The government through the Uganda Revenue Authority (URA) is set to introduce a digital tax on subscription-based video and audio content providers to big companies like Google, Netflix, Microsoft, Apple, Spotify, to mention but a few.
URA has officially notified these companies (non-residents) who supply electronic services mainly online and the people that consume them (non-taxable person in Uganda) basing themselves on section 16 of the VAT Act.
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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.
Ugandans currently have to pay 6% withholding tax for all out of country services, such as Google, hosting, etc. URA keeps that money since no one files a return. Looks like now they want to enforce VAT as a digital tax to this issue and penalize these digital service providers if they do not file the VAT return. But will the likes of Netflix, Google, Apple or Microsoft, rush here and file these VAT returns? And how will URA fine them?
Apparently, these companies are expected to register for VAT and file a tax return under section 16 of the Tax Procedure code Act and account for VAT on the transactions supplied in Uganda in the form provided by the commissioner. This form is available on the URA website. If these companies fail to account for VAT for the digital tax, it will attract punitive measures and interest provided for under section 65 of the VAT Act which states;
A person who fails to lodge a return within the required time under this Act is liable to pay a penal tax amounting to whichever is the greater of the following.
- Two hundred thousand shillings (UGX 200,000); or
- An interest charge for the period the return is outstanding calculated according to the formula specified in the Fifth Schedule i.e the rate of interest chargeable as a penalty shall be 2 percent per month, compounded.
Digital tax will affect the following electronic services
i. Websites, web-hosting or remote maintenance of programs and equipment. Which means that if you own a website in Uganda that is maintained remotely by a company in the USA of Europe this digital tax will affect you.
ii. Buying new software or updating any subscription based software
iii. Images, texts and information and this includes advertising.
iv. Access to databases.
v. Self-education packages
vi. Music, films and games including games of chance (betting)
vii. Finally political, cultural, artist, sporting, and other broadcasts and events including online television.
URA expects all companies that supply the above services on online to appoint a tax representative for purposes of affecting the new digital tax and has not given any official date when this digital tax will officially take effect.
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