Uganda imposes 5% tax on Facebook, Netflix and other foreign digital companies

Uganda’s parliament, on Tuesday, approved the imposition of a 5% levy on the revenues earned by foreign digital companies. Henceforth, companies like Facebook (Meta), Twitter, Amazon, and Netflix will have to pay taxes for every revenue generated in the country. Failure to do so attracts severe punitive measures.

In March, Uganda’s Minister of Finance Planning and Economic Development, Hon. Matia Kasaija proposed the Tax Amendment Bills, 2023 before Parliament for debate, with several amendments propositions. One proposition tabled is the imposition of a levy on foreign digital companies’ income.

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This bill is not far-fetched to many, after the recent developments instituted by East African countries to explore the fast-moving and developing digital economy to enhance internally-generated revenue crucial to settling age-long public debt. In a Twitter post, the Ugandan parliament said that lawmakers had approved a new tax law, “The Income Tax (Amendment) Bill, 2023,” containing the new levy.

The bill, as expected, has attracted commentaries, criticisms, and opposition from opposition lawmakers, right advocates, and critics who heavily warned that it could warrant severe implications; one of which is charging Ugandans for services initially made free by some of these social media firms.

They have argued the levy is a means to limit access to social media and stifle free speech for a government hostile to such platforms. President Yoweri Museveni, in power since 1986, has criticized social media, saying it was mostly used for rumor-mongering.

However, parliament said it “was not a social media tax and would not affect an ordinary Ugandan in any way.”

The new law “will also tax non-resident providers of digital services in Uganda such as Facebook, Twitter, Amazon, Netflix,” the parliament said.

However, Nigeria, Zimbabwe, Tunisia, Tanzania, Sierra Leone, and Kenya are some African countries that have imposed some form of taxes on digital services provided by non-resident companies. Uganda is the latest to this join this cohort.

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The proposed bill for nonresident digital companies in Uganda

The bill proposes to impose a final income tax on every nonresident person deriving income from the provision of digital services to a customer in Uganda at the rate of 5%. According to the bill, a nonresident person derives income from providing services to a customer in Uganda if the digital service is delivered over the Internet, an electronic network, or an online platform.

The bill defines digital services as including:

1. Online advertising services
2. Data services
3. Services delivered through an online marketplace or intermediation platform, including an accommodation online marketplace, a vehicle-hire online marketplace, and any other transport online marketplace
4. Digital content services, including accessing and downloading of digital content
5. Online gaming services
6. Cloud computing services
7. Dataware housing
8. Other services delivered through a social media platform or an internet search engine
9. Any other digital services as the Minister of Finance may prescribe by a statutory instrument made under the Income Tax Act Cap 34

The Uganda government will have to assess the implication of this in the long term. But taking a cue from the other African countries that have imposed taxes on the income of foreign digital companies, there has been a notable improvement in the internally generated revenue. Ugandans with a problem with this imposition have come down from their high horses to understand how this could salvage the country from its massive debt.