New Digital Tax Law: Gov’t to Collect Shs5b from Foreign-Owned Digital Companies like Facebook, Twitter, and Netflix

New Digital Tax Law: Gov’t to Collect Shs5b from Foreign-Owned Digital Companies like Facebook, Twitter, and Netflix

The Ugandan government has brought back its plan to impose a 5 percent tax on foreign-owned companies providing digital services in the country, defending the proposal with great fervor. This initiative, outlined in Clause 16 of the Income Tax (Amendment) Bill, 2023, resurfaced last Thursday after President Museveni returned the Bill, demanding that Parliament reconsider its previous rejection of the same proposal. Among the targeted companies subject to this tax are Facebook, Twitter, Google, Netflix, and Amazon, along with other platforms offering paid services in Uganda.

During submissions made before the committee by the State Minister for Finance in charge of General Duties, Mr. Henry Musasizi, legislators were informed that the Uganda Revenue Authority (URA), the government’s tax collection agency, aims to collect Shs5 billion from these foreign-owned digital companies.

“I recommend that you approve Clause 16 of the Income Tax Amendment Bill, 2023, to enable the imposition of a tax on income derived by non-resident individuals from the provision of digital services in Uganda,” Minister Musasizi requested of the MPs on the Finance committee.

He further explained, “We propose that 5 percent of the income earned by these companies in Uganda should be allocated as taxes. This tax is distinct from those levied on resident companies, and it is not a reintroduction of the Over the Top Tax [OTT] that was terminated by the government in 2021.”

The reintroduction of the 5 percent tax proposal came about after President Museveni, in a letter read to Parliament by Speaker Anita Among last Thursday, demanded that the proposal be reconsidered. Consequently, Speaker Among directed the Finance committee to expedite the reprocessing of the legislation and have it returned to the entire House for approval. This legislation forms part of a set of tax laws designed to define and guide the URA on the collection of taxes in the financial year 2023/2024, which began this month.

Earlier this year, during the processing of the Bill in Parliament, the opposition led by the shadow Minister for Finance, Mr. Muwanga Kivumbi, presented a minority report opposing the provision. This report was supported by Kampala Central MP, Mr. Muhammad Nsereko.

The opposition argued that if passed, the provision would have a trickle-down effect on Ugandan consumers and users of the services offered by these digital companies. Parliament eventually adopted the opposition’s position, thereby defeating the government’s side. However, the proposal has now returned to Parliament for reconsideration.

While the majority of lawmakers on the Finance committee have pledged their support for the resolution, government officials, including those from the Ministry of Finance, have been tasked with explaining how they will defend it during the final reconsideration in Parliament.

“As a committee, we did our part by supporting the minister, but he failed to defend these issues on the parliamentary floor. I don’t know what he is going to do now because we are going to make the same recommendations,” expressed Kabula County MP, Mr. Enos Asimwe. He further inquired, “What will you do about the minority team that opposed your position? You are presenting the same issues to us again.”