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The Minister of State for Finance (General Duties) Henry Musasizi, in the company of other officials from the ministry, appeared before Parliament's Finance Committee to defend the proposed tax.
They also tabled a similar defence for the other six proposed tax bills which are intended to raise revenue for the 2023/2024 national budget.
The proposed tax on digital service providers falls under the Income Tax (Amendment) Bill which seeks to impose a tax on non-resident digital services providers in the country.
"A tax is imposed on every non-resident person deriving income from providing digital services in Uganda to a customer in Uganda at the rate of 5%," the proposal reads.
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Eligible companies include those whose income is derived from providing digital services to Ugandans through the Internet, online platforms, or electronic network.
However, Kashari North Legislator Basil Bataringaya expressed concern over said companies transferring the tax burden onto Ugandans through higher charges for social media services and advertising.
Tracy Akello, the Rulings and Interpretations Business Policy Supervisor at Uganda Revenue Authority (URA), mentioned that this will not be the case because of a charging system that will track income sourced in Uganda by the companies.
“We intend to tax the likes of Amazon, Netflix, Twitter, and Facebook, as long as they are sourcing income from Uganda,” she said.
John Musinguzi, URA Commissioner General, said they have an online system in place for international digital companies to file their returns each quarter.
“We have already started collecting VAT, and now we are proposing to collect income tax,” Musinguzi said.
Other proposed bills include; the Excise Duty (Amendment) Bill, 2023, the Traffic and Road Safety (Amendment) Bill 2023, the Tax Procedures Code (Amendment) Bill 2023, the Automatic Exchange of Information Bill 2023, the Value Added Tax (Amendment) Bill 2023 and the Lotteries and Gaming Bill 2023.