Executive summary

On 1 April 2021, Uganda’s Minister of Finance Planning and Economic Development tabled Tax Amendment Bills, 2021 before Parliament for debate. Once passed into law by the Parliament and assented to by the President of the Republic of Uganda, the Bills will take effect from 1 July 2021.

This Alert highlights the key proposals with respect to:

• Income Tax (Amendment) Bill, 2021
• Value Added Tax (Amendment) Bill, 2021
• Excise Duty (Amendment) Bill, 2021
• Tax Procedure Code (Amendment) Bill, 2021
• Stamp Duty (Amendment) Bill, 2021
• Tax Appeals Tribunal (Amendment) Bill 2021

Detailed discussion

The Income Tax (Amendment) Bill, 2021

Redefining beneficial owner

The bill proposes to redefine a beneficial owner to mean:

• 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:
  • In relation to a legal person, the natural person who either directly or indirectly holds at least 10% of the shares or voting rights.
  • The natural person exercising control of the legal person through other means including personal or financial superiority.
  • The natural person who has power to make or influence a decision of the legal person.
• In relation to trusts, it includes:
  • The settlor
  • The trustee
  • The protector
  • The beneficiaries
  • Any other natural person exercising absolute control of the trust
• In relation to other legal persons, similar to trusts, a natural person holding a position equivalent any of the positions referred to in the section above.

This proposal intends to accommodate the different interpretations under Double Tax Agreements.

Definition of consideration

The bill proposes to define consideration to include 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 supply or sale.

Redefining an exempt organization

The bill proposes to redefine an exempt organization as a religious, charitable or educational institution whose object is not for profit.

Ringfencing operations of rental business

It is proposed that all persons who earn rental income from more than one rental building shall account for income and expenses of the rental buildings separately and pay tax for each of the rental buildings separately.

Repeal of income tax exemption for income derived from agro-processing

The bill proposes to repeal the income tax exemption for persons engaged in agro-processing.

Widening the scope for strategic investment sectors

The bill proposes to include investors who manufacture chemicals for agricultural use, industrial use, textiles, glassware, leather products, industrial machinery, electrical equipment, sanitary pads and diapers to the strategic sectors whose income is exempt.

Income tax exemption for investors

The income of a manufacturer whose investment capital is, for  over  a  period  of  at  least  10  years  from the date  of commencement of business at least US$50 million or from the date a manufacturer makes an additional investment equivalent to US$50 million, uses 50% of locally produced raw materials as well as employing a minimum of 100 citizens.

Capping allowable expenses under rental income

It is proposed that allowable expenses and losses for purposes of deriving rental income for persons (individuals, companies, partnerships) shall be capped at 60%.

Introduction of a uniform rental tax rate

The bill seeks to create a uniform tax rate for all persons (individuals, companies, partnerships) deriving rental income at 30%.

Re-classification of depreciable assets

It is proposed that depreciable assets be classified in three classes and class IV repealed as follows:

• Class 1: 40% for computers and data handling
• Class 2: 30% for plant and machinery used in farming, manufacturing, and mining
• Class 3 20% for assets comprised of:
  • Automobiles - buses, minibuses, goods vehicles, construction and earth moving equipment, specialized trucks, tractors, trailers and trailer mounted containers, rail cars, locomotives, and equipment
  • Vessels, barges, tugs, and similar water transportation equipment
  • Aircraft
  • Specialized public utility plant, equipment, and machinery
  • Office furniture, fixtures and equipment
  • Any depreciable asset not included in another class

Deferment of initial allowance for depreciable assets and industrial buildings

The Bill proposes to defer a claim of wear and tear (depreciation) of an asset that qualifies for an initial allowance to the next year of income.

Additionally, a deduction for depreciation of an industrial building that qualifies for an initial allowance shall be deferred to the next year of income.

Adjusting the cost base of an asset for purposes of computing capital gains tax

It is proposed that where 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/CPIA

Where:

• CB is the amount of an item of cost or expense Incurred determined in accordance with section 52 (2).
• 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.

