The Ugandan government has reintroduced and staunchly defended its plan to impose a 5% tax on foreign-owned companies providing digital services in the country.
The proposal, included in Clause 16 of the Income Tax (Amendment) Bill, 2023, resurfaced after President Museveni returned the Bill, insisting that Parliament reconsider its initial rejection of the tax.
The government aims to collect the tax from prominent companies such as Facebook, Twitter, Google, Netflix, and Amazon, which offer paid services in Uganda.
During a committee session, the State Minister for Finance in charge of General Duties, Mr. Henry Musasizi, informed legislators that the Uganda Revenue Authority (URA) expects to generate 5 billion Ugandan shillings from these foreign-owned digital companies.
Minister Musasizi urged the Finance committee members to approve Clause 16 of the Income Tax Amendment Bill, explaining that the 5% tax would be levied on the income derived from the provision of digital services in Uganda by non-resident individuals.
He clarified that this tax was distinct from other taxes imposed on resident companies and emphasized that it was not a reintroduction of the Over the Top Tax (OTT), which was terminated in 2021.
President Museveni’s letter to Parliament requested the reinstatement of Clause 16, noting that the tax aimed to cover the digital economy and companies like Twitter, Amazon, and Netflix.
The letter clarified that the tax did not pertain to residents of Uganda, as mistakenly stated in the minority report, and should therefore be reintroduced.
Consequently, Speaker Anita Among directed the Finance committee to expedite the re-processing of the legislation and present it to the entire House for approval.
This legislation is part of a series of tax laws intended to define and guide the Uganda Revenue Authority (URA) in collecting taxes during the 2023/2024 financial year.
While the majority of lawmakers on the Finance committee have pledged support for the resolution, government officials, including representatives from the Ministry of Finance, were tasked with elaborating on their defense of the tax during its final reconsideration in Parliament.
Some members of the committee expressed concerns and questioned how the government planned to address the opposition’s objections.
The opposition had previously raised concerns that the tax would indirectly affect Ugandan consumers of digital services. Despite the opposition’s initial success in defeating the government’s position, the tax proposal has returned to Parliament for reconsideration.
The government has been striving to expand the tax base and increase revenue to finance its programs. However, the Uganda Revenue Authority (URA) disclosed last month that approximately 5.8 million potential taxpayers remain untapped, despite ongoing efforts by the government.