Uganda – President Museveni and the politics of quick-fix taxation

At the end of May, Uganda’s Parliament passed the equivalent of a political bombshell. The Excise Duty Amendment Act (2018), to which the President quickly assented, introduced a range of new tax measures, including a one percent duty on mobile money transactions and a daily Ush200 ($0.05) “Over the Top” tax on the use of social media. The popular reaction to these new measures was swift. It started with an explosion of online criticism—on Uganda’s vibrant social media, no less—before taking physical form in the streets.

The vehemence of this response, and the government’s subsequent scramble to “clarify” its position, begs the question, why did President Museveni back such a predictably controversial tax reform? And how do we account for the influence—as well as the apparent limitations—of the subsequent pushback?

The political benefits of balancing the books… by taxing the poor

Uganda has an urgent need to generate more revenue. It lags its East African neighbours, collecting taxes equivalent to only 14 of GDP relative to Kenya’s 18 percent and Rwanda’s 16. At the same time, expenditure continues to outstrip revenue generation, driving the government to borrow more. Although sustainable for now, Uganda’s debts are rapidly accumulating while its interest rate payments to local and external creditors are expected to exceed 12 percent of the total budget this financial year.

The social media and mobile money taxes have the advantage of being relatively easy to administer, and government initially estimated that they would generate revenue worth Ush284bn ($75.9m) and Us115bn ($30.7m) respectively over the coming year, contributing to a budget pegged at Shs32.7tr ($8.7bn). President Museveni has also repeatedly derided social media, declaring that the new taxes could help reduce “gossip”.

Yet aside these benefits, real or imagined, the two new taxes come with clear downsides. First, government critics stress that these taxes are sharply regressive, hitting the poor hardest. The tax on social media use specifically has the further potential to limit access to information. Meanwhile, the tax on mobile money will likely reduce financial inclusion. It is recorded that 23.6m Ugandans use mobile money services—sending and receiving money via their phones—and that 61 percent of these transactions are below Ush45,000 ($12). There is also the very real risk that the mobile money tax will prove self-defeating, reducing the volume of transactions and harming growth—not to mention exacerbating existing inequalities.

There are notable alternatives to the two controversial taxes, which the Ugandan Government could consider. For instance, in its most recent “Uganda Economic Update”, the World Bank details a range of options for raising domestic revenues, recommending in particular a reduction in tax exemptions, estimated to equal between 4.5 and 5 percent of GDP in 2016/17. These exemptions are generally awarded to larger businesses and foreign investors, further accentuating the overall regressive nature of Uganda’s tax regime.

Another related concern is the nature of government expenditure. Excessive spending—notably on Defence, the Office of the President and other non-developmental areas—adds to the overall strain on the budget, and thus to the need for additional revenue. It has not helped that the controversy over the new tax measures coincided with Museveni’s promise that individual MPs will be guarded by military snipers and provided with escort cars to ensure their security. If implemented, this plan would quickly cancel out any contribution the social media and mobile money taxes could make towards balancing the budget.

So why is it that the government insists on widely unpopular, regressive taxes instead of ensuring a more efficient and equitable tax regime? The official justification for exemptions—one that until recently the IFIs themselves endorsed—is that they encourage investment, which then bolsters growth. But analysts of Uganda’s political economy have long stressed the additional, political imperative prompting Museveni’s government to adopt a more discretionary tax policy. Indeed, exemptions are a form of political favour granted to leading economic actors, who then reciprocate through their political loyalty and financial backing of the regime. Similarly, excessive spending on certain, seemingly non-priority sectors is another way for President Museveni to distribute patronage, including to ensure the support of ruling party MPs.

Even with these seemingly skewed political incentives, though, Museveni does have to worry about the broader legitimacy of his government. And following the widespread condemnation of the recent tax reforms, the President blinked. His response suggests the potential influence—but also the limitations—of popular pressure on government decision-making.

The popular backlash, and its significance

Opposition to the social media and mobile money taxes has united a broad coalition, if one most visible around Kampala. Activists, journalists, politicians, comedians, musicians and other social media users took to Twitter with a variety of hastags: #ThisTaxMustGo, #Mobilemoneytax, #SocialMediaTax. This helped kindle the debate surrounding the new measures, which played out across Uganda’s print and broadcast media. It also helped mobilise support for a march through Kampala, called by the fast-rising musician-turned-opposition leader, Bobi Wine. But while a widely known broadcast journalist linked arms with Bobi Wine to protest, the demonstration also drew in large crowds of market vendors and motorcycle taxi drivers, who faced off against armed riot police.

Following the protest, and with a court case pending and an online petition quickly gaining signatures, Museveni changed his tune. Seemingly making up policy on the hoof, he claimed that the one percent tax rate on mobile money “came up by mistake” and that he “signed the law with the error because we could not delay the other measures.” While Museveni refused to change the social media tax nor to scrap the tax on mobile money, he did indicate that the latter would be reduced from one to 0.5 percent.

The government went on to table an amended Excise Duty Bill on 19 July, less than two months after the first was enacted. Activists have vowed to push for further concessions as the legislation moves through parliament. Meanwhile, the Leader of the Opposition, Winnie Kiiza, called for more popular protest against the disputed taxes, noting that without this outside pressure the parliamentary opposition alone was helpless.

Popular protest is not the only factor underlying the government’s partial climb-down. It appears the Cabinet was divided about the mobile money tax rate to begin with, and that government initially underestimated the revenue they could generate through the tax. Yet it is striking that Museveni only mentioned the 0.5 percent rate after the Kampala protests, and with the prospect of further protests looming. This timing, when considered alongside the government’s contradictory and rapidly evolving official position, leaves little doubt that popular protest has prompted the concessions to date, whatever the government may claim to the contrary.

It remains to be seen, though, whether activists can successfully pressure parliament to further amend the new Excise Duty Bill. For that, they will have to win over a large portion of ruling party MPs of whom only a handful have come out openly against the controversial taxes. That said, MPs have also been loath to voice their support for the measures, preferring instead quietly to vote in favour or else de facto to abstain through their absence from the House. Speaker Kadaga, meanwhile, entrusted her Deputy to oversee the vote when the Excise Duty Bill was first passed in May. She tends to delegate in this way when there is controversial and generally unsavoury business to handle.

Although the NRM parliamentary caucus continues to back the President, it may still be possible for popular pressure to open up divisions within the ruling party and, by leveraging those divisions, to win further concessions through parliament. This has happened in the past, notably regarding controversies over health and education spending as well as previous unpopular tax proposals. Such a positive outcome may seem unlikely in this instance, but the previous successes—however partial—show that there is still space to push for more progressive outcomes, even in the context of Museveni’s increasingly authoritarian regime.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.