This provision shall not apply to an asset that is sold within 12 months from the date of purchase.

Non-recognition of capital gains/losses for venture capital funds

The bill proposes that no capital gains will be recognized from the sale of an investment interest in a registered venture capital fund if at least 50% of the proceeds on sale is reinvested within the year of income.

A registered venture capital fund shall be entitled to a nonrecognition of a gain or loss equivalent to the percentage of reinvested proceeds.

Automatic exchange of information

It is proposed 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 shall make regulations to provide for the automatic exchange of information for tax purposes.

Due date for payment of taxes same as due date for filling returns

It is proposed that the due date for the payment of tax is the same as the due date for the furnishing of the return of income to which the assessment relates.

In any other case, the due date for payment is within 45 days from the date of service of the notice of assessment.

Deemed date for submitting refund application

The bill proposes that a taxpayer shall be deemed to have submitted an application for a refund on the date on which the application is received by the Commissioner.

In cases 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.

Withholding tax exemption by the purchaser of an asset

The bill proposes to exempt from withholding tax such payment by a resident person who purchases an asset from a nonresident where the Commissioner is satisfied that the person has regularly complied with the obligations imposed under this Act.

Income tax-exempt organizations

The bill proposes to include the African Export – Import Bank and the International Union for Conservation of Nature as exempt organizations under the first schedule of the Act.

Value Added Tax (Amendment) Bill, 2021

Repealing definition of biodegradable packaging material

The bill proposes to repeal the definition of biodegradable packaging material as its exemption was equally repealed in 2012.

Exemption of Value Added Tax (VAT) on imported services

The bill proposes to exempt imported services if the service would be exempt had it been supplied in Uganda.

Statutory limit on claim for input tax credit

It is proposed that a taxable person shall apply for input tax credit within six months from the date of the invoice.

Obligation to file quarterly VAT returns for specific service providers

It is proposed that nonresident suppliers who qualify as taxable persons because they make any of the following supplies will be required to file a tax return with the Commissioner General within 15 days after the end of three consecutive calendar months:

• Services physically performed in Uganda by a person who is in Uganda at the time of supply.
• Services in connection with immovable property in Uganda.
• Radio or television broadcasting services received at an address in Uganda.
• Electronic services delivered to a person in Uganda at the time of supply.
• Transfer, assignment, or grant of a right to use a copyright, patent, trademark or similar right in Uganda.
• Telecommunication services initiated by a person in Uganda.

This obligation would exist if the recipient of the supply is not a taxable person.

Refund of 5% VAT paid on purchases worth UGX10 million using e receipt/e invoices

The bill proposes that a non-taxable person who purchases goods or services from a taxable person and is issued with an electronic receipt or invoice or several electronic receipts or invoices worth UGX10 million within a period of 30 consecutive days, be entitled to a refund of 5% of the tax paid.

Repeal of knowingly and recklessly under penal tax

The bill proposes to eliminate the ingredients of knowingly and recklessly in determining whether a taxpayer is liable to penal tax under section 65(6) of the Act.

Exempt public international organizations

The bill proposes to include the African Export-Import Bank and the International Union for Conservation of Nature as public international organizations exempted from VAT.

VAT-exempt supplies

It is  proposed that the  following supplies that  are  currently exempt become standard rated supplies:

• The supply of services to conduct a feasibility study design and construction, the supply of locally produced materials for construction of premises which are not manufactured on the local market to a hotel or tourism facility
• The supply of production inputs into iron ore smelting into billets and the supply of billets for further value addition in Uganda
• The supply of all production inputs into limestone mining and processing into clinker in Uganda and the supply of clinker for further value addition in Uganda

Proposed supplies to be exempt from VAT include:

• Liquified gas
• Supply of services to a manufacturer whose investment capital is at least US$50 million, uses 70% raw materials locally sourced and employs at least 70% citizens

Proposed zero rated supplies

The supply of leased aircraft, aircraft engines, spare parts for aircraft, aircraft maintenance equipment and repair services. This amendment will take effect on 1 July 2020.

