Internet shutdown leaves businesses counting losses

The government’s decision to shut down the internet on January 13, and later on interrupt mobile money services, has cost the country billions of shillings, and hurt tax revenue collections in the process.

The government shut down Internet services in retaliation against Facebook closing the accounts of some pro-ruling party supporters. There was no credible reason for disrupting the mobile money system. The shutting down of the internet, which was lifted on January 18, was meant to disconnect the fastest and cheapest means of communication.

However, this move has left telecom companies counting billions of shillings in lost revenue from the data services (the internet) while a number of businesses that are predominantly online, such as Uber and Safe Boda, were down during the five-day blockade.

According to MTN’s annual financials for 2019, the telecom company made at Shs 687 million ($190,000) in revenue from its data services per day.

This kind of revenue was wiped away by the “Mobile data and MoMo (Mobile Money) both delivered double-digit revenue growth of 39.7 per cent and 13.9 per cent respectively. The phenomenal growth in data can be attributed to a 52.1 per cent increase in active users and a 2.2 per cent improvement in smartphone penetration to 21.4 per cent,” MTN’s group financial results note of Uganda’s performance.

There is no public information about Airtel Uganda’s financial figures as the company does not provide a country break-down. The growth of online internet services has been welcomed by the banks. A bank such as Standard Chartered has in the recent past closed a number of its branches in preference of its Straight2Bank online platform.

“Over 86 per cent of our client interactions with the bank now happen outside the branch,” Standard Chartered bank Uganda said in its 2019 financial annual report, pointing to the growth of its online platform.

With the internet system off, many of these customers struggled to transact. The shutting down of the internet also saw social media platforms go quiet. From a personal perspective, many customers have lost money due to their internet bundles running out, or even their social media tax payments expiring.

There appears to be no legal redress for this loss. On a national level, the impact of the shutdown led to the loss of revenue for government from the social media tax perspective.

The Uganda Revenue Authority does not publish the figures of the social media tax (OTT), although it says that the collection rates are below target. Also, a number of small businesses market their products using social media platforms. Many of these businesses, such as bakers of cakes, get their orders through social media platforms like Facebook and WhatsApp.

However, the shutdown of the internet is likely to have briefly spurred the tax that the URA charges on phone airtime. URA has in the past complained that many Ugandans prefer to use social medial applications to communicate, thereby hurting the tax revenue collections on phone talk time.

“Phone talk time was affected by the changes in user tastes. There is preference for data for communication through WhatsApp, Viber and Facebook as opposed to direct calls using airtime,” the URA noted in its annual revenue performance report for 2019/2020, decrying the 22.7 per cent year-on-year drop in tax revenue from phone talk time.

Uganda continues to promote the use of online services, such as banking and tax filings. Businesses are required to have filed their tax returns by the 15th of every month. With the internet shutdown, many businesses failed to beat this deadline.

There was an interruption in the mobile money system in the hours after the voting. Like in 2016, during the election period, many people in Uganda could not send and receive money through mobile money.

According to Bank of Uganda’s latest figures, at least Shs 284 billion ($76.8 million) is transacted across the mobile money platforms per day. Like the URA annual report says, the interruption meant that some utility companies might have missed out on getting revenues.

For example, supermarkets that allow mobile money payments missed out on revenues. Overall the twin effects of the shutdown of the internet and mobile money will be felt later.

Many people, in a protest to the shutdown, say they intend to stick to Virtual Private Networks – an application that bypasses the blockade government imposed around social media – even after their online lives go back to normal.

This could likely see a further drop in social media tax collections. In the end, Uganda’s investment environment has come under the spotlight as businesses eye such repressive policies that affect businesses go unchallenged.

jeff@observer.ug