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May 25, 2022
2022-5511

Uganda issues Tax Amendment Bills for 2022

Executive summary

On 30 March 2022, Uganda’s Minister of Finance Planning and Economic Development tabled the Tax Amendment Bills, 2022 before Parliament for debate. Once passed into law by the Parliament and assented to by the President of the Republic of Uganda (Uganda), the Bills will take effect from 1 July 2022. Passage of the Bills is anticipated in early June.

This Alert summarizes the key proposals in each bill which include:

  • Income Tax (Amendment) Bill, 2022

  • Value Added Tax (Amendment) Bill, 2022

  • Excise Duty (Amendment) Bill, 2022

  • Tax Procedure Code (Amendment) Bill, 2022

  • Tax Appeals Tribunal (Amendment) Bill 2022

  • Uganda Revenue Authority (Amendment) Bill 2022

  • Stamp Duty (Amendment) Bill, 2022

Detailed discussion

The Income Tax (Amendment) Bill, 2022: Key reforms

New definition for beneficial owner

“Beneficial owner” means a natural person who ultimately owns or controls a customer or the natural person on whose behalf a transaction is conducted, including a person who exercises ultimate control over a legal person or arrangement.

  • In relation to a legal person, beneficial owner includes:
    • 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, beneficial owner includes:
    • The settlor
    • The trustee
    • The protector
    • The beneficiaries or the individual benefitting from the trust who is yet to be determined
    • Any other natural person exercising ultimate control of the trust
  • In relation to other legal arrangements similar to trusts, the natural person holding equivalent positions outlined above.

This proposal intends to clarify who is the beneficial owner under Double Taxation Agreements in order to prevent treaty abuse and tax avoidance.

Exemption regime for research institution

The bill proposes to amend the definition of an exempt organization to include a research institution whose object is not for profit.

Streamlining rental income

  • The bill proposes that expenditures and losses incurred by a person (other than an individual or partnership) in generating rental income be allowed as a deduction. The deduction allowed in a year of income is capped at 50% and the excess of that amount is carried forward to the subsequent year of income.

  • The expenditure and gross rental income of a partnership has been proposed to be addressed in accordance with the rules governing taxation of partners which relates to the geographical source of the income and the percentage sharing ratio in the partnership.

  • The current allowable deduction for individuals which relates to the deduction of interest expense incurred on a mortgage from financial institutions and applied towards the acquisition or construction of premises from which rental income was generated has been proposed to be repealed.

There is a proposed change in computation of rental tax for individuals from 30% of chargeable income to 12% of gross rental income.

New Income Tax exemptions

  • It is proposed that the Income tax exemption for the Bujagali Hydro Power Project be extended from 30 June 2022 to 30 June 2027.
  • The bill proposes to exempt from tax the income of manufacturers making a new or additional investment; who meet the minimum investment capital threshold of US$35 million for foreigners and US$5 million for citizens; have capacity to source at least 50% of their raw materials locally (subject to availability); have the capacity to employ at least 100 citizens and who operate in or outside industrial parks and free zones over a minimum period of 10 years.
  • The bill proposes an exemption from tax for the income of a hospital facility developer with a capital investment of at least US$5 million over a minimum period of 10 years from the date of commencement of the business.
  • The bill proposes an amendment to the application of the formula for computing the qualifying income for investment incentives which is currently I * A/B where:
    • I = the sum of gross income and exempt income of the person for the year of income before accounting for the qualifying income.
    • A = the total amount of investment made by an investor from the beginning of the year of income in which the investment becomes a qualifying investment.
    • B = the sum of the amount of the qualifying investments and the total investment made before the commencement of the current year of income.

In this respect, it is proposed that;

  1. = The total amount of investment made by the investor from the beginning of the year in which the tax incentive was established by the Income Tax Act Cap 340 (as amended).

Clarifications of transactions not subject to tax under Ugandan-source services contract provision

The proposed amendment seeks to clarify the parameter of taxation under Ugandan-source service contracts by excluding income derived from the carriage of passengers, or cargo or mail not embarked in Uganda.

Introduction of 100% amortization for intangible assets in the oil and gas industry

The bill proposes that if the cost of acquiring an intangible asset is treated as petroleum exploration expenditure then that asset should be amortized at the rate of 100%.

Clarification of due dates for payment of taxes arising from mining and petroleum returns

The bill clarifies that a taxpayer who files a tax return for mining or petroleum revenues will be required to pay the assessed tax by the due date of filing the return.

Substitution of the penalty for a licensee who fails to furnish a return or to provide any other document in the prescribed time frame

A licensee who fails to furnish a return or provide any other document in the prescribed time is subject to a penal tax of at least US$50,000 but not exceeding US$500,000

Definition of a “business asset” for the purposes of Section 118B of the Income Tax Act Cap 340

The bill defines a “business asset” to mean land, the whole or any part of it which is used or held for use in any business but excluding land held as trading stock and includes land that is used in business to generate income other than land of an individual that is subject to rental tax and land owned by a company, trust or partnership.

The Bill also proposes an exemption from withholding tax for the sale of a business asset where: (i) the Commissioner is satisfied that the taxpayer has complied with their tax obligations under the Act; or (ii) the disposal of land is by means of gift, bequest, devise or inheritance that does not generate gain in business, employment or property income.

Extension of exempted institutions under the First Schedule to the Income Tax Act

It is proposed to exempt the income of the institutions below by listing them under the First Schedule to the Income Tax Act:

  • International Development Law Organization

  • Foreign Commonwealth and Development Office (formerly Department for International Development)

Value Added Tax (Amendment) Bill, 2022: Key reforms

Clarification on what constitutes an exempt import

The bill proposes to amend the definition of exempt import of service to exclude “imported services which would be used in the provision of an exempt supply.” If enacted, VAT on imported services will become a cost on taxpayers who deal in exempt supplies and import services used to provide exempt supplies.