Excise Duty (Amendment) Bill, 2021

Remission of excise duty paid on plastic packaging

It is proposed that the Commissioner may, if satisfied that excise duty was paid on plastic packaging used in exports, medicaments or manufactured from recycled plastics equivalent to at least 50% of the raw material used, remit the excise duty paid.

Proposed duty rates

The bill proposes to amend Schedule 2 to the Excise Duty Act to vary excise duty as follows:

1. Reduced duty rate for Opaque beer from 30% or UGX650 per liter to 30% or UGX230 per liter whichever is higher
2. Duty rates for any other alcoholic beverage locally used; 30% or UGX230 per liter whichever is higher
3. Duty rates for any other non-alcoholic beverages locally produced other than a beverage made out of fermented sugary tea solution with a combination of yeast and bacteria; 30% or UGX230 per liter whichever is higher
4. Duty rates on plastic packaging and plastic granules; 5% or US$150 per ton, whichever is higher
5. Repeal of excise duty on Over the Top (OTT) services
6. Duty rate on Internet data except data for the provision of medical services and education services of 12% of the fee charged
7. Reduced duty rate on value added services from 20% to 12% of the fee charged
8. Duty rates on any other fermented beverages including cider, perry, mead, spears, or near beer of 60% or UGX950 per liter; whichever is higher
9. Nil excise duty on construction materials on manufacturers whose investment capital is at least US$50 million
10. Duty rate on wheat grain of UGX100 per kilogram

 Tax Procedures Code (Amendment) Bill 2021

Limiting the definition of a tax decision

Tax decision” means any of the following:

• A tax assessment
• A decision on any matter left to the discretion, judgment, direction, opinion, approval, satisfaction or determination of the Commissioner other than:
  • A decision made in relation to a tax assessment
  • A decision to refuse, issue or revoke a practice note or an omission to issue or revoke a practice note
  • A decision or omission that affects a tax officer or employee or agent of the Authority
  • The compoundment of an offense under any tax law
  • A decision to refuse, issue or revoke a private ruling or an omission to issue or revoke a private ruling

Local authority, government institution or regulatory body not to issue a license to any person without a TIN
The bill proposes that no license shall be issued for purposes of conducting any business in Uganda to any
person unless they have a Tax Identification Number (TIN).

Tax representatives

The bill proposes that the word ‘’agent’’ be substituted for the word ‘’representative’’ under sections 14(2) and (5).

Penalties for offences relating to Digital Tax Stamps

The bill proposes to introduce the following offenses:

• Attempt to acquire or acquiring or selling a tax stamp without goods is punishable, on conviction, to a fine not exceeding 500 currency points or to imprisonment for a term not exceeding five years or both.
• Acquiring tax stamps with the authority of the Commissioner and affixing the tax stamps on goods other than the goods approved by the Commissioner, is punishable on conviction, to double the tax due on the goods or 500 currency points, whichever is higher.

Tax under this section means tax imposed under the Excise Duty Act, 2014.

Three-year limit for amending self-assessed returns
The bill proposes to extend the period within which an amendment of a return can be made from 12 months to 3 years.

Alternative dispute resolution for taxpayers dissatisfied with objection decision

The bill proposes to introduce the settlement of tax disputes by alternative dispute resolution for any person dissatisfied with the Objection Decision of the Commissioner General.

The Minister may make regulations to provide for this alternative dispute resolution.

Repeal of the earliest liability rule

The bill proposes to repeal the current rule that the order of payment applies to the earliest liability first where a taxpayer has more than one liability when a payment is made.

