Parliament votes to scrap OTT, introduces new internet tax

Parliament has passed a 12 percent tax on internet data, replacing the unpopular over-the-top (OTT) tax commonly known as social media tax.

The social media tax was introduced in 2018, requiring Ugandans to pay a daily levy of Shs 200 to access social media platforms such as Facebook, Twitter, WhatsApp, YouTube among others.

But many rejected the tax, resorting to virtual private networks (VPN) to access the social media platforms, thus causing the government a tax shortfall of Shs 234.7 billion from its projected collection of more than Shs 284 billion.

In the new financial year that begins on July 1, 2021,

The new tax will be exempted when purchasing data for medical and education services. 

Kampala Central MP Muhammad Nsereko rejected the internet tax saying it does not help for a country whose internet costs are already high.

He says that Government cannot tell when one is buying data for leisure or educational services.

Jonathan Odur the Erute South MP also asked Government to revise the tax on the internet. He said that it will hurt the economy which is trying to go digital.

Minister of State for Planning David Bahati however countered this by saying that MPs have been asking them to stop borrowing, and that is why they have decided to bring in new taxes.

A tax of 30% or Shs 230 per litre has also been introduced on locally produced other than non-alcoholic beverage not including fruit or vegetable juice, made out of fermented sugary tea solution with a combination of yeast and bacteria.   

 On plastic packaging, a tax of  5% or $150 per ton has been imposed while  5% or 100 dollars per ton for Plastic Granules has been imposed.   The MPs rejected the 100 shillings’ tax on wheat grain per kilogram.      

Parliament also passed the Stamp Duty Amendment Bill 2021 which exempts a manufacturer whose investment capital is at least $50 million or, in the case of any other manufacturer, that makes an additional investment equivalent to $50 million from bearing the stamp duty on all transfers.    

The House also passed the Tax Procedures Code(Amendment)Bill, 2021  which requires a license to be given to only a person with a tax identification number.

It also imposes a penalty of Shs 10 million or imprisonment of five years or both for a taxpayer who attempts to acquire or sell the tax stamps without goods and also if the taxpayer acquires tax stamps with the authority of the Commissioner.  

Nsereko’s plea that the proposal to exempt the foreign investors from paying Value Added Tax (VAT) should be rejected fell on deaf ears as Parliament passed it. He said there should be a level ground for both local and foreign investors.  

Minister Bahati defended the exemptions, saying that it will create jobs for Ugandans.

Lwemiyaga County MP Theodore Ssekikubo said the levy on fuel was not timely as transport costs were already high. The Shs 100 tax on fuel was however passed.

The House stood over Income tax amendment bill 2021,  where Government proposes that landlords earning rental income from more than one rental property account for the income and expenses on each property separately.  

The Finance committee chairperson Henry Musasizi who presented the report on the tax bills rejected this proposal saying it will remove distortions in the rental tax regime which arise from capping the allowable deductions for a year of income of individual rental taxpayers, but allows unlimited deductions for non-individual rental taxpayers. 

Musasizi also recommended that Government considers a review of tax legislation from annually to at least three years.  The committee also called for a study on tax exemptions.  

“The Committee recommends that Government undertake a study of the tax exemption proposals to establish criteria in which both international and local companies will be considered to qualify for tax exemptions,” Musasizi says in his report.    


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