By Joshua Kato, CA.
It is the responsibility of Ministry of Finance, Planning and Economic Development to initiate, evolve and formulate tax policies to achieve economic policy goals and objectives and raise domestic revenues to finance government budget.
These policies are then presented to the Parliament of Uganda as bills and if successfully approved, they become laws. Once these laws are effected, these are administered by the revenue collection body which is the Uganda Revenue Authority which is a statutory authority established by the Uganda Revenue Authority Act, Cap 196 with a mandate of, assessing, collecting and administering of taxes, fees and non-tax revenue in Uganda.
Over the years, the MoFPED has suggested and introduced amendments in the tax policies with an aim of closing the gap towards tax evasion, fair distribution of resources and promoting of the economy. A number of tax acts are in existence today in Uganda, to mention among others;- VAT Act Cap 349, Income Tax Act 340, Withholding Tax etc
On 30th March, 2023 Ministry of Finance introduced tax bills (amendments) under BILLS SUPPLEMENT No. 5 that will effectively 1st July 2023 become laws upon being passed by the Parliament.
Important to note that this year’s amendments have come from the DRM4D activity whose objective is to increase domestic revenue mobilization.
These include;- The Tax Procedures Code (Amendment) Bill 2023, Value Added Tax (Amendment) Bill 2023, Assistance in Tax Matters (Implementation) Bill 2023, Income Tax (Amendment) Bill 2023, Excise Duty (Amendment) Bill 2023 among others.
In summary, this is what you need to know about some of these bills (amendments).
THE VALUE ADDED TAX (AMENDMENT) 2023
- Restriction on Offsets.
The URA will now forcefully require tax payers whose input tax credits exceed their output tax credits by UGX 5million and above as provided for under S.42 (1) in the VAT Act to claim for their input. Initially, taxpayers have been at liberty to claim for this refund at their point of convenience.
- Widening of Electronic services.
Effective July 2022, Uganda joined other countries in expanding VAT to Digital/electronic services at 18%. The new amendments seeks to widen the scope to electronic services such as cab-hailing, cloud storage, data warehousing, advertising platforms and others unlike previously where it was only limited to web hosting, software and streaming services. The new amendment is a basket that will harbor a number of digital services that have come in.
- VAT on Auctioning.
Auctioned goods will attract VAT @18%. It will therefore be a must for auctioneers to charge and account for VAT on auctioned goods come 1st July 2023.
- No Input VAT claim for non-residents.
Non-residents who make taxable supplies in the boundaries of Uganda shall not be entitled to claim for Input VAT credit incurred
INCOME TAX BILL (AMENDMENT), 2023
- Initial Allowance
Initial allowance is a capital deduction that increases the capital investment costs that a business can deduct from its taxable income. Such capital allowances help in boosting business technological investment, and to encourage the location of investments outside the geographical area of Kampala.
S.27A provides for a person who places an eligible property into service for the first time outside a radius of 50km from the boundaries of Kampala during a year of income is allowed a deduction for that year of an amount equal to 50% of the cost base of the property at the time it was placed into service.
The new amendment seeks to repeal the 50% Initial allowance provision.
- Tax losses.
Tax losses that have been carried forward for as many years as they appear. The existing loss carryover tax provisions allow businesses to deduct either current year losses against future profits or current year losses against past profits. This will now upon approval of this amendment will be capped to 5years beyond which only 50% of the assessed tax loss will be allowed.
- Withholding tax on Asset purchases
The new bill seeks to introduce a 5% WHT on any purchase of assets as a final tax. This entails also Shares. There will be exemptions to such a tax although they are so limited.
- Capital Gains tax.
As of now, the Income Tax Act taxes capital gains arising only from the disposal of business assets and shares held by individuals. Capital gains treatment has always been included in business or employment income and then taxed on thereof. The new bill however seeks to repeal the current treatment and therefore will subject the gross proceeds arising from disposal of business assets to a WHT of 5% as a final tax. This implies therefore that capital losses will also not be deductible from employment income.
- Deductibility on Interest.
For tax purposes, interest incurred by micro-finance institutions will be fully deducted
- Digital Services Tax (DST)
This is an independent tax intended to impose a tax liability on non-resident individuals and companies that source income from Uganda through provision digital services. Digital giants like Amazon, Facebook, and Google have been offering services and have sourced income from Uganda even without a permanent establishment (PE). The proposed bill will therefore target specific digital revenue streams and capture payments to non-residents by persons in Uganda in form of withholding tax as a final tax.
The new income tax amendment bill therefore will introduce a 5% WHT on non-residents that source income from Uganda from providing digital services. Effective 1st July, all non-residents will suffer a 5% DST on provision of digital services in Uganda.
THE TAX PROCEDURES CODE (AMENDMENT) ACT, 2023
- Provision of information.
S.42 (4) of the principal Act will require that the taxpayer shall provide all necessary information requested for tax audit purposes. Failure to provide the necessary information shall mean that should the taxpayer be dissatisfied with the decision of the authority through objection or in the alternative dispute resolution process, a taxpayer should not surface information, which they did not provide in the tax audits from which the URA based its decision.
- Waiver of Interest & Penalties.
S.40D (1) introduces a waiver of interest and penalties on the outstanding principle, where the taxpayer voluntarily pays the principal tax outstanding at 30th June 2023, by 31st December, 2023.
The basis shall be “voluntary payment” implying that the waiver shall not take place in-case URA starts to do its obligation of enforcing payment.
This is therefore an incentive towards the taxpayer to clear their tax-ledgers and be in good books with the tax authority.
THE CONVENTION ON MUTUAL ADMINISTRATIVE ASSISTANCE IN TAX MATTERS (IMPLEMENTATION) BILL, 2023
This bill seeks to aid in the strengthening member ties of the OECD fraternity as far as tax matters are concerned. Over years, there has been a common misinterpretation of member state tax laws, there has been tax frauds especially from non-resident persons who source income form the different countries. Taxing of such personnel has not been easy as there has been diverging tax laws in the different countries. Different countries therefore through OECD have tried to develop ways and action points to make international taxation easily administered.
The member states (Uganda being part of the organization) therefore formed the Convention on Mutual Administrative Assistance in Tax Matters. One of the key objective here was an Agreement on Automatic Exchange of Financial Account Information between member states.
The bill therefore will be there to give the force of law to the Convention on Mutual Administrative Assistance in Tax Matters and the Multilateral Competent Authority Agreement on Automatic
Exchange of Financial Account Information in Uganda. The authority therefore shall require the competent authorities to provide information on beneficial owners (who should be natural person), information in relation to trusts, and disclosure in regards to any legal arrangements. Competent authorities have to employ due-diligence, apply the common reporting standards, and will have reporting obligations as far as taxation of such individuals is concerned.
For more information on these bills, please extensively read about them and their impact to your business or transactions as failure to understand their requirements is penalized in accordance to the tax act.
Joshua Kato is a Tax Accountant and Advisor
As the debate on new taxes continues to rage on, an activist has proposed a tax on cows, an idea that Museveni’s government has opposed. (See Details Here and There).
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