Gov’t drops Social media tax

In July 2019, URA reported a collection of only Shs 49.5 billion out of the targeted Shs 284 billion from OTT as more Ugandans opted to use virtual private networks (VPNs) to access social media sites without paying the daily Shs 200 for the tax.

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Finance minister Matia Kasaija

The government is planning to drop the social media tax, three years after the largely unpopular tax was introduced.

In dropping the tax, the government is instead looking at replacing it with a 12 percent excise duty charge on internet data.

The proposal is contained in the Excise Duty (Amendment) Bill, 2021 among 10 other tax bills that Finance minister, Matia Kasaija has tabled before Parliament.

 The social media tax; officially known as Over the Top Services (OTT) was introduced in 2018, causing a nationwide uproar and protests led by Kyadondo East MP, Robert Kyagulanyi with demands for the scrapping of the tax.

 The proposal to repeal the tax follows last year’s revelation to Parliament’s Finance Committee about plans to drop OTT and instead impose a direct tax on mobile data. 

The revelation was made by the then Uganda Revenue Authority (URA) Commissioner General Doris Akol who underscored the need to have the tax policy reviewed since it was not performing well.

 “Proposing to amend Schedule Two of the Excise Duty Act to look at possibly putting excise duty on data…this would counteract the effects of OTT and make it a bit more efficient to collect tax on data instead of the OTT which is highly evaded and is not performing well,” Akol said then.

 In July 2019, URA reported a collection of only Shs 49.5 billion out of the targeted Shs 284 billion from OTT as more Ugandans opted to use virtual private networks (VPNs) to access social media sites without paying the daily Shs 200 for the tax.

Other proposals at a glance

Income Tax Under the Income Tax (Amendment) Bill, 2021, the government proposes that landlords earning rental income from more than one rental property account for the income and expenses on each property separately.

 This proposal by government to compel landlords and companies with more than one property to declare the income from each asset separately was in 2019 rejected by Parliament.

 The proposal was meant to catch landlords who hide behind making losses to evade taxes and the proposal means that property owners would no longer be able to offset losses from one property using the profits of another. Through this tax reform, the government expected to collect Shs 7 billion.

 The Finance committee in its report rejected the proposal saying that even when the government proposal is intended to streamline the collection of rental tax and reduce revenue loss to government, it would increase the compliance burden on the property owners. 

 “It will be costly and complicated for companies or corporations like National Housing and Construction Company Ltd or National Social Security Fund who own several properties to file separate returns for each property,” read the Finance Committee report. 

 Francis Kamulegeya, the Senior Partner at PWC also then argued that the tax measure would distort the taxation of companies involved in rental property by forcing them to treat each property as if it is a separate business. 

 Currently, landlords or a company sums up all the monies earned from rent in different properties and once the rental income doesn’t exceed Shillings 2.8 million thresholds after deducting the 20 percent allowable expenses, the property is exempted from taxes. 

 Meanwhile, the Income Tax (Amendment) Bill, 2021 according to audit firm- PricewaterhouseCoopers (PwC) also proposes to increase the rental tax rate for individuals from 20 percent to 30 percent similar to that of non-individuals and allow landlords to deduct 60 percent of rental income as notional expenses in calculating chargeable income.

 Stamp Duty Also under the Bill, new manufacturers with an investment capital of at least US Dollars 50 million and existing manufacturers with an additional investment of US Dollars 50 million will benefit from the proposed Stamp Duty Amendment Bill, 2021.

 PwC says that instruments such as debentures, leases, transfer of land and others will have a NIL stamp duty rate.

 External Trade (Amendment) Bill, 2021 Government proposes a levy of US Dollars 0.4 per Kilogram to be charged on wheat bran, cotton cake, maize bran and other by-products of the milling industry exported out of Uganda under the External Trade (Amendment) Bill. The levy if approved will be paid by exporters to Uganda Revenue Authority (URA) at the customs point.

 Traffic and Road Safety (Amendment) Bill, 2021 Government proposes under the Traffic and Road Safety (Amendment) Bill, 2021 that effective July 1, 2021, a person owning a motor vehicle, trailer or engineering plant will use it on the road only if it’s licensed under the Traffic and Road Safety Act. 

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