Uganda is among the several countries in the world that in the recent past has not been affected by taxes on subscription services like Netflix, Spotify, Apple Music, Amazon, Meta (Facebook), etc due to new domestic taxes. In order to maximize tax, and thanks to global data sharing– the tax man is enhancing the power of technology to start collecting VAT from non-resident service provider companies operating in Uganda. It should be recalled that access to Facebook is limited and is only accessible via VPN.
ALSO READ: Snapchat Plus will be the premium paid subscription option for Snapchatters
The introduction of digital taxes was muted way back in 2020 by Uganda Revenue Authority when it officially notified these companies (non-residents) who supply electronic services mainly online and the people that consume them (non-taxable persons in Uganda) basing themselves on section 16 of the VAT Act.
This digital tax is an indirect one unlike OTT and is charged on earnings by the affected companies. However, the effect of this is that these companies will intern pass on the tax to the end-users in terms of increments in subscription fees. This means your future Apple Music or Netflix subscription will likely increase.
The new taxes start effective July 1, 2022, and will focus on all electronic service providers. URA commissioner general John Musinguzi said that the lengthy discussions with these companies have delayed the collection of this tax, but they agreed and have been finalized, then other levies will follow as time goes on.
We have no idea of the actual price hike expected on these digital services by the Uganda Revenue Authority (URA) and how they will be enforced in case of non-compliance, Musinguzi says the authority has finalized all the digital infrastructure required to collect this tax effectively.
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.
