On 31 March 2020, the Minister of Finance, Planning and Economic Development presented proposed amendments to the various tax laws before the Parliament of the Republic of Uganda for debate.
The proposals cover changes within the Income tax, Value Added Tax, Excise Duty and Stamp Duty regimes.
- Proposed New (turn – over based) Income Tax under Section 4:
A taxpayer whose declared tax liability for a consecutive period of five years of income is an arithmetic average of less than 0.5 percent of gross income shall pay a minimum tax at a rate of 0.5 percent of the gross turnover after the sixth year.
- It has been proposed that rental tax should be accounted for each building, separately, by a land lord owning several buildings.
A land lord who earns rental income from more than one building shall account for the income and expenses of the buildings and shall pay tax for each of the buildings separately.
Currently, rental incomes and expenses from various buildings owned by the same person are aggregated while accounting for rental tax by that person.
This is intended to ensure that, for tax purposes, a tax payer does not offset the losses incurred from one building from the profits in another building of the same tax payer. Landlords will be taxed on the profits of each building separately.
- Proposal to exempt from income tax the income of the Deposit Protection Fund established under section 108 of the Financial Institutions Act, 2016
- Proposal to clarify and revise the qualifying criteria for income tax exemption for strategic investments under Section 21(af) as follows;
- The Income tax exemption is available to qualifying investors engaged in selected activities. These include those processing agricultural goods; manufactures or assembles medical appliances, medical sundries or pharmaceuticals, building materials, automobile, house hold appliances; furniture, pulp, paper, printing and publishing of instructional materials; establishes or operates vocational or technical institutes; carries on business in logistics and ware housing, information technology or commercial farming; or manufactures tyres, footwear, mattress or tooth paste.
- The above – mentioned qualifying investments are entitled to the income tax exemption for an open -ended period where they fulfil the following additional conditions;
(a) The investor is either an operator in a free zone or industrial park or any other investor with the requisite investment capital (USD. 10 Million for foreign investor and USD. 1 M for a citizen) invested over a period of at least 10 years from commencement or as additional investment in case of already existing investors.
(b) Subject to availability, uses at least fifty percent of locally sourced raw materials (c) Employs at least one hundred citizens
- Introduction of a 50% limit on tax deductions available to all categories of land lords.
Currently, the law provides for 20% as allowable deductions for individual land lords. There is no limit for other land lords (mostly companies) who are not individuals. The new provision implies, that individual land lords will be allowed deductions of 50% of rental income, other land lords will have their allowable deductions limited to 50% of rental income. Relatedly provision of interest on mortgage as a deduction for individual landlords has been repealed.
- The rate of rental tax for individual land lords to be increased from 20% of chargeable rental income to 30% of chargeable income under Part VI of the Third Schedule to the Income Tax Act.
- No tax deductions for expenses that are not supported by e – invoices or e – receipts
- It has been proposed that no tax deductions shall be allowed for expenses of a person who purchases goods or services from a supplier who is designated to use the e-invoicing system unless the expenses are supported by e-invoices or ereceipts. We note that e – invoicing system has not yet been operationalized in Uganda.
- New withholding tax introduced on purchase of land, which is not a business asset, at 0.5% of the purchase price.
- New withholding tax on commission paid to insurance agent and commission paid to advertising agent at 10%
- Removal of agricultural supplies from the list of supplies exempted from 6% Withholding tax on goods and services by designated withholding tax agents. In effect, there is a proposal to introduce 6% Withholding tax on qualifying agricultural supplies.
- The providers of passenger and freight transport services are required to obtain Tax Clearance Certificate before renewal of operational licences.
- The Bill includes Islamic Development Bank on the list of Public International Organizations under First Schedule to the Income Tax Act. This implies that its income will be exempted from Income Tax.
- A comprehensive adjustment to the tax rates for tax payers under the presumptive tax regime with annual turnover ranging from UGX. 10, 000,000 to UGX. 150,000,000 has also been proposed. The Value Added Tax (Amendment) Bill, 2020