On 14 June 2022, Uganda’s Minister of Finance, Planning and Economic Development Mr Matia Kasaija presented the Ugandan Budget for 2022/2023.
The Budget theme is: “Full Monetisation of Uganda’s Economy through Commercial Agriculture, Industrialisation, Expanding and Broadening Services, Digital Transformation and Market Access”.
We have summarised the fiscal measures below.
These fiscal amendments were made through amendments to the various tax laws such as the income tax act, the value-added tax act etc. The amendment acts were passed by Parliament and are awaiting assent by the President. All the fiscal amendments will take effect from 1 July 2022.
We also note that in his speech the Minister proposed that no new taxes will be introduced in Financial Year 2022/2023. Instead, he provides that the Government of Uganda use a mix of domestic and external resources. He also proposed that revenue targets will be achieved by improving tax collection and enhancing compliance with tax laws.
Extension of Bujagali Hydro Power Project income tax exemption
Income tax exemption for the Bujagali Hydro Power Project has been extended for 1-year to 30th June 2023.
This project initially provided for a 5-year income tax exemption starting in 2017 and ending in 2022.
Rental income tax changes
- The way rental income tax is computed by individuals has been amended.
- Currently, rental income tax is computed at the rate of 30% of chargeable income.
- As of 1 July 2021, if the annual gross rental income amounts to below UGX 2,820,000, the tax rate will be nil. If the annual gross rental income amounts to above UGX 2,820,000, the applicable tax rate will be 12% and no deductions will be allowed.
- Company rental income is taxed at a flat rate of 30%.
- Companies earning rental income will be allowed to claim expenditure and losses up to a maximum of 50% of their annual gross rental income.
- Companies will also not be allowed to carry forward any excess expenditure and losses.
Beneficial owners’ definition change
The definition of beneficial owners has been amended.
It amends the “final ownership” and “absolute control” tests and replaces them with the “ultimate control and ownership” test.
This is in line with the Organisation for Economic Co-operation and Development (‘OECD’) standards and requirements.
The beneficial owner means:
- The natural person who ultimately owns or controls a customer
- The natural person on whose behalf a transaction is conducted, and this includes a person who excises ultimate control over a legal person or arrangement.
A legal person means:
- A natural person who either directly or indirectly holds at least 10% shares or voting rights.
- A natural person exercising control of the legal person through other means including personal or financial superiority.
- A natural person who has the power to make or influence a decision of the legal person.
- It also includes the beneficiaries of a trust who are yet to be determined.
A research institution whose object is not for profit has been included in the list of exempt organisations in the income tax act.
It has been clarified that income from the transport of passengers and/or goods and/or mail embarked outside Uganda is not income derived from a Ugandan-source service contract.
Therefore, the income should be treated as exempt income.
This is in line with international tax policy practice guides.
The first schedule of the Income Tax Act is being amended as follows:
Added: International Development Law Organisation
Amended and replaced: Department for International Development with Foreign Commonwealth and Development Office.
Clarification for petroleum and mining sector
Confirmed that the income tax act applies over the tax procedures code act such that a penalty tax of at least USD 50,000 up to USD 500,000 will be levied against a petroleum and mining licensee when he fails to furnish a return or to provide a document within a prescribed time limit.
Value Added Tax
Exempt imported service
Amended what constitutes an exempt imported service by removing the words “or would be used in the provision of an exempt supply.”
This amendment is to align locally supplied and imported services. The old wording exempted VAT on services when imported which would be standard rated when supplied locally.
Addition to the Public International Organisations.
The International Development Law Organisation and the Foreign Commonwealth and Development Office have been added to the list. They are therefore exempt for VAT purposes and any person supplying them shall not charge them VAT.
Cash Basis Accounting
The amendment act provides that a taxpayer who supplies goods or services to the Government may elect to account for tax on a cash basis. This means that revenue and expenses are recognised when actual payments are received or paid.
The definitions of fruit juice, un-denatured spirits and vegetable juice were amended.
This will affect manufacturers, importers and providers of these products.
The Stamp Duty act is being amended such that these below items will now include NIL stamp duty.
- NIL stamp duty on an AGREEMENT relating to the deposit of title- deeds, pawn pledge – of the total value. This is primarily used when movable chattels like motor vehicles are used as security in getting a loan.
- NIL stamp duty on Agricultural Insurance Policies.
- NIL stamp duty on SECURITY BOND OR MORTGAGE DEED executed by way of security for the due execution of an office, or to account for money or other property received by virtue of security bond or mortgage deed executed by a surety to secure a loan or credit facility – of entry total value.
It was also clarified that stamp duty on the transfer from a holder of letters of administration or probate to a beneficiary to be UGX 15,000.
Reduction of stamp duty threshold
There has also been a reduction of the threshold for investor incentives. The investment threshold has been reduced by USD 15 million and now stands at USD 35 million for stamp duty exemption on certain instruments for manufacturers who meet the specified criteria.
This measure is to encourage foreign and local direct investment in manufacturing.
Tax Procedure Code/Tax Appeal Tribunals Amendments
Change of the effective date of expiry of all tax agent registration
The date was changed to 31st December of every calendar year irrespective of their registration commencement date.
Temporary closure of businesses that do not comply with the requirements of electronic receipting and invoicing of tax stamps
Businesses that do not comply with the electronic receipting and invoicing system known as Electronic Fiscal Receipting and Invoicing System (“EFRIS”) introduced by the Uganda Revenue Authority (“URA”) may be asked to temporarily close after receiving a URA notice of non-compliance.
Increased penalty for making false or misleading statements
The penalty is increased from UGX 4 million to UGX 11 million.
Requirement for disclosure of contractors
Persons in construction or extractive industries will be required to disclose all contractors used in conducting all operations within 7 days from the date of signing of the contract. If this is not complied with, the URA can impose a penalty of UGX 20 million.
Payment of informers
There has been a revision on the scope of informers and their reward to encourage voluntary compliance.
Persons who provide information leading to:
- Identification of unassessed tax or duty, the reward is the lesser of 1% or UGX 15 million.
- Recovery of unassessed tax or duty, the reward is the lesser of 5% or UGX 100 million.
Offences in relation to the EFRIS system
New offences are in line with the introduction of the EFRIS system.
These offences will be liable to a fine or imprisonment not exceeding 10 years or both.
- Failure to fix or activate tax stamps
- Forgery of an EFRIS invoice
- Printing over or defacing tax stamps
- Interfering with an EFRIS control device
- Forgery of tax stamps
- Failure to file an information return relating to automatic exchange of information.
- Failure to maintain records for purposes of automatic exchange of information
- Making a false or misleading statement in the information return
- Omitting from a statement made in the information return
Tax Appeal Tribunal Members
The amendment act provides for an increase from 4 members to 8 members and at least 40% of the members of the tribunals shall be women.