At the beginning of April, the Ugandan Minister of Finance, Matia Kasaija, tabled several fiscal bills to amend several tax legislations of the country including the income tax act, the stamp duty act and the excise duty act.
These bills were submitted for a first reading and it is expected that this exercise is completed by 20 May 2021.
We highlight these 12 fiscal changes proposed in the income tax act amendment bill 2021.
Amendment of The Income Tax Act To Redefine “Beneficial Owner”
The definition of beneficial owner in Section 2 of the Income Tax Act would be substituted with the following:
(a) means a natural person who has final ownership or control of another person or a natural person on whose behalf a transaction is conducted, and includes a natural person who exercises absolute control over a legal person and includes the following in descending order-
(i) in relation to a legal person, the natural person who either directly or indirectly holds at least ten percent shares or voting rights; and
(ii) the natural person exercising control of the legal person through other means including personal or financial superiority; and
(iii) where subparagraphs (i) or (ii) do not apply, the natural person who has power to make or influence a decision of the legal person.
- b) in relation to trusts includes-
(i) the settlor
(ii) the trustee
(iii) the protector
(iv) the beneficiaries; and
(v) any other natural person exercising absolute
control of the trust.
(c) in relation to other legal person similar to trusts, means a natural person holding a position equivalent any of the positions referred to above in relation to trusts.
This amendment helps widen the scope of the term “beneficial owner”. It provides specific conditions to satisfy to qualify as a beneficial owner and also addresses any previous uncertainties.
Amendment of The Income Tax Act To Redefine “Consideration”
It was proposed that the definition of “consideration” in section 2 of the Income Tax Act is amended as follows:
“consideration” includes the total amount in money or of payment in kind, paid or payable for the supply of goods, services or sale of land by any person, directly or indirectly, including any duties, levies, fees, and charges-other than tax paid or payable on, or by reason of, the supply, reduced by any discounts or rebates allowed and accounted for at the time of the supply or sale”
Amendment To The Definition of An Exempt Qualifying Body
The proposed amendment seeks to narrow down the definition of place with “public character”. The amendment adds the words “not for profit” after certain qualifying bodies. In this case, religion, charitable or educational institution whose object is not for profit will be considered as places with a “public character” and therefore exempt.
Changes To Rental Income
It was proposed that in section 5 of the Income Tax Act, a new subsection 2a be added. This new subsection will provide that:
“A person who during a year of income earns rental income from more than one building shall account for the income and expenditure of each building separately and shall pay tax for each building separately.”
A second amendment concerning rental income is to be carried out by amending section 22 of the Income Tax Act:
In the case of rental income, 60% of the rental income is deductible as expenditure and losses incurred by a person in the production of such income. This applies to both individuals and companies. The previous rate was 20%.
Thirdly, there is an increase in the rental tax rate as per proposed amendment in Part VI of the Third Schedule. The proposed applicable tax rate is 30% of the chargeable income. The previous rate was 20%.
Changes To Depreciation
Section 29 of the Income Tax Act is to be amended by inserting a new subsection 1a.
The new subsection will provide as follows: “Deduction for the depreciation of an industrial building that qualifies for initial allowance shall be deferred to the next year of income.”
This means that in the year of investment, taxpayers can claim only initial allowance and from Year 2, they will be eligible for depreciation and industrial building allowance.
Changes To Capital Gains Tax
Section 50 of the Income Tax Act is to be amended by inserting a new subsection 3.
The new subsection 3 will provide as follows:
“Whereas a result of the application of this Act, a gain or loss on disposal of an asset is subject to tax being a gain or loss, the cost base of the asset is calculated on the basis that each item of cost or expense included in the cost base shall be determined according to the following formula:
CB x CPID
CB is the amount of an item of cost or expense incurred
CPID is the Consumer Price Index number published for the calendar month of sale
CPIA is the Consumer Price Index number published for the month immediately prior to the date on which the relevant item of cost or expense was incurred.
There is however an exemption and that is that this subsection (3) shall not apply to an asset that is sold within twelve months from the date of purchase.
Clarity Concerning The Due Date For Payment of Taxes
It was proposed that a new section 93A be inserted into the Income Tax Act to provide clarity for payment of taxes.
The new section 93A read as follows:
“Due date for payment of tax
The tax due under this Act shall be payable—
(a) in the case of a taxpayer subject to section 20 of the Tax Procedure Code Act, 2014, on the due date for furnishing of the return of income to which the assessment relates; and
(b) in any other case, within forty-five days from the date of service of the notice of assessment.”
This means that the due date for payment of tax (self-assessed) is proposed as the due date for filing the tax return or it is 45 days from the date of service of the notice of assessment. This due date will be the starting point of any penalties and interest that may arise.
Clarity As To What “Deemed Date” is For Refund Applications
It was proposed that section 113 of the Income Tax Act is amended by inserting immediately after subsection (4) the following:
“(4a) A taxpayer shall be deemed to have submitted an application for refund referred to in subsection (4), on the date on which the application is received by the Commissioner.
(4b) Notwithstanding the provisions of subsection (4a), where the Commissioner requests for additional information, the application for refund shall be deemed to have been submitted on the date on which the additional information is received by the Commissioner.”
This means that deemed date will equal the date on which the commission received the application for refund. However, should a tax officer request for additional information, on each request and following each submission of information, the deemed date of the refund application will keep changing.
It should be noted that the deemed date is used for the computation of interest payable to a taxpayer following delayed processing of a tax refund application.
Repeal of The Income Tax Exemption
It was proposed to amend section 21 (1) of the Income Tax Act by repealing paragraph (z).
Paragraph (z) relates to a tax exemption for the processing of agricultural goods. Currently, taxpayers engaged in agro-processing are eligible for a tax exemption.
New Income Tax Exemption
It was proposed that taxpayers who “manufactures chemicals for agricultural use, industrial use, textiles, glassware, leather products, industrial machinery, electrical equipment, sanitary pads and for diapers” benefit from an exemption from income tax.
The proposed amendment also seeks to introduce a “general exemption” that would apply when a taxpayer has invested/invests a substantial amount into the Ugandan economy. The new subsection provides that an exemption from income tax will be available to an eligible manufacturer who meets either of these two conditions:
Option 1 –
Investment capital is, for over a period of at least 10 years from the date of commencement of business, at least equal to USD 50 million.
Option 2 –
Make an additional investment equivalent to USD 50 million with the capacity to use at least 50% of available locally produced raw materials and employ at least 100 citizens.
Waiver To Withhold Tax
A proposed amendment to Section 11B of the Income Tax Act will make it possible for a resident taxpayer sells a business or business asset to another resident taxpayer to obtain a waiver to withhold tax on the sale of same.
However, to obtain their waiver, the tax authorities need to be satisfied that both the taxpayers are residents and (seller and buyer) have regularly complied with their tax obligations.
Automatic Exchange of Information
The proposed amendment provides that:
“Where an international agreement provides for automatic exchange of information for tax purposes, the Commissioner shall facilitate the automatic exchange of information, as may be prescribed.”
“the Minister may make regulations to provide for the automatic exchange of information for tax purposes”
These two amendments adhere to the commitment that Uganda made to adopt the OCED Automatic Exchange of Information mechanism as of 2023.