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April 16, 2021 Uganda issues Tax Amendment Bills 2021 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:
Detailed discussion The Income Tax (Amendment) Bill, 2021 Redefining beneficial owner The bill proposes to redefine a beneficial owner to mean:
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:
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:
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:
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:
Proposed supplies to be exempt from VAT include:
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:
Tax Procedures Code (Amendment) Bill 2021 Limiting the definition of a tax decision Tax decision” means any of the following:
Local authority, government institution or regulatory body not to issue a license to any person without a 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:
Tax under this section means tax imposed under the Excise Duty Act, 2014. Three-year limit for amending self-assessed returns 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:
Amendment of penalties for tax offenses The bill proposes to increase the fines and imprisonment terms for the following offenses:
Stamp Duty (Amendment) Bill 2021 The bill proposes to amend Schedule 2 to the Principal Act as follows:
Tax Appeals Tribunal (Amendment) Bill 2021 A party to proceedings before the High Court may within 30 days after being notified of the decision or within such further time as the Court of Appeal may allow, file a notice of appeal with the Registrar of the Court of Appeal. This appeal may be on questions of law only. Right to appeal from decisions of the High Court Appeals to the Supreme Court from decisions of the Court of Appeals The bill provides for appeals from the Court of Appeals to the Supreme Court. This appeal will only be on questions of law raised. Operation and implementation of decision subject to review or appeal It is proposed that where an application for review of a tax decision has been filed in the Tribunal, High Court, Court of Appeals or Supreme Court as the case may be, the reviewing body may make an order to stay the operation or implementation of the decision or a part of the decision under review to secure effectiveness of the proceeding and determination of the application for review. Interest on refunds Where the decision maker is required to make a refund as a result of a decision of a reviewing body i.e., High Court, Court of Appeals or Supreme Court, the tax shall be repaid with interest at the rate specified in the relevant law on the amount of the refund for the period commencing from the date the person paid the tax refunded until the last day of the month in which the refund is made. Note: The approximate exchange rate of the US dollar to Uganda shilling (UGX) is 3,700. _________________________________________________ For additional information with respect to this Alert, please contact the following: Ernst & Young (Uganda), Kampala
Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP (United States), Pan African Tax Desk, New York
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