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17 April 2018 Uganda issues Tax Amendment Bills for 2018 On 3 April 2018, Uganda's Minister of Finance, Planning and Economic Development (Minister of Finance) tabled before Parliament the following bills:
If passed by Parliament and assented to by the President of the Republic of Uganda, all the Bills will become law on 1 July 2018. Passage of the Bills is anticipated in early June. The proposed amendment introduces new sections to exempt the income of operators and developers in an industrial park or free zone for a specified period of time. It specifically exempts: (i) The income of a new developer of an industrial park or free zone whose investment capital is at least US$200m for a period of 10 years from the date of commencement of construction. (ii) The income of an operator in an industrial park or free zone or other business outside the industrial park or free zone whose investment capital is at least US$30m in the case of a nonresident or US$10m in the case of a Ugandan citizen, for five years from the date of commencement of business. Currently, under paragraph (ad) of Section 21 of the Income Tax Act (ITA) Cap 340, the income of a savings and cooperative society is exempt through 30 June 2027. The bill proposes to repeal this provision. Thus, the income of the savings and cooperative societies would be taxable. The bill proposes to allow interest incurred on a mortgage from a financial institution as a deductible expense by an individual who acquires or constructs premises that generate rental income. Currently, Section 25 of the ITA Cap 340 allows a deduction for interest incurred during the year of income in respect of a debt obligation to the extent that the debt obligation was incurred in the production of income included in gross income. Section 89 of the ITA restricts the amount of interest that is deductible where a foreign controlled resident person has a debt to equity ratio in excess of 1.5 to 1 during the year of income to that part of interest arising from debt that does not exceed the 1.5 to 1 ratio. The bill proposes to repeal the thin capitalization provisions under Section 89 of the ITA while prescribing new interest deductibility limitations under Section 25 as follows: (i) For all debts owed by a taxpayer who is a member of a group, the amount of deductible interest in respect of all debts shall not exceed 30% of the tax earnings before interest, tax, depreciation and amortization (EBITDA). (ii) Any taxpayer whose interest exceeds 30% of the tax EBITDA may carry forward the excess interest for not more than three years, and the excess interest shall be treated as incurred during the next year of income. This proposal effectively caps deductible interest expense during the year of income and any excess interest expense is deferred for future deduction within the following three years of income after which the interest expense loses would its deductibility for income tax purposes. Subsection 2 of Section 26 of the ITA provides for a deduction of expenditure incurred in acquiring a depreciable asset whose value does not exceed UGX1 million (approx. US$271). This applied to returnable containers. The proposed bill now seeks to exclude a deduction for returnable containers as minor capital assets but rather provides for a deduction of an amount representing the reduction in value of returnable containers for a year of income. The Bill however does not prescribe how the amount representing the reduction of value of returnable containers will be established. The ITA currently allows a taxpayer who has assessed tax losses to carry forward their assessed tax losses indefinitely to be deducted against future gross income. The bill proposes to impose a tax of 0.5% of the gross turnover of a taxpayer after the seventh year of income and onwards, where the taxpayer has had consecutive tax losses for a period of seven years. It has been proposed that the Minister shall make regulations for tax accounting of Islamic financial transactions. Introduction of additional provisions regarding change in control of companies as per Section 75 of the ITA Cap 340 Where income has been derived from the direct or indirect change in ownership by 50% or more of a person (other than an individual, a government, a political subdivision of government and a listed institution) located in Uganda. The person whose ownership has changed by 50% or more within a three year period is treated as:
This provision is likely to trigger capital gains tax on the entity whose assets and liabilities are deemed to have been realized and re-acquired or re-stated following a direct or indirect change of 50% or more of its ownership. The Bill proposed to amend Section 78 of the ITA that provides the definition of improvable property to include "any intangible asset which is a business asset or any part of the business." This provision means that non depreciable intangible assets as well as parts of the business would be immovable property for income tax purposes. It has been proposed that Section 79 include a new paragraph that provides for sourcing of income by direct and indirect disposal of ownership of 50% or more of a person (other than an individual, a government, a political subdivision of government and a listed institution) located in Uganda. This means that an indirect as well as a direct change of ownership of an entity located in Uganda would now give rise to income sourced in Uganda. Introduction of an additional provision regarding the meaning of an international agreement as per Section 88 of the ITA Cap 340 The Bill proposes to expand the definition of an international agreement to include the Inter-Governmental Agreement on the East African Crude Oil Pipe Line. This implies that the Inter-Governmental Agreement on the East African Crude Oil Pipe Line will be treated as an international agreement and in the case of inconsistences between its provision and those of the ITA, its provisions will prevail over the provisions of ITA except in cases of tax avoidance. As discussed in paragraph 4 above, Section 89 of the ITA that limited the deductibility of interest has been proposed to be repealed while a new interest deductibility provision is proposed to be introduced. Amendment of Part IX A (Section 89A-89G) regarding the specific provisions for the taxation of mining and petroleum operations: (i) The bill proposes to repeal the definition of "petroleum exploration right" that is currently defined as "a reconnaissance permit or petroleum exploration license." (ii) The amendment of the definition of "mining exploration right" in Section 89A is proposed to mean "a prospecting, exploration or retention license granted under the Mining Act" from "a prospecting, exploration, or retention license." (iii) Section 89GE regarding farm-out is proposed to include the transfer of the whole of the interest in a mining right or petroleum agreement. It previously only provided for the transfer of part of the interest of the transfer of a mining right or petroleum agreement. Re-introduction of Section 92 into the principle Act from the Tax Procedural Code Act regarding furnishing of a return of income Section 92 had originally been repealed and transferred to the Tax Procedural Act of 2014. The proposed amendment suggests the re-introduction of filing of returns provisions into the principle Act. Introduction of WHT on payments for winnings of betting/gaming, for agricultural supplies, commission paid by telecom service providers on airtime distribution and mobile money It has been proposed to replace Section 118C which provided for 15% WHT on payments for winnings of sports betting or pool betting with the following:
