Gov’t Proposes 5% Digital Tax on Facebook, Twitter & Netflix

The Minister of State for Finance (General Duties) Henry Musasizi has defended the proposal to impose a 5% tax on the gross income digital companies make in Uganda saying the move is intended to ensure all companies and individuals deriving income from Uganda pay their share of tax.

This was during a meeting held between officials from the Ministry of Finance and Parliament’s Finance Committee where they had appeared to defend the proposals in the seven tax bills intended to raise revenue to finance the 2023/2024 national budget.

Government has proposed in the Income Tax Amendment Bill 2023 by inserting a new clause in section 86A of principal Act and impose a tax on non-residents providing digital services with the proposal reading, ‘A tax is imposed on every non-resident person deriving income from providing digital services in Uganda to a customer in Uganda at the rate of 5%.’

According to details in The Income Tax Amendment Bill 2023, digital companies eligible of paying this tax included those companies whose income is derived from providing a digital service in Uganda to a customer in Uganda, if the digital service is delivered over the internet, electronic network or an online platform.

While introducing the Income Tax Amendment Bill 2023, Tracy Akello, Rulings and Interpretations Business Policy at Uganda Revenue Authority (URA) revealed the digital companies that the tax is targeting and said the income won’t be paid by Ugandans but rather non-resident digital companies that are deriving income from Uganda where they will be required to pay 5% of their gross income to Government.

“We intend to tax the likes of Amazon, Netflix, Twitter, Facebook, as long as they are sourcing income from Uganda. If they have a customer using that online platform to sell or deal in any product in Uganda, we intend to tax 5% of their gross sales in our country,” said Akello.

Asked by Karim Masaba (Mbale Industrial Division) on how this tax will be implemented, Akello said this is a charging system that will require the digital companies to account for the income sourced in Uganda.

Basil Bataringaya (Kashari North) wondered if the digital tax will be borne by Ugandans using these digital taxes asking, “Since it is a new digital tax on non-resident companies, I wanted a clarification on whether those companies can pass on those taxes onto our people.”

Akello replied, “No, because our residents file and account for their returns on the income they earned. This income is being earned by non-resident companies not by Ugandans. It isn’t their income, they can’t account for it.”

According to the Income Tax Amendment Bill 2023, the digital companies eligible for this tax include those offering online advertising services, data services, services delivered through an online market place or intermediation platform, including an accommodation online market place, a vehicle hire online market place and any other transport online market place.

The other companies eligible for this tax include; digital content services, including accessing and downloading of digital content, online gaming services, cloud computing services and data ware housing.

It should be recalled that in May 2018, Parliament approved a daily Shs200 levy on social media sites, with Government arguing that the tax measure would bring in Shs284Bn. However, Government later rescinded on this move over poor compliance from users, prompting Government to impose the levy on internet.

President Museveni has on many occasions not hidden his disdain for social media platforms, while defending the need to tax the platforms so as to curb on gossip in the public while at the same time raising revenue for Government.

However, human rights activists have rejected this argument by the President and instead argued that it’s aimed at curtailing the rights of Ugandans to freedom of speech and expression.

The tax bills being considered include; Excise Duty Amendment Bill, 2023, Traffic and Road Safety Amendment Bill 2023, Tax Procedures Code Amendment Bill 2023, Income Tax Amendment Bill 2023, Automatic Exchange of Information Bill 2023, Value Added Tax Amendment Bill 2023 and Lotteries and Gaming Bill 2023.

This article first appeared on Business Focus Uganda

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