In Summary
  • There is need to deeply look into how Facebook and the like can be brought into the tax net to advance tax accountability to improve tax morale, and reduce exemptions, among others.

I read a story in the media about indirect taxes being a double-edged sword. The author of the article concludes that the introduction of Over The Top (OTT) tax has led to reduced revenue and generally its introduction resulted into higher costs than benefits to the country. I, however, want to disagree.

According to Uganda Revenue Authority (URA), these taxes have performed very well and URA will most likely hit the financial year 2018/19 targeted collection of Shs16.4 trillion.
OTT and mobile money taxes are meant to bridge the gap as a result of changes in information technology.

Unfortunately, many critics of the tax do not provide policy alternatives amid challenges of digitisation. We may not have the overall impact of mobile money and OTT taxes on the economy, but what is evident is the contribution of these taxes to national revenue.
It is also evident that a lower percentage of e-commerce products does not affect the growth of the sector.

Nevertheless, there is need for an informed research about the impact on overall economy to guide the next step of action. The author argues that there are still bad memories about the taxes and they ought not to have been introduced because they impact financial inclusion.

What ought to be understood is that taxes are needed for national development, a good tax system is where everyone contributes to national development in the proportions of his income i.e ability.
According to Ubos, approximately 50 per cent of Uganda’s GDP is attributed to the informal sector. This makes it difficult to raise the needed revenue for national development.

The only challenge was on the way the taxes were implemented. The developments in information technology have brought in challenges to tax authorities and nations in general to the extent that those that are not alert will find serious difficulties in raising national revenue.

The tax bases have seriously been eroded. Facebook, Google, etc, technologies have significantly affected tax policies. Relying on old tax laws and tax environment is no longer tenable. Countries like India have introduced taxes like equalisation tax to be able to tax on the profits of these giants.

Other countries have introduced various legislations to at least get something from digitisation. However, many countries are still skeptical because acting unilaterally on this issue of base erosion may have serious implications. The hope is in the current discussions about the issue to advance a multilateral solution.

OTT, therefore, is a tax that was introduced to expand the tax base and also bridge the gap resulting from base erosion. It is also a tax that attempts to bring all citizens on board. As already pointed out, 50 per cent of the informal sector pays little of the taxes because they are not in the tax net.

As the tax authorities look into other ways of expanding the tax base, OTT tax was a good start. There is need to deeply look into how Facebook and the like can be brought into the tax net to advance tax accountability to improve tax morale, and reduce exemptions, among others.

Edson Serve Ashabahebwa,
[email protected]