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Administrative and Policy Measures to Address E-commerce Taxation Challenges in Uganda


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Ronald Waiswa and Solomon Rukundo, Uganda Revenue Authority (URA)

Published in: Economy & Finance
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Administrative and Policy Measures to Address E-commerce Taxation Challenges in Uganda

  1. 1. Thursday, October 19, 2017 2  Description of e-commerce  Why bother with Uganda’s e-commerce sector  Regulation of e-commerce sector in Uganda  Lessons from other countries  Proposed line of attack/ Strategies
  2. 2. Thursday, October 19, 2017 3  E-commerce is an electronic way to doing business-The use of internet and the web to transact business  Scope in Uganda: Financial & commercial transactions and all credit/debit card activities; retail trade, online network marketing, sports betting, consultancy services, Telecom, Transport services etc  In most cases, no clear physical location and hard to trace.  All types of commodities including animals, electronics, cars, food, software, books and real estate are now online.
  3. 3. Indirect players Telecom companies - Internet providers - Provide operating & payment platforms Financial institutions - Payments largely get through banks - Challenge is access to data and telling the purpose of the money Direct players Sports Betting companies - 39 companies including casinos some of which operate online. - Gross under declaration - insufficient skills & manpower to tax Online car dealers - They are slowly kicking out the car bond business from the market. - These importers pay Customs taxes but very little or no DT - Online car dealers most often don’t show their identity in the system but those of the recipients. (The recipient is declared as the importer which is largely not the case)
  4. 4. Direct players… E-retail Shops (OLX, Kaymu, hello food, shop24/7, Dondolo etc.)  Provide platforms to buy or sell  Running adverts  Virtual landlords  Commissions from selling products of traditional business  Direct sale of merchandise  Reportedly earn money from internet service providers for consumption of internet data by clients  By 2014 only 7 are registered- 3 filing.  4 are subsidiaries of Africa Internet Holding partly owned by MTN (33.3%) & Rocket Africa Direct players… Social Media Platforms (Facebook, Watsapp, IMO etc.) 1. Their revenue is largely from running adverts, selling of location data, subscription fees 2. Have taken over communication. 3. Majority are not registered in the URA Cloud computing services- infrastructure as a service -provide virtualised cloud computing services such as hardware that can be hired by other companies MTN, one solution Uganda &Twenty Third Century Systems from Zimbabwe offer these services in Uganda.
  5. 5. 6 1) Its one of the fastest growing retail sector in the global economy  The growth of the sector is correct for Uganda too. The internet penetration is 39.8% (UCC, 2016) (close to 40 out 100 people with mobile phones are subscribing to internet.  Rise of many online platforms further reinforces the steady growth.  Ready market was also revealed. “I posted laptop and in less than ten minutes, over five people had expressed interest to buy it-the actual buyer came from Rwanda”. 2) Current tax laws are inadequate (esp. VAT &ITA) and weak administrative structure  Designed for the paper based transactions which is not the case with e-commerce.  Challenges include identification of parties, supplies made and consideration, place of supply etc  Tax base erosion- by failing to identify an operating business in Uganda  Limited technical capacity in auditing these systems, (TID is too thin on ground)
  6. 6. 7 3) Ecommerce is supressing the tax base directly & indirectly  Elimination of intermediaries critical for identifying suppliers & consumers. • Online car dealers, 55% of cars are from Japan, most people now order online than going to bonds. (They pay custom taxes but little or no DT) • Traditional advertising platforms taken over
  7. 7. 8 4) Unfair taxation practice in comparison with the traditional businesses. URA focusses largely on physically located businesses a) Online Network Marketing (Players earn abnormal and tax free money) “I invested only UGX 7millions in D9 and am assured of earning us dollars 170 per week for the whole year (about UGX30M) while am seated in my office. I last visited my salary account last November 2016”  People have multiple accounts b) Sports betting-(over weight evasion) A key shareholder echoed “When I look at the tax that sports betting companies pay, there is overweight tax evasion”. The study wasn’t able to establish any government agency that collects and stores transaction data on e-commerce. E-commerce has a revenue potential
  8. 8. Very Weak regulation of the sector  KCCA act is bypassed-it requires physical presence.  Registration with URSB is largely voluntary- They wait for businesses to come to them to register”.  UCC does not track contents of the transactions. It only focus on telecoms, internet service providers and broad casting companies  IT developers and websites are not licenced  BOU does not regulate transfers through online platforms. Its focus is on banks, microfinance deposit taking institutions, forex Bureau and money remitters.  NITA-U is mandated to regulate e-commerce but its focus is currently on integrating government systems-private system may come after 2018/19
  9. 9. EU/UK South Africa Effective 1st January 2015 1) Register for VAT in every EU member state where they make supplies , file and pay to each tax authority 2) Register for and use the VAT Mini One Stop Shop (VAT MOSS) scheme. 3) Google now charges VAT and accounts for it to EU 4) In the UK, HMRC is intensely recommending businesses to register for and use the UK VAT MOSS. - Caters for both B2B & B2C models - Effective 1st June 2014, non-resident suppliers of electronic services to South African residents or where payment originates from a South African bank account were required to register and account for VAT in South Africa, if the total value of taxable supplies has exceeded R50,000 within a 12 month period. - 2-conditions (Supplies “electronic services” from a place outside of South- Africa to a South-African Resident or Involves a payment for the electronic service that is made through a South African bank”
  10. 10. Administrative measures 1. Government needs to consider procuring a system to capture all online transactions 2. Head hunt experts to support URA officers. 3. Create a specialised unit to handle e-commerce 4. Non resident suppliers of digital services/ goods should register 5. Understand the relationship between telecoms and financial sector. 6. Benchmarking with other countries Policy measures 1. Re-examine the ITA &VAT provisions on residence, place of supply, registration of foreign suppliers for VAT etc 2. Set threshold for significant digital presence 3. Introduce a withholding tax on digital transactions through banks. 4. Introduce a band width or BIT tax on websites 5. Foreign Account Tax Compliance Act (FATCA) would be a solution. 6. Policy on accessing real time data from banks 7. Multi agency coordination & international consensus 11
  11. 11. Thank you!!!!!! 12