I am not a fan of lugambo (idle talk) on any day, but I hear that the government of Uganda will levy a tax on social media users who engage in too much of it, in the hope that Shs400 billion will be generated every year. It is not proven that Ugandans use social media mainly for idle talk, though I do not think there is much benefit in going down that road.
Whether this tax is supposed to stop or promote lugambo, I cannot tell. What I know is that this supposed idle talk earned social media giant Facebook about $5.85 billion in advertising revenue from overseas users in 2017, which is about a fifth of Uganda's GDP standing at $25.53 billion (2016). Nearly three million of the users who generated this income were from Uganda. Like they say, there is a silver lining on every dark cloud, but it appears government is handling this dark cloud of social media from the wrong end of the stick.
It is my argument that by proposing a further tax on social media users instead of the social media platform owners, the government of Uganda has missed the silver lining. Other countries are handling this complex subject of digital taxation on social media in a superior way. Even though Uganda is entitled to formulate its own policies, it should deconstruct its approach to this social media tax on users and allow to be persuaded by best practices elsewhere.
There is a raging debate in many jurisdictions (Uganda appears to be missing out on this debate since it is busy chasing users) where the question as to where the tax value is created rather than where the taxes are paid is guiding the conversation. Our government must realise that in this global digital economy, social media users are playing a key role in generating value for digital companies and it is against these companies that it should seek most of the taxation and not the users. Other governments around the world which are open to a more progressive outlook to these things, are pushing to rewrite their tax rules to capture tax from technology companies like Google, Facebook, Amazon, etc, which may have no representative offices, or other physical presence in a country, but are accruing profits through large numbers of online users.
In the story carried in the Wall Street Journal of December 12, 2017 under the title, Facebook to Give Countries a chance to tax its profits from local Ads, it was reported that Facebook had become the latest US Tech Giant to bow to pressure from foreign governments to simplify its tax structure and potentially pay more income tax overseas. Dave Wehner, Facebook's chief financial officer, was quoted as saying "moving to a local selling structure will provide more transparency to governments and policy makers around the world."
Already many European Union countries and others in Asia like Indonesia, are proposing a tax on big Internet companies to make up for income tax they would pay if they reported their profit in the countries where they do business. Before chasing after struggling Ugandans to collect what would be an unconscionable double consumption tax, the government of Uganda must insist on getting its pound of flesh tax from the social media giants rather than the Ugandans, who do not have much flesh left.
Based on the provisions of our Income Tax Act Cap 340, I maintain that Facebook and other social media platforms, which are non-resident in Uganda, but derive business income from Uganda when our users contribute to the their advertising portfolio against which advertisers pay millions of dollars every year, should pay income tax proportionate to the number of users who generate it here.
These companies cannot deny that some of their income is derived from Uganda because under S. 79 of Income Tax Act, income is derived from sources in Uganda to the extent to which it is a royalty arising from the disposal of industrial or intellectual property used in Uganda. My interpretation of this provision is that the profiled data base of social media users in Uganda when used to generate advertising revenue for Facebook, or Twitter is copyright/intellectual property used in Uganda.
On this basis, I see no reason why government should not at least make an effort to collect taxes on this royalty income earned by the social media companies other than engaging in an exercise which looks like an attempted rearguard action to shut down social media in the long-run. Even if these companies may contest the taxation on various technical grounds as they are want to do, there would be enough precedent to be drawn from other countries to levy the income tax. The other benefit of such a move is that it would inform government policy better and probably lead to appropriate amendment of our tax laws to cover any gaps presented by this phenomenon of e-commerce transaction taxation instead of throwing our taxation in a topsy turvy situation.
Otherwise insisting on taxing social media users in a country where one of the regulators of social media, NITA-U developed guidelines in July 2013 to assist government ministries and departments to use social media as a tool for engaging with the citizens of Uganda, will be self-defeating of government's own policies. If Government is afraid to confront Facebook and other social media giants and scoop some deserved taxes, it can seek an East African or African Union approach to the issue.
I am sure other African countries that have hitherto been collecting nothing from the social media giants would like to emulate the Europeans and Americans and collect something for their Treasuries. This may look difficult yet it is achievable and a more patriotic thing to do as a country.
Mr Muwema is managing partner at Muwema & Co. Advocates.