This effectively expands the requirement to withhold 15% on payments for winnings of sports betting to payments for winnings of any form of betting. The Bill proposes to introduce WHT at a rate of 1% on a gross payment for agricultural supplies in excess of one million shillings if the payer is designated by the Minister to withhold tax. Introduction of a WHT requirement for a telecommunications service provider who makes a payment of a commission for airtime distribution or provision of mobile money services. A WHT of 10% shall apply on the gross amount of the payment of such commissions. The above WHT on the commission fees will be a final tax. Specifying of operations under which VAT is not deemed to have been paid in respect of some supplies made to a government ministry, department or agency Despite the fact that VAT on supplies to a government ministry, department or agency is deemed to have been paid, specifically, taxable supplies such as passenger automobile, the repair and maintenance of that automobile; or entertainment shall not be deemed as paid by the ministry, department or agency. The ministries, departments or agencies will therefore be required to pay the VAT on passenger automobiles, repairs and maintenances of the same as well as entertainment. Electronic services shall be defined to include websites, web-hosting or remote maintenance of programs and equipment, software, images, texts and information, access to databases, self-education packages, music, films, games of chances, political, cultural, artistic, sporting, scientific and other broadcasts. A taxable person shall file a tax return with the Commissioner General for each tax period within 15 days after the end of the tax period. In addition to this filing requirement, the Commissioner General may require any person, whether that person is a taxable person or not, to file further or additional returns in the prescribed form, on that person's own behalf or as agent or trustee of another person. Where an objection against an assessment has been filed, tax payable under the assessment remains due and payable and may be recovered, notwithstanding that objection or appeal. However the date of payment of the tax may be extended with the discretion of the Commissioner General. Education materials shall be defined to mean locally produced materials which are suitable for use in public libraries or for educational services prescribed by the Minister by regulations. The Minister shall, by notice in the Gazette, designate persons who shall withhold VAT of 50% before making a payment for a taxable supply and the persons designated shall remit the VAT invoiced to the Uganda Revenue Authority (URA).
The bill seeks to insert the definition of "over the top services" as follows: "'over the top services' means the transmission or receipt of voice or messages over the internet protocol network and includes access to virtual private networks but does not include educational or research sites prescribed by the Minister by notice in the Gazette." A person providing an excisable service becomes liable to pay excise duty on that service on the earlier of the date on which the performance of the service is completed; the date on which payment for the service is made; or the date on which an invoice is issued. A telecommunications service operator providing data used for accessing over the top services is liable to account for and pay excise duty on the access to the over the top services. The Commissioner may, if satisfied that excisable goods have been exported, remit the excise duty chargeable on those goods. This implies that the manufacturer of these products has to provide proof to the commissioner that the goods have been exported before a waiver/remission is granted. It also implies that for goods for export to qualify for zero rating of excise duty, there must be an application for duty remission to the Commissioner of Domestic Taxes.
Interest that is due and payable as a result of any unpaid excise duty and which exceeds the aggregate of the principal tax shall be waived. This proposed amendment means that the maximum interest that a taxpayer will incur shall not be more than the total of principal tax. Generally the proposed excise duty rates are a hybrid of specific and ad- valorem rates and duty is paid on whichever is higher. A licensed person shall be required to furnish a weekly in addition to a monthly return with the Commissioner. Currently an operator of a casino, gaming or betting activity issued with a license under the Lotteries & Gaming Act, 2016, is required to file a tax return with the Commissioner by the 15th day of the following month.
This was a proposal within the 2017 Tax Procedures Code (Amendment) Bill, however it met resistance and was never passed into law. The 2018 amendment bill reintroduces it. The Minister to pay taxes on behalf of a person; to waive all taxes due and unpaid by Government as at 30 June 2018
It is unclear why this amendment refers to subsection (1) of Section 40 which does not provide for WHT by the Government. The Minister shall publish in the Gazette and in a newspaper of national circulation, a list of all taxes waived. Introduction of electronic receipting and invoicing and penal tax relating to electronic receipting and invoicing The amendments introduce new sections dealing with electronic receipting and invoicing. An electronic receipting and invoicing linked to the tax authority's system is a new concept in Uganda. The proposed requirements on electronic billing and receipting are geared towards improving efficiency in tracking and verifying invoices issued by the taxpayer.
Prior to hearing any filed application, the TAT may refer the matter for mediation to a Registrar or to a mediator in accordance with Judicature (Mediation) Rules, 2013. The TAT may make an order as to damages, interest or any other remedy against any party, and the order shall be enforceable in the same manner as an order of the High Court of Uganda. Power of the registrar to handle interlocutory applications, taxation of Bills of Costs and mediation
Interlocutory applications generally deal with some point or matter affecting the rights of the parties in the interval between the commencement of the application and its final determination. Interlocutory decisions are usually provisional in nature pending the final determination of the controversy. Any instruments used to execute Islamic financial transactions shall be chargeable with a stamp duty prescribed by the Minister by statutory instrument, with the approval of Parliament. The bill defines, "Islamic financial transactions" to mean "Shariah compliant financial services including Murabahah, Mudarabah, Musharakah, Ijara, Wakalah, Jualah, Sukuk and Takaful."
A person shall not import a motor vehicle which is eight years old or more from the date of manufacture. Currently there is no limit on the age of a motor vehicle imported into Uganda.
A person who imports a motor vehicle which is five years old or more from the date of manufacture shall pay an environmental levy on that vehicle. The current rates have been proposed to change as follows:
Document ID: 2018-5544 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
