MPs Rethink Bill That Would Tax Digital Services By 5%

A 5% withholding tax on digital enterprises was also advised by Musasizi's team, it would bring in Sh5 billion for the government.


The parliamentary finance committee is now reviewing a bill that would tax non-residents who receive income from digital services in Uganda by 5% of that income.

The Income Tax Amendment Bill, 2023, and the Tax Procedures Code Amendment Act, 2023, were both recommitted to Parliament for review last month by President Yoweri Museveni.

The committee met with Henry Musasizi, the state minister of finance in charge of general duties, on Tuesday July 4, to discuss their suggestions for instituting a 50% cap on the deduction of carryover tax losses, which would be allowed after five years of reporting tax losses continuously.

A 5% withholding tax on digital enterprises was also advised by Musasizi’s team, which claimed that it would bring in Sh5 billion for the government.

“Taxes should be kept at the 5% that they digital enterprises earn here in Uganda. The Over the Top Tax, which the government ended in 2021, is not being reinstated, and it differs from other taxes we impose on resident companies, Musasizi told the committee led by Amos Kakunda.

Due to his objections to the current clause permitting businesses to carry forward losses indefinitely, President Museveni chose not to sign the Income Tax Bill into law.

“Giving taxpayers the option to carry over losses forever encourages them to overstate their losses, which enables them to maintain fictitious loss-making positions. Accordingly, the provision is meant to restrict the practice of indefinitely deferring corporate tax payment; for that reason, it should be revived, he wrote in a letter to Speaker of the Parliament Anita Among.

He pleaded with the legislature to reconsider clause 12, which sought to change section 38 of the income tax amendment act of 2023 to permit tax losses to be carried forward after five years of reporting losses of up to 50% in each succeeding year.

The Opposition claimed that levying a 5% withholding tax on digital corporations would shift the tax burden to Ugandan citizens, but the President shot down that claim.

The digital enterprises will pay the tax, he said.