Tax changes: What are they and their impact?

The URA Commissioner General, Mr John Musinguzi, before the parliamentary Finance Committee on April 13, 2023. PHOTO | DAVID LUBOWA

What you need to know:

  • Seven tax bills are being processed for enactment for the next Financial Year effective July 1. In this explainer, Arthur Arnold Wadero unpicks the layers and potential impact of the tax regime being proposed.

How does the government plan to tax digital platforms?
The government plans to levy a five percent digital service tax on all non-resident entities offering services or goods in Uganda. 
Ms Tracy Akello, the Rulings and Interpretations Business Policy officer at the Uganda Revenue Authority, said the taxman “intends to tax the likes of Amazon, Netflix, Twitter, [and] Facebook as long as they are sourcing income from Uganda.” 
She further revealed that if these companies which are neither registered or have a physical presence in Uganda “have a customer using that online platform to sell or deal in any product in Uganda, we intend to tax five percent of their gross sales in our country.”
Companies like Amazon, Google and Twitter have since last June paid Valued Added Tax to the Ugandan government. And Mr Ausi Kibowa, an economist at the Initiative for Social and Economic Rights (ISER), says their compliance owes to the fact that their reputation will be damaged if they “appear to be dodging taxes.”
Since it is difficult to ascertain for sure the profit the digital behemoths carve out of Uganda, Mr Kibowa says the tax is not going to be levied on their profits but on their sales.” 
So a VAT charge will push up a $10 Netflix subscription to $11.8. 
The online services that the government wants consumers to pay VAT for if the Value Added Tax (VAT) Amendment, 2023, is greenlit include music, films and games, self-education packages, web hosting, among others.
What is the government’s track record with taxes on digital services?
It is ropey. In May 2018, its proposal to levy a daily Shs200 tax levy on social media was approved by Parliament. The government had hoped to reap at least Shs284 billion. 
Poor compliance from the citizenry who turned to virtual private networks or VPNs returned a poor scorecard. The so-called social media tax was eventually scrapped. A stealth internet levy was instead pressed on internet costs.
Why does the taxman struggle to raise tax?
In a couple of words, poor compliance. ISER’s Leveraging Progressive Taxation to Fund Public Services report released last year showed that, for instance, ”only 21 of the top 60 lawyers in the country paid any personal income tax in 2013-14.” 
It also found that “only five percent of company directors did so; and only one of the 71 high-level government officials, who owned considerable assets, had ever paid personal income tax.”
The odds are therefore stacked against the taxman, which told the House committee that it plans to collect at least Shs29.3 trillion from revenue. A poor track record also doesn’t help matters. Mr John Musinguzi, the URA commissioner general, told Parliament last week that the taxman only managed to collect Shs17.5 trillion having set themselves a target of collecting Shs25 trillion by the close of the current financial year.
So what are the remedies, if any, then?
URA has since revealed that it will ensure that all persons whose agricultural businesses register an annual turnover of Shs150 million to acquire Tax Identification Number (TIN). Many Ugandans are involved in agriculture in some shape, manner or style.
The alternative sources for government now include levying a 30 percent tax on every total amount won by someone who stakes a win in sports betting as noted in the Lotteries and Gaming Amendment Bill, 2023.
Similarly, a tough penalty is also floated and fronted through the Roads and Safety Amendment Bill, 2023. 
In this, the government wants all persons found liable for speeding to pay a fine of Shs2m or face a three-year-long jail term or even both.
“The purpose of the regulations is to provide for the speed to be reinstated in the Traffic and Road Safety Act so that the traffic and road safety express penalty scheme regulations, 2013 apply in case of violation of speed limits instead of limiting the enforcement to court prosecution only,” said Mr Henry Musasizi, the junior Finance minister.