Opinion: Uganda's digital service tax proposal

By Vaster Kubakurungi

Uganda, like many other developing countries, is facing the challenge of ensuring that digital businesses operating within its borders contribute their fair share of taxes to the government. To this end, the Ugandan government has proposed a 5% income tax on digital income providers who are non-residents of the country.

The proposal aims to capture revenue from multinational companies that generate income from Ugandan consumers through digital services such as online advertising, streaming services, e-commerce platforms, and other digital platforms. The tax would be levied on the gross revenue generated by these companies from Ugandan users.

This proposal is not unique to Uganda, because it is already operating in our neighboring countries like Kenya and Tanzania. However, in Uganda, the proposal has generated controversy and debates among stakeholders saying it might scare away investors because of the high rate at 5% whereas Kenya at 1.5% and Tanzania at 2.5% which in my own point of view is a valid point.

On one hand, supporters of the proposal argue that digital businesses are not currently paying their fair share of taxes, and that the proposed tax would help to close this gap. They also argue that the tax revenue generated would widen our tax base and therefore go towards funding important public services such as education, healthcare, and infrastructure hence development.

On the other hand, opponents of the proposal argue that the tax would be counterproductive, as it would discourage digital businesses from investing in Uganda, and could ultimately lead to job losses and reduced economic growth. They also argue that the proposal is unfair, as it places an additional burden on non-resident businesses, while exempting local businesses.

Despite these concerns, it is important for Uganda to find a way to tax digital businesses that operate within its borders. As more and more economic activity moves online, governments around the world need to find ways to capture revenue from these businesses, in order to fund important public services.

To mitigate the potential negative impact of the proposed tax, the Ugandan government should engage in dialogue with stakeholders, including non-resident businesses, to find a solution that is fair and balanced. This could include measures such as offering tax credits for investments in Uganda, or providing incentives for businesses to establish a physical presence within the country.

In conclusion, the proposal to levy a 5% income tax on non-resident digital income providers in Uganda is a step towards ensuring that digital businesses operating within the country contribute their fair share of taxes. However, it is important for the government to engage in dialogue with stakeholders to ensure that the tax is fair and balanced and that it does not discourage investment or harm economic growth.