Uganda Imposes a 5% Tax on Facebook, Netflix, Google, Others

Uganda has recently introduced a new tax on foreign digital service providers like Facebook and Netflix. The country's parliament made amendments to the Income Tax Act, imposing a tax on companies that report losses for more than seven years.

Under the new law, 50% of the losses carried forward will now be subject to taxation. During a recent parliamentary session on July 11, 2023, Members of Parliament decided to extend the period from five to seven years before applying the tax on carried forward losses.

The amendment, added as section 38(5) (a) of the Income Tax Act, aims to prevent businesses from using losses to avoid paying taxes.

The Chairperson of the Committee on Finance, Hon. Amos Kankunda, explained that the amendment was necessary to address the issue of tax avoidance.

He stated that the intention was not to harm genuine businesses operating at a loss, as the law allows for a 100% carry forward of losses for the first seven years, followed by a 50% deduction thereafter. Additionally, the Income Tax Act provides other deductions and capital deductions for businesses.

However, not all Members of Parliament supported the amendment. Hon. Nathan Nandala Mafabi expressed concerns that the new tax could lead to the closure of businesses.

He suggested that instead of imposing a tax, the Uganda Revenue Authority (URA) should focus on strengthening tax audits to identify and target tax evaders.

The amendment also includes provisions to tax non-resident digital service providers. The aim is to tax the income derived by these providers, even if the services are offered online.

The Minister of State for Finance (General Duties), Hon. Henry Musasizi, defended the levy, emphasizing that the focus is on taxing the income generated from these services.

In addition to the digital service tax, the parliament granted a tax waiver for another year to the Bujagali Hydropower Project. The project's tax status will be reviewed during an audit and contract renegotiation, as directed by parliament.

The reprocessing of the Income Tax Act followed its return by President Yoweri Museveni last month, indicating the importance placed on ensuring effective taxation in the country.