- A number of the proposals in the Bills are aimed at broadening the tax base by bringing income that was previously untaxed or exempt into the scope.
- The Uganda Revenue Authority (URA) before Parliament’s Committee on Finance, the government expects to collect US$7.72 billion (UGX29 trillion) from domestic tax revenue in the next financial year 2023/2024 (FY20233/24) from both existing and new tax policy measures.
- The Income Tax (Amendment) Bill 2023 is now proposing to introduce a separate direct tax in the form of a digital services tax (DST) on Facebook, Netflix, Zoom and other digital platform.
Uganda has released the Tax (Amendment) Bill for the financial year 2023/2024. These proposals have been tabled before Parliament, and if passed into law, they will take effect on July 1. As a business owner or investor in Uganda, it’s essential to understand what these tax proposals mean for your business.
A number of the proposals in the Bills are aimed at broadening the tax base by bringing income that was previously untaxed or exempt into scope. This is a strategy that many governments use to increase tax revenue without necessarily increasing tax rates. In addition, the proposals aim to provide clarity in the taxation of certain tax provisions that had ambiguity as well as introducing administrative measures to encourage and enhance tax compliance.
According to the Ministerial Policy Statement made by the Uganda Revenue Authority (URA) before Parliament’s Committee on Finance, the government expects to collect $7.72 billion (UGX29 trillion) from domestic tax revenue in the next financial year 2023/2024 from both existing and new tax policy measures. This is an increase from the $5.799 billion (UGX21.8 trillion) in the financial year 2021/2022.
New digital services tax
One of the proposed tax measures is a new digital services tax (DST) for non-resident companies in Uganda. The government implemented administrative measures last year to begin collecting Value Added Tax (VAT) on digital services provided by non-residents to private individuals who are not registered for VAT in Uganda. As a result, companies such as Facebook, Zoom, and Netflix began charging VAT on digital services provided in Uganda on July 1, 2022. However, because VAT is a consumption tax, the tax is currently borne by Ugandan users of such digital services.
The Income Tax (Amendment) Bill, 2023 is now proposing to introduce a separate direct tax in the form of a digital services tax (DST) on such services. This will be charged on the gross revenue that non-resident digital service providers make in Uganda at a rate of 5 percent. Other countries in the region, including Kenya and Tanzania, levy a similar tax on digital services, albeit at lower rates of 1.5 percent and 2 percent, respectively. A rate of 5 percent is likely to discourage such companies from investing in Uganda and should be reconsidered by the government.
Forward tax losses
Another proposed measure is a restriction on carrying forward tax losses. Currently, companies in Uganda are permitted to deduct all expenses incurred in the course of doing business when calculating the corporation tax payable on an annual basis. Further, if the company has previously assessed tax losses from previous years, the previously assessed tax losses will be deducted from the current financial year of income until they are fully utilized by the company/taxpayer.
The proposed measure will restrict the number of tax losses that a company can carry forward to 50 percent of the assessable income in any given year. This measure will affect companies that have been making losses over a prolonged period and are expecting to use the accumulated losses to reduce future tax liabilities.
The East African region has seen a rise in the use of indirect taxes due to their ease of collection and broad coverage. Hungary, despite being viewed as a low-tax jurisdiction with a corporate tax rate of 8 percent, imposes the highest value-added tax (VAT) rate at 27 percent.
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The digital sector, which is rapidly growing, has become a major revenue source for East African countries through indirect taxes. Among the countries in the region, Kenya has one of the highest taxes on internet access. In 2021, the Finance Act increased the excise tax on the Internet from 15 percent to 20 percent.
In Tanzania, the excise tax on the internet is 17 percent, and when combined with the 18 percent VAT, Tanzanians pay 35 percent of their internet payment to the Tanzania Revenue Authority (TRA).
Uganda introduced a 12 percent excise tax on the internet this year after abolishing the Over the Top Tax. This means that Ugandans now pay a total of 30 percent taxes on the internet, including the 18 percent VAT on internet access.
Despite Kenya having the highest taxes on internet access in East Africa, it has been leading in internet usage, according to research by Statista. This could be attributed to the rapid growth of e-commerce and social media usage in Kenya compared to Uganda and Tanzania.
