Uganda has recently ventured into the digital tax territory, joining a growing list of African countries like Nigeria, Sierra Leone, Kenya, Zimbabwe, Tunisia, and Tanzania, that are imposing taxes on non-resident digital service providers.
Last week, the East African country passed a new tax law that levies a 5% tax on these foreign digital services providers' local income, no matter where they operate online.
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What does this mean?
This means that companies like Twitter, Netflix, Uber, Google or any foreign-owned company offering data services, online gaming, logistics, digital content access, or data warehousing, are caught in the spotlight.
The idea is to tap into the fast-expanding digital economy and boost revenue to tackle the country's mounting public debt. But as the spotlight falls on these foreign tech companies, critics fear that these firms might retaliate by charging Ugandans for services that are currently free.
Are there any implications for local consumers?
And while the parliament claims it won't affect ordinary citizens, the case of Nigeria raises concerns. In Nigeria, a similar tax of 6% led companies like Google and Facebook to respond with a 7.5% VAT on each ad placement for Nigeria-based advertisers. The impact was felt by SMEs, voicing their frustration over the administration of taxation negatively affecting their businesses and profits.
As the digital tax saga continues to blaze across the heart of Africa, will this move be a revenue booster or a burden on consumers and businesses alike? Only time will tell.
Other changes include a 50% tax on businesses that report losses for more than seven years. This was made to deter companies from using losses to reduce their tax obligations.