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Gov’t Backtracks, Drops 5% Tax Levy On Digital Companies

The Ministry of Finance, Planning and Economic Development has backed off plans to impose tax on non-resident digital service providers, and instead asked for more time to conduct a study on its impact on Uganda’s economy.

In April 2023, the Ministry of Finance tabled seven tax bills intended to raise revenue to finance the 2023/2024 national budget among which included the Income Tax Amendment Bill 2023, where a proposal to impose a 5% Withholding Tax on digital services targeting tech giants including Amazon, Facebook and Google.

Although many of the stakeholders that appeared before Parliament’s Finance Committee raised concern on how the tax would be imposed, Government argued that URA has administrative tax measures similar to this on VAT for multinational companies in as far as collecting of the proposed tax is, thus allaying the fears advanced by some stakeholders interacted with that the tax will be transferred to the residents benefiting from supplies of such services.

While presenting the report for Parliament’s Finance Committee, Keefa Kiwanuka, the Chairperson expressed reservations on the implementation of the digital tax arguing that given the fact that the targeted digital companies have no physical presence in Uganda, Government has no jurisdiction making the implementation of the tax hard, but the same tax was agreed by other tax bodies in the East African region.

Muhammad Nsereko (Kampala Central) however rejected the proposal asking to have the rate lowered to 2% of the gross income the digital companies are earning from Uganda until Government carries out a study on how the tax will impact Ugandans.

“The moment you increase tax on those non-resident digital players, they just pass it on, when you pass it on, you automatically limit me. Let us do a further study on this tax, let us see its impact on its people,” said Nsereko.

When the proposal came up for consideration, Nsereko informed Parliament that the two warring sides had agreed to suspend the tax until a study on its impact is conducted, stating, “We have agreed to delete and carry out a study on this provision and come back next year with a proper study.”

Taking to the floor to concede on behalf of Government, Attorney General, Kiwanuka Kiryowa, said, “I am persuaded by the submission of Nsereko, that the definition of the law as provided here may extend past the limit of where we would like this law to go. And because of this ambiguity, on what services we intend to tax, we are proposing that this be dropped and at the appropriate time after some study we bring it back.”

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