Uganda plan to remove software VAT stirs debate

Reaction has been mixed following announcement of the Uganda government's plan to remove the Value Added Tax on computer software licences, a major thorn in the side of vendors.

The move leaves in place the policy of no VAT and import duty on the software itself. Previously, VAT was placed only on software licences in the country.

While officials at companies that import or sell software are excited about the development, some observers said the removal of VAT on software licences could frustrate local software initiatives.

The newly announced exemption addresses all software including operating systems, programming tools and application software.

"Consistent with government policy of promoting the use and development of Information Communication Technology (ICT), VAT on software licenses will be exempt as is the case with computers and their software," Uganda's Finance Minister Syda Bumba said in a speech last week.

Uganda, like the rest of sub-Saharan Africa, imports the bulk of its hardware and software but there are attempts to develop software that is suited to Uganda's needs locally. The plan to remove VAT on software has raised some controversy.

"It is a step in the right direction but I think government needs to do more than that," James Wire, an ICT consultant in Kampala said in an interview. "What needs to happen is Uganda to produce software," Wire said. "This would have made even better sense if the minister announced a fund for local software developers, so this is good but it doesn't count much."

Shailendra Yadav, the regional manager Computer Point Uganda, one of the big software vendors and service providers, doesn't think local software initiatives will be affected by government's decision to remove VAT on software licenses.

"The fact of the matter is that there is very little software developed here," Yadav said in an interview. Yadav said that he has worked with companies that have capability to develop software locally but that such software cannot compete with software from international vendors. Locally developed software can work for small companies but not for medium and large enterprises.

"I could be wrong but Ugandan companies are not up to the mark in terms of software development," Yadav said.

The high cost of ERP system has made take-up slow, Yadav said. "Removal of VAT on licenses can only result in the price coming down and this means more organizations will be able to afford these solutions," he said.

According to Yadav, a $70,000 ERP (Enterprise Resource Planning) system will cost $12,600 less when the proposal to remove VAT on licenses is passed by Parliament soon.

Yadav said that to further boost development through use of ICT, government needs to go beyond removing tax on software licenses. "Government should also consider removal of VAT on software as a service," Yadav said.

He said this would benefit especially the medium-size enterprises that cannot afford a license but instead buy it as a service from Computer Point or any other provider.