Proposed changes to the Income Tax Cap 340 and the Value Added Tax Act Cap 349
"Tax Review "
On the 30th March
2020, the Ministry of Finance gazette the Income Tax (Amendment) Bill 2020, the
Value Added (Amendment) Bill 2020, the Excise Duty (Amendment) Bill 2020 and
the Stamp Duty (Amendment) Bill 2020. Below we highlight key changes that will
be introduced by proposed amendments to the Income Tax Act Cap 340 and the
Value Added Tax Act Cap 349.
PROPOSED AMENDMENTS TO THE
INCOME TAX ACT CAP 340
Rental income derived by a
partnership will be imposed on the individual partners.
The current regime treats
expenditures and losses incurred by individuals and partnerships in deriving
rental income differently from those of other tax payers (companies, trusts,
retirement funds and other tax payers). Companies, trusts, retirement funds and
other taxpayers, not being individuals or partnerships, have previously been allowed
to deduct all expenses and losses incurred in generating rental income. Under
the proposed amendment, all persons (including individuals) who have rental
income will be allowed to deduct 50% of the rental income as expenditures and
losses incurred in the production of such income.
Furthermore, where a person
earns rental income from more than one building, the taxpayer will have to
account for income and expenses and pay tax of each building separately.
Previously, the Income Tax
Act provided a formula for calculation of rental income in regard to individuals
and partnerships while it provided a rate of 30% for companies, trusts and
retirement funds. Under the proposed amendment, the rate of tax payable on
rental income will be 30% of the chargeable income for all persons (including
individuals) who earn rental income.
The bill introduces new
The income of the Deposit Protection Fund
established under section 108 of the Financial Institutions Act as Amended will
be exempted from income tax.
The Islamic Development Bank will be included
in the 1st schedule to the Income Tax Act thereby exempting its
income from tax in accordance to section 21 of the Income Tax Act.
Existing operators or any person carrying on
business outside the industrial park or free zones upon making an additional
investment equivalent to ten million United States Dollars in case of
foreigners or one million United States Dollars in case of a citizen will
qualify to enjoy tax exemptions.
Deductions for e-invoicing
No deductions will 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 e-receipts.
The Bill introduces new
withholding tax requirement;
A resident person who purchases land, other
than land which is a business asset, from a resident person will be mandated to
withhold tax at a rate of 0.5% of the purchase price.
Where an insurance service provider pays
commission to an insurance agent, the insurance service provider will be
mandated to withhold tax at a rate of 10% on the gross amount paid.
Every person who makes a payment for a
commission to an advertising agent will be mandated to withhold a tax at a rate
of 10% on the gross amount of the payment.
Introduction of tax
clearance certificates requirement for transport service providers
Before renewal of
operational licenses of a taxpayer who provides passenger transport service or
a freight transport service, such a taxpayer must have a tax clearance
certificate from the Commissioner General in accordance with the Tax Procedures
Code Act 2014.
New tax regime for small
businesses (presumptive tax)
The 2nd schedule
to the Income Tax Act which provides for the tax rates paid by small businesses
(businesses with a turnover of less than UGX 150, 000,000) under the
presumptive tax regime will be amended to provide for different treatment for
those small businesses with documents and those without documents.
Minimum Tax Rate
The new tax regime will
impose a minimum tax rate of 0.5% percent of the gross turnover in the sixth
year on tax payers whose declared tax liability for a consecutive period of
five years of income averages less than 0.5 percent of gross income.
PROPOSED AMENDMENTS TO THE
VALUE ADDED TAX ACT CAP 349
Accounting for commercial
Owners of more than one
commercial building shall be required to account for tax for each commercial
An owner of a building shall
not be allowed to claim inputs used in the construction of an incomplete
building against the tax collected from a completed commercial building.
Tax credit on e-invoicing
A taxable person will only
be able to claim a tax credit on expenses on purchase of goods and services
from a supplier who is designated to use the e-invoicing system if those
expenses are supported by e-invoices or e-receipts.
Islamic Development Bank
The Islamic Development Bank
will be added in the 1st Schedule to the Value Added Tax Act as a
Public International Organization which will allow it to claim for a refund of
tax paid or borne by it pursuant to section 45 of the Value Added Tax Act.
The 2nd schedule
to the Value Added Tax Act has been amended to include other supplies in the
list of exempted goods and supplies.