The parliamentary finance committee has started reconsidering a Bill that imposes a 5% tax on income from digital services in Uganda derived by a non-resident person.

Last month, President Yoweri Museveni recommitted certain clauses in the Income Tax (Amendment) Bill, 2023, and the Tax Procedures Code (Amendment) Act, 2023 to Parliament for reconsideration.

On Tuesday (July 4), the committee engaged the finance state minister in charge of general duties, Henry Musasizi, and his technical team on their recommendations for instituting a limit of 50% on the deduction of tax losses to be carried forward each year after five consecutive years of reporting tax losses.

Musasizi's team also recommended a 5% withholding tax on digital companies, saying it would raise sh5b in revenue for the Government.

"The 5% of that income that they (digital companies) earn here (in Uganda) should be left as taxes. It is different from other taxes we charge from resident companies, and it is not a reintroduction of the Over the Top Tax, which the government terminated in 2021," Musasizi told the committee chaired by Amos Kakunda.

President Museveni declined to sign the Income Tax Bill into law, raising concerns over the current provision allowing companies to carry forward losses indefinitely.

"Allowing taxpayers to carry forward losses indefinitely creates an incentive for them to overclaim losses, hence enabling them to remain in artificial loss-making positions. The measure is thus intended to limit the practice of indefinite deferral of payment of corporate tax, it should therefore be reinstated,” he said in his letter to the Speaker of Parliament Anita Among.

He urged Parliament to review clause 12, which sought to amend Section 38 of the Income Tax Amendment Act 2023 to allow tax losses to be carried forward after five consecutive years of reporting losses of up to 50% in each subsequent year to be taxed.

The President poured cold water on the Opposition's argument that imposing a 5% Withholding Tax on digital companies would shift the tax burden to Ugandan residents.

"The tax will be borne by the digital companies," he said.