Tax exemption for professional regulators
:bodies established by law for the purpose of regulating the conduct of professionals such as the Uganda Law Society (ULS), the Institute of Certified Public Accountants of Uganda (ICPAU) and the Uganda Medical and Dental Practitioners Council to receive ‘exempt organization’ tax exempt status.
Estimates of rental income; Minister of Finance to prescribe (via statutory instrument) estimates of rent for rental properties, based on the rating of the property in the specific location. The prescribed estimates may be applied by the URA to assess rental income for persons who fail to file a return of rental income or whose return appears to be misleading and has been contested by the Commissioner.
Exemption for Bujagali Hydro Power Project; The Bill proposes to exempt the income of the Bujagali Hydro Power Project up to 30 June 2033. This amendment is aimed at removing income tax as a cost component of the Bujagali tariff, thereby subsidizing the cost of electricity to the final consumer.
Initial allowance for plant and machinery; the Bill reintroduces an initial allowance deduction of 50% for new plant and machinery. A similar allowance was previously in place up until June 2014, whereby a person who placed an item of eligible property into service for the first time during the year of income was allowed an initial allowance deduction of 50% or 75%, depending on the location where the asset was used. The allowance was in addition to the normal wear and tear deduction.
Its removal in 2014 made the country less competitive when compared to our East African neighbours. Specifically, it applies to buildings which are wholly or partly used in manufacturing operations, research and development relating to methods of manufacture, mining operations, approved hotel businesses and approved hospitals.
Transactions between associates; The Bill proposes to widen the scope of the transfer pricing provision from ‘transactions between taxpayers who are associates’ to simply ‘transactions between associates’. This gives the URA wider scope to apply the transfer pricing rules to transactions with persons who are not taxpayers, such as non-residents, tax-exempt entities or employees with income below the tax payment threshold.
Taxation of betting and gaming; The Bill reinstates section 118C of the ITA (Income Tax Act), which imposes a 15% withholding tax on the payment of winnings from sports or pool betting. Such winnings are taxable as property income. This withholding tax requirement was previously introduced in 2014 but was repealed again last year with effect from 1 July 2016.
Advance tax payable by transport operators; An amendment to the ITA in 2015 introduced a requirement for providers of passenger or freight transport services to pay an ‘advance’ tax before renewal of their annual operation licenses. The tax was prescribed as Ugx50,000 per tonne per year (for goods vehicles carrying at least two tonnes) or Ugx20,000 per passenger per year (for passenger vehicles). However, the requirement to pay the tax was not clearly set out in a taxing provision (it was instead included in section 134 of the ITA dealing with tax clearance certificates). The Bill attempts to remedy this drafting anomaly by including a new section 123A among the withholding tax provisions, which formally imposes the advance tax. The tax rates remain unchanged, but the basis is clarified by stating that the Ugx20,000 applies per seat rather than per passenger (stated as ‘person’).
Requirement to report financial transactions; The Bill proposes to introduce a new requirement for financial institutions, microfinance institutions, forex exchange bureaus and money transferring institutions to report any transaction exceeding 1,000 currency points (currently equivalent to Ugx20 million) to the URA on a monthly basis. The report is required to be filed by the 15th day of the following month, or otherwise as required by the Commissioner.
Cap on interest penalty; The Bill introduces a cap on the amount of interest penalty that can be imposed by the URA on unpaid income tax. This applies to the 2% per month late payment interest imposed under section 136 of the ITA on unpaid income tax (including withholding tax) and penal tax.
Value of motor vehicle benefit; The Bill amends the formula for calculating the taxable value of a motor vehicle provided to an employee by taking into account depreciation of the vehicle.
Calculation of net income from petroleum operations; Earlier this year, on 18 January 2017, the Government issued a separate Income Tax (Amendment) Bill which proposes to change the basis for calculating chargeable income from petroleum operations. The proposal amends section 89GA of the ITA to limit the deduction of costs in any income year to the amount of cost oil (i.e. the licensee’s share of the total oil production that represents recovery of their costs, in accordance with the terms of the petroleum agreement -“PA”). The excess costs can only be carried forward to deduct against cost oil in a subsequent year, until fully exhausted.
Value Added Tax (VAT) concession for aid funded projects; The Bill proposes to extend the special VAT treatment for aid-funded projects to include supplies made to the Government. The net result is that the VAT does not become an additional cost to the project.
Due date for payment of VAT; The Bill proposes to reinstate the prior provision of the VAT Act that prescribed the due dates for payment of tax.
- In the case of a taxable supply by a taxable person in respect of a tax period, the due date for filing the related return.
- In the case of an assessment under the VAT Act, the date specified in the notice of assessment.
- In any other case, on the date the taxable transaction occurs.
