of Ush9,000 ($2.40) on voice calls, messaging and the Internet.
The introduction of a monthly tax of Ush6,000 ($1.6) on the most widely used Internet option is likely to hurt players in the digital services business.
This business, experts say, was not doing so well, and the decision to reduce the number of people on social media will further hurt digital services.
Ron Kawamara, managing director of Jumia Uganda, said that although the economy was reported to have grown, they have seen subdued behaviour among consumers.
While he did not provide any numbers to back this assertion, the budget for the fiscal year 2018/19 shows that household expenditure has declined slightly over the past five years.
According to the background to the budget, household expenditure declined from Ush328,200 ($88) in the financial year 2012/13 to Ush325,800 ($87) five years later (2017/18).
With the low household expenditure, the 3,000 independent vendors, 1,010 hotels and 2,000 restaurants registered on Jumia Uganda have not been doing well.
Jumia, formerly known as Africa Internet Group, is a system of online commerce, marketplaces and classifieds websites and applications created in 2012.
Founded in Lagos, Nigeria in 2012, and known especially for its food delivery business, Jumia has a presence in at least 23 countries in Africa.
The tax will affect them as some people could abandon social media, Mr Kawamara said.
“A lot of businesses and our customers have been using social media, as their virtual address,” he added.
In the past, businesses had to have a physical address with a plot and post office box number to be found by customers. The alternative was to locate in markets where customers were guaranteed to find what they wanted.
The Internet has changed this, as people can purchase almost anything online without leaving the comfort of their office or home.
Delivery also requires widespread mapping and addresses. But Uganda, like many African countries has not got around to doing this mapping, so Mr Kawamara said businesses use both voice and social media for trade and deliveries. This process has been made expensive by the tax.
Facebook announced its first investment in Uganda in 2017. The social networking site planned to partner with Airtel Uganda and Bandwidth and Cloud Services to extend the 770km fibre backhaul network to northern Uganda.
Extending Internet beyond Kampala is one of the reasons that Uganda has given for introducing the tax.
According to David Bahati, Minister of State for Planning, the government needs over Ush200 billion ($536.3 million) to extend Internet access to rural areas.
Mr Bahati argued that since the government had previously borrowed to invest in affordable Internet, it was time Ugandans contributed to this effort through the tax.