Early this month the government proposed to drop the levy on Over-The-Top (OTT) services and instead impose a 12 percent levy on internet bundles. The tax is one of the the seven new tax amendments the government wants to pass in July 1st, 2021 —when the next financial year starts. However, the public called on the Members of Parliament not to approve this tax.
Today, according to a report by The Observer, out of the 7 taxes, only 6 might be approved. Parliament’s finance committee rejected a proposal by the government to introduce a UGX200,000 annual license on all motor vehicles and UGX50,000 for motorbikes.
“We shall pass the six new tax amendments apart from the annual license fees on all motor vehicles and motorbikes. The other stakeholders we are meeting today are coming here to give us their input not to reject the taxes,” Henry Musasizi, the chairperson of the Parliament’s finance committee said, according to the article published by The Observer.
Musasizi said that 12 percent levy on internet bundles will be approved since members of the committee have not protested it. He says that 12 percent is a fair tax and that it can easily be collected. He however says that if any challenge arises, they can review the tax after 12 months.
“12 percent on data is not much. For example, some people use up to UGX500,000 worth of data per month, now 12 percent of that is only UGX60,000,” Musasizi said.
Regina Navugga, the Program Coordinator Financing for Development at the Southern and Eastern Africa Trade Information and Negotiations Institute proposed that the tax on data be reduced from 12 to 5 percent. She adds that although there is an increase in the use of data services, the revenue from the services including airtime is dwindling and adding more tax on data could further reduce the revenue collected.
Once the internet bundle tax goes into effect, the OTT tax will be dropped. Revenue-tax body the Uganda Revenue Authority (URA) has yielded less-than-expected revenue on collecting the tax. The tax has been performing poorly because users opt to use Virtual Private Networks (VPNs) and Wi-Fi.
A Market Performance Report issued by the Uganda Communications Commission showed that the number of internet subscribers who are not paying the tax was at least 7.6 million 0f the target 18.9 million subscribers. As mentioned before, these subscribers circumvent the tax by accessing OTT services using VPNs or utilizing Wi-Fi —which is not subjected to OTT tax.