Due to new domestic taxes, Uganda is one of many nations in the globe that has not recently been impacted by taxes on subscription services like Netflix, Spotify, Apple Music, Amazon, Meta (Facebook), etc. The taxman is boosting the capacity of technology to start collecting VAT from non-resident service provider companies operating in Uganda in order to maximize tax and thanks to global data exchange. Recall that Facebook can only be accessed using a VPN and that access is restricted.
The Uganda Revenue Authority officially notified these companies (non-residents) that supply electronic services, primarily online, and the consumers of those services (non-taxable persons in Uganda), basing themselves on section 16 of the VAT Act, in 2020, delaying the introduction of digital taxes.
Unlike OTT, this digital tax is indirect and is levied on the profits of the impacted businesses. The result of this is that these businesses will eventually pass the tax along to the end consumers in the form of increases in subscription costs. This implies that your Netflix or Apple Music subscription will probably go up in the future.
All providers of electronic services will be subject to the new levies, which go into effect on July 1, 2022. According to URA Commissioner General John Musinguzi, the lengthy negotiations with these businesses delayed the collection of this tax, but now that they have consented and the agreement has been concluded, more taxes will follow over time.
We don’t know the exact price increases that the Uganda Revenue Authority (URA) anticipates for these digital services, nor do we know how they will be enforced in the event of non-compliance. However, according to Musinguzi, the authority has completed all of the digital infrastructure needed to efficiently collect this tax.
Under section 16 (2) of the VAT Act, a non-resident person who supplies electronic services to a non-taxable person in Uganda makes a taxable supply. Such a supplier is therefore required to charge VAT on the supply, file quarterly returns, and pay VAT due on supply within fifteen days from the end of each quarter.
The tax will also affect web hosting software companies, and those supplying images, text and information, self-education packages, music films including gambling, and other broadcasts and events, as well as those on remote maintenance of programs and equipment. The government expects to collect an extra 2 trillion shillings and digital services will contribute to this increase. “We are left with only one option, we must efficiently collect revenues from within the country, and we must mobilize more stakeholders to join us within this effort,” Musinguzi said.
Digital taxes in other African countries
Zimbabwe and Nigeria are the latest African countries to lay out plans for the collection of taxes from e-commerce and digital companies such as Netflix, Google, YouTube, and Amazon. Countries like Kenya levy 1.50% on gross transaction value while Nigeria is proposed a 6% tax on turnover
Kenya’s revenue service has a notice on its website of a Digital Service Tax (DST) that “is payable on income derived or accrued in Kenya from services offered through a digital marketplace” (pdf). It defines digital marketplaces as platforms “that enable direct interaction between buyers and sellers of goods and services through electronic” means.
“Digital Service Tax was introduced in the Finance Act 2020, and becomes effective from 1st January 2021 (at) a rate of 1.5% of the gross transaction value.” The tax targets resident and non-resident digital service providers.