Uganda’s parliament passed a new tax law on Tuesday that imposes a 5% fee on income earned within the country by foreign providers of digital communications services like Twitter and Meta’s Facebook.
The Ugandan parliament announced via Twitter that lawmakers have approved a new tax law called “The Income Tax (Amendment) Bill, 2023,” which includes the new levy.
Under this law, non-resident providers of digital services in Uganda, such as Facebook, Twitter, Amazon, and Netflix, will also be taxed.
In March, Hon. Matia Kasaija, the Minister of Finance Planning and Economic Development in Uganda, presented the Tax Amendment Bills, 2023 to Parliament for discussion. The proposed bills included various amendments, one of which suggested implementing a tax levy on the income of foreign digital companies.
The proposed legislation suggests the implementation of a 5% final income tax on individuals who are nonresidents but earn income by offering digital services to customers in Uganda. As per the bill, income derived by a nonresident person from providing services to a customer in Uganda will be considered if the digital service is transmitted via the Internet, an electronic network, or an online platform.
The government of Uganda and many other East African countries like Kenya have been seeking ways to take advantage of the rapidly growing digital economy to generate more revenue and address the increasing Public debt.
Nigeria, Zimbabwe, Tunisia, Tanzania, Sierra Leone, and Kenya are among several African countries that have implemented various taxation measures targeting digital services offered by non-resident companies.
In Kenya, the implementation of the Income Tax (Digital Service Tax), 2020 legislation mandates that all businesses engaged in online service sales must adhere to certain tax regulations. Following its enforcement on January 1, 2021, businesses are now obliged to pay a fixed tax rate of 1.5 percent on the total value of services provided through digital platforms. Furthermore, they are also subject to the standard Value Added Tax (VAT) of 16 percent.
Kenya Revenue Authority estimated that the revenue generated from digital service providers, including prominent US tech giants such as Google, Netflix, Meta, Twitter, and Microsoft, was projected to exceed Kenyan shillings 300 million by June this year.
However, the proposed implementation of a 5% in Uganda has raised concerns among some groups. Critics, including opposition lawmakers and human rights advocates, have warned that it could lead social media companies to find ways to charge Ugandans for services that are currently free.
They argue that this tax is a means to restrict access to social media and suppress freedom of speech, as the government has shown hostility towards such platforms.
Nevertheless, the parliament has stated that this tax is not a social media tax and will not have any impact on the average Ugandan.
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