KAMPALA — Starting October 1, Uganda will start earning Value Added Tax (VAT) from non-resident electronic service providers, including on social media tech firm, Facebook.
“As of October 2022, Facebook ads in Uganda will be subject to a value-added tax (VAT) at the applicable local tax rate,” Meta, the owner of Facebook said on the weekend.
“This applies to advertisers whose “Sold to” the country (Uganda) on their business or personal address is set to Uganda and who haven’t added their tax identification number (TIN) to their Facebook ad account,” the company added.
VAT will be added whenever users’/advertisers are charged for their ads, regardless of whether they are purchasing Facebook ads for business or personal purposes.
“As VAT is added on top of charges, you won’t reach your billing threshold faster, but you may be charged more than your billing threshold amount. If you pay for Facebook ads with a manual payment method, VAT is accounted for at the applicable rate when your ad account is funded to determine the total balance available,” Facebook said.
The taxman is yet to announce this new development but in a recent public notice, the URA notified all non-resident suppliers of electronic services to collect, file and pay this tax.
These services include the following when offered remotely; online advertising, online music streaming, movie streaming services, websites, web- hosting or remote maintenance of programs and equipment, supply of software and software updates, supply of images, text and information, access to databases and self-education packages.
The others include music, films and games of chance, political, cultural, artistic, sporting, scientific and other broad casts and events including television etc.
According to Section 16(2) (d) of the VAT Act, URA is empowered to charge VAT on electronic services supplied to a recipient in Uganda.
The Act provides that a non-resident person (NR) is considered to have made a taxable supply in Uganda, where electronic services are supplied to a non-taxable person in Uganda.
A non-taxable person in this case refers to a person who is not registered for VAT.
This provision applies to non-taxable persons because taxable persons already pay this VAT under the reverse charge mechanism, expert said.
Although this legal provision was first enacted in 2011, URA could not collect this VAT then due to undefined provisions for how the Non-residents would account for the VAT once charged. As a result, section 31A was introduced in July 2020 stipulating that Non-residents account for this tax every quarter on the 15th day of the first month following the end of a quarter.
While many countries around the world implement this measure, Uganda becomes the fourth African country to take this up after South Africa, Nigeria and Kenya.
URA has made initial contact with many of the non-resident service providers such as Google, Microsoft, Netflix, Meta, Spotify, Zoom, Amazon, Apple, Bolt, Uber etc and some of these entities have registered and paid the tax due.
The tax man expects to collect at least UGX 5Bln in taxes from this measure.
This development is one of the steps Uganda is making towards collecting taxes from the e-Commerce economy.
Like most countries around the world, Uganda is considering levying income tax on the Non-resident entities targeting the income they source in Uganda, a discussion that is still ongoing on the global stage spearheaded by Organisation for Economic Co-operation and Development (OECD).
How the tax will be charged
In a detailed notice, Facebook has asked users to add their Tax ID into payment settings for accountability.
“In the Payment settings, you can add your TIN so that it’s shown on your ads receipts. If you add your TIN to your account:
•Facebook doesn’t add VAT to your purchase of Facebook ads, and
•You’re responsible for self-assessing and paying Uganda VAT under reverse charge in accordance with Section 5(1)(c) of Uganda Value Added Tax Law.
Under the new arrangement, Meta/Facebook will submit users’ information with the Uganda Revenue Authority.