Powers of the Commissioner during investigation

The bill proposes to empower the Commissioner during tax investigations with the following powers:

• To effect an arrest with an arrest warrant
• To issue an order for interim closure of premises
• To record charge and caution statement
• To execute a bond with or without security

Amendment of penalties for tax offenses

The bill proposes to increase the fines and imprisonment terms for the following offenses:

• Failure to furnish a tax return by the due date from a fine not exceeding UGX500,000 (25 currency points) to a fine not exceeding UGX1,000,000 (50 currency points)
• Failure to furnish return within the period specified by a court from a fine not exceeding UGX1,000,000 (50 currency points to a fine not exceeding UGX2,000,000 (100 currency points)
• Failure to comply with obligations under the Act from a fine not exceeding UGX 500,000 (25 currency points) to a fine not exceeding UGX2,000,000 (100 currency points)
• Failure to maintain proper records from a fine not exceeding UGX960,000 (48 currency points) or imprisonment not exceeding two years or both to a fine not exceeding UGX2,000,000 (100 currency points) or imprisonment not exceeding six years or both to a fine not exceeding UGX3,000,000 (150 currency points) or imprisonment not exceeding six years or both
• Use of false TIN from a fine not exceeding UGX480,000 (24 currency points) or imprisonment not exceeding one year or both to a fine not exceeding UGX3,000,000 (150 currency points) or imprisonment not exceeding six years or both
• Making false or misleading statements from a fine not exceeding UGX 960,000 (48 currency points or imprisonment not exceeding 2 years or both to a fine not exceeding UGX4,000,000 (200 currency points) or imprisonment not exceeding 10 years or both
• Obstructing a Tax Officer from a fine not exceeding UGX960,000 (48 currency points) or imprisonment not exceeding 2 years or both to a fine not exceeding UGX5,000,000 (250 currency points) or imprisonment not exceeding 10 years or both
• Introduction of a penalty for Aiding or Abetting a Tax Offense by a Tax Agent who will be liable to a fine equal to double the tax evaded or not exceeding UGX5,000,000 (250 currency points) whichever is higher, or imprisonment for a term not exceeding five years, or both
• Offenses relating to the recovery of tax from a fine not exceeding UGX960,000 (48 currency points) or imprisonment not exceeding 2 years or both to a fine not exceeding UGX5,000,000 (250 currency points) or imprisonment not exceeding 10 years or both
• Offenses committed knowingly or recklessly from a fine not exceeding UGX1,000,000 (50 currency points) or imprisonment not exceeding two years or both to a fine not exceeding UGX3,000,000 (150 currency points) or imprisonment not exceeding six years or both
• Offenses committed in any other case from a fine not exceeding UGX500,000 (25 currency points) or imprisonment not exceeding one year or both to a fine not exceeding UGX1,000,000 (50 currency points) or imprisonment not exceeding two years or both
• Offenses in relation to Tax Officers from a fine not exceeding UGX960,000 (48 currency points) or imprisonment not exceeding two years or both to a fine not exceeding UGX3,000,000 (150 currency points) or imprisonment not exceeding six years or both
• A person who directly or indirectly offers or gives to a tax officer any unlawful payment or reward from a fine not exceeding UGX960,000 (48 currency points) or imprisonment not exceeding two years or both to a fine not exceeding UGX3,000,000 (150 currency points) or imprisonment not exceeding six years or both
• A person who proposes or enters into any agreement with a tax officer in order to induce the officer by which the tax revenue is defrauded from a fine not exceeding UGX960,000 (48 currency points) or imprisonment not exceeding two years or both to fine not exceeding UGX3,000,000 (150 currency points) or imprisonment not exceeding six years or both
• Impersonating a tax officer from a fine not exceeding UGX1,000,000 (50 currency points) or imprisonment not exceeding two years or both to a fine not exceeding UGX2,000,000 (100 currency points) or imprisonment not exceeding six years or both

Stamp Duty (Amendment) Bill 2021

The bill proposes to amend Schedule 2 to the Principal Act as follows:

• To reduce the portion of raw materials locally sourced from 70% to 50% for operators in industrial parks or free ones.
• To increase the number of citizens to be employed from 70% to 100% for operators in industrial parks or free zones.
• To exempt from stamp duty on debentures, further charges, lease of land, increase of share capital, transfer of land, agreement to conduct feasibility study executed by manufacturers whose investment capital is at least US$50 million or in any other case a manufacturer, that makes an additional investment equivalent to US$50 million.