In an era dominated by digital transformation, Uganda finds itself at a pivotal juncture: how to tax the burgeoning digital economy without stifling innovation. As global tech giants expand their footprint across borders, traditional tax frameworks struggle to effectively capture revenue from digital transactions. The most important issue lies in how Uganda can tap into the vast revenues generated by global tech giants without stifling the local innovation that is beginning to flourish.
Currently, Uganda boasts approximately 14.2 million internet users, translating to an online penetration rate of 28%. This marks a significant increase from 13.3 million users in January 2024, reflecting a steady digital adoption nationwide.
However, despite this growth, statistics show only 13% of internet users engage in business or professional activities online, indicating a vast untapped potential for digital entrepreneurship. The rapid rise of e-commerce, digital advertising, and online services has reshaped business models, creating new revenue streams that often escape traditional tax nets. URA reports show that digital platforms are increasingly becoming significant contributors to the economy, yet their tax compliance remains a contentious issue.
The primary challenge lies in defining the digital economy and determining the appropriate tax base. Unlike physical goods or services, digital transactions often cross borders effortlessly, posing jurisdictional challenges for tax authorities. Moreover, the intangible nature of digital products complicates traditional tax assessments, leading to potential revenue losses for many governments.
Internationally, discussions on digital taxation have gained momentum. Uganda, alongside other African nations, faces pressure to align its tax policies with global standards of the OECD framework while considering the unique socioeconomic context. Countries like Kenya and Nigeria have implemented digital service taxes aimed at tech giants, albeit with mixed results, highlighting the complexities of taxation in the digital era.
The digital economy encompasses all economic activities that result from billions of everyday online connections among people, businesses, devices, data, and processes. In Uganda, this includes the E- e-commerce platforms like Jumia and OnDuka, facilitating online retail and services, Online content providers offering streaming services and digital media like TikTokers, YouTubers. We also have digital financial services such as mobile money platforms and fintech solutions, we have Tech startups innovating in areas like agritech, EdTech, and healthtech, plus so many more others. These not only contribute to GDP but also create employment opportunities and drive technological advancements.
In July 2023, Uganda, through the 2023/2024 Tax amendments, introduced a 5% Digital Services Tax (DST) targeting non-resident companies that have a digital presence in Uganda and are providing digital services to Ugandan consumers. The move aimed at capturing revenue from global tech giants like Google, Facebook, and Netflix, who generate significant income from Ugandan users but have minimal or no physical establishment in the country.
However, the DST has faced criticism for its potential to deter foreign investment and its ability to destroy the tax landscape for local digital businesses. In response to these concerns, the government, through the 2025/2026 proposed tax amendments, is considering a shift from the DST to a 15%
Withholding tax on payments to non-resident digital service providers, effective 1st July 2025. This change seeks to streamline tax collection and align with international tax practices, particularly those under the OECD’s Pillar One framework
Several global tech companies generate substantial revenue from Ugandan users, and these include; – Google, X (formerly known as Twitter), Facebook, Netflix, TikTok, Alibaba, YouTube, among others. These companies benefit from Uganda’s growing internet user base but contribute minimally to the national tax revenue, highlighting the need for effective digital taxation policies. While global tech giants dominate the digital landscape, Uganda’s local tech ecosystem is also becoming sound with innovation. Companies like SafeBoda, Ride Now, Othware Uganda, and Kevin DJ Creatives are at the forefront, developing solutions in areas such as ride-hailing, digital marketing, and software development. These startups not only contribute to the economy but also provide employment opportunities and drive technological advancements within the country.
Without a clear and effective digital taxation system, Uganda risks significant revenue losses. Estimates suggest that the country could be losing approximately UGX 474 billion annually due to informal digital transactions and the lack of comprehensive digital tax policies and therefore, the country needs a robust digital tax framework that captures the economic activities in this rapidly growing sector.
As Uganda approaches the financial year 2025/2026, there is a need to have several policy considerations in place that will enhance the digital economy’s growth while ensuring fair taxation. These may include: – Implementing the proposed 15% withholding tax on non-resident digital service providers to streamline tax collection and align with international standards.
Strengthen data protection laws to build trust among users and encourage the growth of digital services, enhance digital literacy programs to equip the population with the skills needed to participate in and benefit from the digital economy, and also Introduce tax incentives for local tech startups to encourage innovation and reduce the risk of stifling homegrown businesses.
Policymakers must study the digital era well and devise an approach that will ensure that Uganda remains competitive on the global stage while safeguarding its fiscal interests and promoting technological advancement domestically.
The writer is a Chartered Tax Accountant and an international Tax advisor
