Following the earlier contributions to this blog series, which provided an overview of the six GNI-Internews fellows’ research projects, in this collection, fellows document their work over the last few months.
This post was originally published on Medium
Tax justification depends on who you are taking from, how much you are taking from them, what you are going to use the money for, and how well you use the money. In all these levels, the government ought to address human rights. Early this year, the Kenya ICT Action Network (KICTANet) started a project on understanding digital taxation in Kenya as part of the Global Network Initiative (GNI) and Internews Fellowship Program. The program included research that focused on how Internet access taxes affect human rights.
Internet and Human Rights
The current debates on Internet and human rights stem from how the internet enables economic, political and social activities. We rely on the internet for most our daily activities, such that to have limited connectivity means remaining behind in multiple aspects of our lives: social networking platforms are used by politicians and leaders for community governance, citizens rely on messaging platforms such as Whatsapp for news, and the government has fully shifted services such as passport and driving license applications to the e government service platform. Poor access to the internet therefore impacts the right to expression, right to Information, economic and political participation, and right to access government services.
The methodology of the research project included desk research to highlight existing literature on the topic and a stakeholder engagement workshop to provide feedback on the initial findings, which we later incorporated. The engagement workshop had 40 people in attendance, with representatives from the University of Nairobi Department of Fiscal Studies, Strathmore University, The Communications Authority, Internet service providers, and civil society groups.
Digital Service Act
The workshop touched on the types of digital tax applied in the digital economy, and highlighted the process of developing the 2020 digital taxation policy. Participants were concerned that the additional VAT and digital services tax would hamper the growth of e commerce. Unemployed and self-taught youth in the ICT sector have turned to the digital services industry as a way of reducing business operational costs. Taxing e commerce at their nascent stages will discourage them from business.
The 2020 Finance Act introduces a digital service tax as withholding tax, to be applied to both residents and non-residents. It is highly likely that financial institutions such as banks and entities facilitating payments service providers will be appointed as digital tax agents. These additional tax costs will be transferred to consumers, eventually affecting the affordability of digital products. These taxes will be applicable to download products, streaming services such as Netflix, and software services.
Internet Access Tax
While there are different kinds of taxes that affect overall internet affordability, direct Internet Access tax is administered through mobile airtime and broadband purchase, currently at 15% as excise duty. Excise duty is popular with most governments because they are easy to administer. When enforcing a tax policy, the government looks at the easiest way to collect the taxes and the easiest person to collect the taxes from. Since digital platforms provide spaces where citizens converge most of the time, they have become the new alternatives for raising revenue. These taxes are applied to Internet Service Providers, but they normally pass them tax down to the consumers.
According to the Alliance of Affordable Internet, Kenya ranked 36th out of 61 countries on Internet affordability in 2019. Currently, Internet access in Kenya stands at 22%. A UNESCO report assessing Internet Development in Kenya further shows that much of this connectivity and usage is concentrated in the urban and middle-income earning households. This inequality of access has become more evident since the outbreak of the Coronavirus Pandemic. For instance, the closure of learning institutions has seen some learners unable to continue with studies, while others have the option of continuing with their education uninterrupted online. Among those able to continue learning online, some have to stay up late night to utilize cheaper off-peak Internet bundles. Unfortunately, all learners will be graded using the same exams, without consideration of internet access circumstances, adversely affecting the determination of who will proceed to the next level of education.
One of the main findings of the research is that internet taxation can worsen affordability gaps and barriers to access. Internet tax directly leads to an upsurge of the overall price of the Internet. For example, a 5% increase in 2017 led to 500 shillings ($5 USD) increase of 5mbps home fiber. Interestingly however, a reduction of tax does not lead to an equivalent price reduction: as the government introduced a 2% tax waiver for Internet access tax, the price for 5mbps home fiber only went down by 50 shillings ($0.50 USD). This is similar across all providers. Meaning, the private sector also takes advantage of new tax policies to surge their prices.
Kenya is not the only country in Africa eyeing Internet access tax to increase revenue. Uganda and Zimbabwe introduced social media taxes, nominally, to curb gossip and to raise revenue, and even amid the pandemic, Liberia plans to implement a mobile tax that includes a surcharge in both voice and data services.
It is not a surprise that governments will turn to the mobile and Internet service providers for more revenue. In most African states, telecommunications companies are the biggest tax payers. Safaricom’s profit in 2019 was 71 billion KSh, a quarter of Kenya’s government revenue. In addition, the sector has proven to be the most resilient during the Covid-19 pandemic. In fact, it is one of the very few sectors that has had economic success during this period. According to the Communications Authority Q2 Report, Internet subscriptions rose by 5.1% during the period between June-September. Among those who pushed the surge in Internet demand are learners who switched to online curricula, and businesses that have also turned to Internet platforms for video conferencing and general operations. It is therefore expected that the government will rely more on the sector for economic recovery post Covid-19.
Need for More Engagement from Civil Society
The report also notes that considerations for SME’s and end users did not make their way to the final policy because of lack of participation from the civil society and small entrepreneurs. There is limited coordination especially among civil society and the public, largely because of lack of capacity. Robert Mwanyumba, tax justice expert at Oxfam, opined that governments tend to listen more to organized groups, especially youth and women groups, than individuals. The current policy actors’ network is not coordinated; there is no joint approach or coordination on tech policy issues. It is important to have more concerted efforts. The private sector tends to be more organized, and therefore most of the time the opinions of big enterprises carry the day. For example, professional bodies representing big corporations like the Kenya Private Sector Alliance (KEPSA) speak in one voice. However, this also leaves SMEs with challenges of complying with newly set policies while at the same time trying to keep their establishments afloat.
This project formed the beginning of stakeholder engagement and advocacy on digital taxation and human rights. KICTANet will be conducting another analysis on the implication of digital taxes and human rights, with engagements to highlight issues and build capacity of civil society organizations on the subject.