Align tax on non-resident companies to match other EAC states, PwC tells govt 

PwC says Kenya and Tanzania charge 1.5 and 2 percent on digital services compared to Uganda’s 5 percent. Photo / File 

What you need to know:

  • PwC says the 5 percent levy on digital services will make Uganda less attractive to digital investment compared to Kenya and Tanzania whose rates are lower

PricewaterhouseCoopers (PwC) has asked government to align levies under Digital Services Tax to match those of other East African member states, failure of which the tax will make Uganda a less attractive investment destination for digital service companies.

Parliament last week passed a raft of tax measures, among which included the Digital Services Tax, which will apply to companies that are not resident in Uganda but earn an income from their operations in the country.  

The levy will apply to services such as web hosting, software and streaming, online advertising, online gaming and gambling, music and movie streaming, remote programmes and equipment maintenance.

Others are subscription-based media, electronic data management, online data warehousing, file sharing, cloud storage and supply of search-engine and automated help-desk services.

In an analysis authored by PwC tax experts, among them Ms Pamela Natamba, Mr Richard Marshall, Ms Plaxeda Namirimu, Ms Crystal Kabajwara, Mr Trevor Lukanga, Ms Juliet Najjinda and Ms Doreen Mugisha, it was noted that tax on non-resident companies providing digital services needs to be within rates that are charged by other East African member states.   

PwC indicated that the 5 percent rate was too high compared to Kenya and Uganda, which puts Uganda at a disadvantage in terms of attracting investment in digital services. 

“We are of the view that the [tax of 5 percent] is high in comparison with the regional rates. For example, in Kenya the rate is 1.5 percent and 2 percent for Tanzania,” the analysis reads in part, noting that for Uganda to remain attractive as a destination for digital services, government must consider a rate that is within the range of other East Africa partner states. 

The analysis also wonders whether Digital Services Tax will be accounted for by the non-resident directly, or via withholding tax by the resident person making the payment.

“There is need to refine the amendments to address this ambiguity. It’s not clear whether a digital service provider that already has a branch or a permanent establishment in Uganda will also be required to pay the Digital Services Tax,” the analysis reads. 

However, in September last year, URA had indicated that non-resident companies with virtual operations in Uganda such as social media, streaming sites and internet giants had until October 30, 2022 to be VAT compliant or in the alternative appoint agents for the same.   

URA also said that the introduction of tax on non-resident digital services, apart from widening the tax base, sought to level the playing ground for local and foreign service providers, indicating that the tax would generate an extra Shs5b in tax revenue this financial year. 

However, it is not clear how much URA will be seeking to collect after the amendments.    

The amendments are expected to take effect on July 1.