- The Ugandan tax administration continues to look at ways to increase tax revenue generation
Starting from October 1, 2022, Digital VAT in Uganda will kickstart as all Facebook ads in Uganda will be liable to VAT at the “applicable local tax rate.”
This development will apply to advertisers whose ‘Sold To’ country on their business or personal address is set to Uganda and are yet to add their Tax Identification Number (TIN) to their Facebook ad account.
According to Meta, Facebook’s holding company, in a statement on their business help center, as VAT is added on top of charges, businesses won’t reach their billing threshold faster, but they may be charged more than their billing threshold amount.
The statement read that if advertisers pay for Facebook ads with a manual payment method, VAT is calculated at the applicable rate when their ad account is funded to determine the total balance available.
When advertisers are charged for their ads, VAT will be added regardless of whether they are buying Facebook ads for business or personal use.
According to the Uganda Tax Procedures Code Act, Facebook will now be mandated to share data about page owners with the Uganda Revenue Authority (URA).
Although URA has not declared how VAT will be charged on Facebook ads, the taxman had in June, notified all non-resident suppliers of electronic services operating in Uganda that they must collect, file, and pay this tax.
According to its spokesperson, Ibrahim Bbossa, a non-resident supplier supplying electronic services from a country outside Uganda to a recipient in Uganda who is not registered for VAT in Uganda must register as a non-resident supplier and obtain VAT on electronic services.
He also confirmed in a Twitter thread that Facebook will join other non-resident suppliers in paying VAT but refused to comment on whether the service will be reopened in Uganda or not.
This development is coming at a time when Facebook remains blocked in Uganda, more than a year after it was turned off in the run-up to the 2021 presidential elections.
However, there are reports that talks are ongoing between government officials and Facebook owners to revive the social media giant.
Digital VAT in Uganda: Business Owners React
Some local small and medium business owners have reservations regarding this development saying this might increase the cost of doing business in an already troubled economy.
According to one of the local business owners, Patience Nsimire, this VAT is going to make it hard for small business owners to operate business on Facebook, as they already have problems targeting customers because of the VPNs, and now this tax.
Digital VAT in Uganda: Similar Tax in Nigeria
In the early part of this year, the Nigerian Government initiated a policy mandating foreign companies that provide digital services in the country to collect and remit Value Added Tax (VAT) to the Federal Inland Revenue Service (FIRS).
According to the Minister of Finance, Budget, and National Planning, Zainab Ahmed, during the public presentation of the 2022 budget in Abuja, this new policy is contained in Section 30 of the Finance Act which revised the provisions of Section 10, 31, and 14 on VAT obligations for non-resident digital companies.
She mentioned that the new law applies to foreign companies that provide digital services such as apps, high-frequency trading, electronic data storage, and so on.
She said that the tax body will be working in partnership with websites that consumers visit to purchase products, as these sites will be registered as tax agents for the FIRS.
This means that the websites will add a VAT charge to the product purchased and remit it to the FIRS.
Zainab further mentioned that in line with Section 4 of the Finance Act, non-resident companies are now required to pay tax at 6% on their turnover.
This provision authorizes FIRS to access non-resident firms to tax on a fair and reasonable basis of turnover and from digital services provided to Nigerian customers.
She said the move was an attempt to renovate the taxation of Information Technology and the digital economy in line with current realities, adding that this is in accord with the provisions of the National Development Plan 2021 – 2025.
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