By Mark Kawalya
Uganda has introduced a new tax on foreign digital service providers, including players such as Facebook and Netflix. Through amendments to the Income Tax Act, the country’s parliament also now requires companies reporting losses for more than seven years to be subjected to taxation.
During a parliamentary session held on July 11, 2023, Members of Parliament agreed to extend the period before the tax on carried forward losses applies, lengthening it from five to seven years. The amendment, now part of Section 38(5)(a) of the Income Tax Act, is aimed at curbing the high number of businesses that exploit losses as a means of evading tax obligations.
The Chairperson of the Committee on Finance, Hon. Amos Kankunda, emphasized the necessity of this amendment in addressing tax avoidance concerns. He clarified that the intention is not to target genuine businesses operating at a loss. As per the law, companies are allowed to carry forward 100 percent of their losses for the first seven years, followed by a 50 percent deduction after that. Businesses can also benefit from other deductions and capital allowances outlined in the Income Tax Act.
Despite the majority’s support, some Members of Parliament, such as Hon. Nathan Nandala Mafabi, expressed reservations regarding the potential impact of the new tax on businesses, fearing possible closures. Hon. Mafabi suggested an alternative approach, urging the Uganda Revenue Authority (URA) to strengthen tax audits to effectively identify and target tax evaders.
The amendment also extends its reach to non-resident digital service providers, aiming to tax the income they derive, even if their services are solely offered online. Hon. Henry Musasizi, the Minister of State for Finance (General Duties), defended the rationale behind this levy, highlighting the focus on taxing the income generated from digital services.
Apart from the digital service tax, the parliament has granted a one-year tax waiver extension to the Bujagali Hydropower Project. However, the project’s tax status will undergo a thorough review during an audit and contract renegotiation, as mandated by the parliament.
The careful reconsideration and reprocessing of the Income Tax Act were prompted by President Yoweri Museveni’s return last month, underscoring the nation’s commitment to effective and equitable taxation practices.