Also reinstated via this provision is the requirement that, where an objection or appeal has been lodged to an assessment, the assessed tax is payable and may be recovered notwithstanding the objection or appeal.
Cap on interest penalty; In a similar manner as described above for income purposes, the Bill proposes to introduce a cap on the 2% interest penalty payable on unpaid VAT.
VAT on wheat grain; The Bill removes the VAT exemption for the supply of unprocessed wheat grain. In 2013, wheat grain was specifically excluded from the VAT exemption for unprocessed agricultural products, but the exclusion was removed in 2016, meaning that unprocessed wheat grain was VAT-exempt from 1 July 2016.
Additional VAT exemptions; The Bill proposes to include the following items on the list of VAT exempt supplies:
- Animal feeds and premixes.
- Crop extension services;
- Irrigation works, sprinklers, and ready to use drip lines.
- Tourist arrangement services, access to tourist sites, tour guide and game driving services;
- Deep cycle batteries and composite lanterns;
- Menstrual cups.
The first four exemptions are intended to encourage growth in the agriculture and tourism sectors.
Due date for filing provisional returns; The Bill clarifies the due dates for filing of provisional tax returns for individuals and non-individuals. This addresses an anomaly in the current provision, which does not specifically state the requirements for individuals. Individuals are required to file four provisional returns by the last day of the third, sixth, ninth and twelfth months of the year, in respect of the tax liability for periods of three, six, nine and 12 months, respectively. Non-individuals are required to file two provisional tax returns by the last day of the sixth and twelfth months of the year, for periods of six and 12 months respectively.
Returns under Lotteries and Gaming Act; The Bill proposes to expand the returns of gaming tax required under the Lotteries and Gaming Act 2015 to comprise the following:
- A weekly return due by Wednesday of the following week;
- A monthly return due by the 15th day of the following month.
- Tax stamps; The Bill introduces a new requirement to affix a tax stamp on any imported or locally manufactured goods as may be prescribed by the Minister.
The Bill also brings in new penal taxes relating to tax stamps, as follows:
- Failure by a taxpayer to affix a tax stamp: the greater of double the tax due or sh50 million.
- Printing over or defacing of a tax stamp fixed on goods: greater of double the tax or sh20 million.
- Possession of goods on which a tax stamp is not affixed: greater of double the tax or sh50 million.
- Acquiring or attempting to acquire a tax stamp without the authority of the Commissioner is an offence liable on conviction to a penalty equal to the greater of double the tax due or sh10 million.
- Order of payment; The Bill seeks to clarify the order in which tax payments are applied to outstanding tax liabilities. The first priority for payment is to be reworded as ‘the principal tax’ in substitution for the current wording of ‘the tax liability’. The current wording was a little confusing, as the second and third priorities (namely penal tax and interest, respectively) could also be regarded as part of the tax liability. The position is now clearer. Where a taxpayer is liable for penal tax and/or interest in relation to a principal tax liability and makes a payment that is less than the total, the payment will be applied to clear the liabilities in the following order: the principal tax the penal tax the interest due.
- Penal tax for failure to provide information; The Bill proposes a new section 49A which imposes two new penal taxes for failure to provide information when requested by the URA.
These are prescribed as follows:
- Ugx50million for failure to provide records requested by the Commissioner in respect of transfer pricing within 30 days of the request; and
- Ugx20million for failure to provide other information upon request by the Commissioner.
- Introduction of specific rates for beverages; The Bill introduces a new rate regime for certain beverages, where the excise duty will be calculated as the higher of a specific rate (i.e. based on volume) and an ad valorem rate (based on value). These items are currently subject to an ad valorem rate only. (Details in table below). The rationale for introducing specific rates on these products is to align the excise duty regime with other East African Community countries and to prevent revenue leakage in cases where imports are undervalued for customs purposes. Apart from other wines, the ad valorem rates have remained the same, so this will result in either the same or an increased duty amount.
The Bill increases the following duty rates:
- Soft-cap cigarettes: from Ugx50,000 to Ugx55,000 per 1,000 sticks; and
- Other furniture (i.e. furniture which is imported or assembled in Uganda from foreign materials, but excluding specialized hospital furniture): from 10% to 20%.
The Bill reduces duty rates as follows:
- Sugar confectionaries (chewing gum, sweets and chocolates): from 20% to 0%; and furniture manufactured in Uganda using local materials, excluding furniture which is assembled in Uganda: from 10% to 0%.
- The removal of excise duty on Uganda-manufactured furniture using local materials, along with the increased 20% rate on imports, is aimed at encouraging the local furniture industry.
As noted, the duty now catches fruit and vegetable juices where less than 30% of the pulp is from fruit and vegetables grown in Uganda. Previously, all fruit and vegetable juices were excluded from excise duty, regardless of source. This move is designed to encourage local sourcing and agricultural production.