Extension of Public International Organizations under the First Schedule to the Value Added Tax Act Cap 349

It is proposed to include the institutions below on the list of Public International Organizations under the First Schedule to the Value Added Tax Act Cap 349 thus entitling them to VAT refunds in accordance with Section 45 of the Act:

  • International Development Law Organization

  • Foreign Commonwealth and Development Office (formerly Department for International Development)

Introduction of new exempt supplies

  • Oxygen cylinders or oxygen for medical use

  • The supply of assistive devices for persons with disabilities

  • The supply of airport user services charge by Civil Aviation Authority

Repeal of VAT exemptions for the following supplies

The bill proposes to remove certain Items from being exempt supplies. These include:

  • The supply of menstrual cups

  • Supply of cotton seed cake

Extension of the investment incentive (VAT exemption) for the supply of services to conduct a feasibility study, design and construction; the supply of locally produced materials for the construction of premises and other infrastructure, machinery and equipment or furnishings and fittings to a hospital facility developer whose investment capital is at least US$5 million

The bill proposes that the VAT exemption should apply if the supply is to a qualifying hospital facility developer notwithstanding that the hospital is not at the level of a national referral hospital.

Alterations to list of zero-rated supplies

The bill proposes to widen the definition for the supplies of educational materials that are zero rated to include those educational materials manufactured in a Partner State of the East African Community.

It also proposes that the supply of sanitary towels, menstrual cups, tampons, and inputs for their manufacture should be zero rated for VAT purposes.

Excise Duty (Amendment) Bill, 2022: Key reforms

Introduction of new definitions

  • “Fruit juice” is defined to mean unfermented liquid extracted from the edible part of a fresh fruit whether the extracted liquid is diluted or not.

  • “Un-denatured spirits” is defined to mean spirits, that are not mixed with any substance to render the spirit unfit for human consumption or capable of being rendered unfit for human consumption, including neutral spirits or alcoholic beverages made from neutral spirits that are fit for human consumption.

  • “Vegetable juice” is defined to mean unfermented liquid extracted from the edible part of a vegetable whether the extracted liquid is diluted or not.

Introduction of new duty rates

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

Item

Current description

Current excise duty rate

Proposed description

Proposed excise duty rate

2 (d)

Opaque beer

20% or UGX 230 per liter, whichever is higher

Opaque beer

12% or 150/= per liter, whichever is higher

3 (a)

Un-denatured spirits made from locally produced raw materials used the production of disinfectants and sanitizers for the prevention of the spread of COVID-19

Nil

Un-denatured spirits of alcoholic strength by volume of 80% or more made from locally produced raw materials

60% or UGX1,500 per liter

3(b)

Un-denatured spirits made from imported raw materials

100% or UGX2500 per liter, whichever is higher

Un-denatured spirits of alcoholic strength by volume of 80% or more made from imported raw materials.

100% or UGX2500/= per liter

3 (c)

Ready to drink spirits

80% or UGX1,700 per liter, whichever is higher

Any other un-denatured spirits:

(i) that is locally produced

of alcoholic strength by volume of less than 80%; or

80% or UGX1700/= per liter whichever is higher

(ii) that is imported of alcoholic strength by volume of less than 80%.

100% or UGX2,500/= per liter whichever is higher

3(d)

N/A

N/A

Un-denatured spirits made from locally produced raw materials that is used in the production of disinfectants and sanitizers for the prevention of the spread of COVID-19 of alcoholic content by volume not less than 70%.

Nil

5(b)

Fruit juice and vegetable juice, except juice made from at least 30% of pulp from fruit and vegetables grown in Uganda.

13% or UGX250 per liter

whichever is higher.

Fruit juice and vegetable juice (except juice made from at least 30% pulp or at least 30% juice by weight or volume of the total composition of the drink from fruits and vegetables locally grown)

12% or UGX250 per liter, whichever is higher.

5(d)

any other non-alcoholic beverage locally produced other than the beverage referred to in subparagraph (a) made out of fermented sugary tea solution with a combination of yeast and bacteria

12% or UGX250 per liter whichever is higher

Any other non-alcoholic beverage locally produced other than the beverage referred to in paragraph (a) made out of fermented sugary tea solution with a combination of yeast and bacteria

12% or 150/= per liter whichever is higher

11

Plastic product and plastic granules;

2.5% or US$70 /= per ton, whichever is higher

Sacks and bags of polymers of ethylene and other plastics under HS codes 3923.21.00 and 3923.29.00 except vacuum packaging bags for food, juices, tea and coffee sacks and bags for direct use in the manufacture of sanitary pads

40% or 4000/= per kilogram whichever is higher

13 (g)

Incoming international calls, except calls from the Republic of Kenya, the Republic of Rwanda and the Republic of South Sudan

US$0.09 per minute

Incoming international calls, except calls from the Republic of Kenya, United Republic of Tanzania, the Republic of Rwanda and the Republic of South Sudan

US$0.09 per minute

25(b)

Any other fermented beverages made from locally grown cider, perry, mead, spears or near beer

30% or UGX550 per liter; whichever is higher

Any other fermented beverages including cider, perry, mead or near beer produced from locally grown or produced raw materials;

30% or UGX550 per liter whichever is higher

26

Construction materials of a manufacturer, other than a manufacturer referred to in item 21, whose investment capital is, at least US$50 million or, in the case of any other manufacturer, who makes an additional investment equivalent to US$50 million

Nil

Construction materials of a manufacturer, other than a manufacturer referred to in item 21, whose investment

capital is, at least US$35 million in the case of a foreigner or US$5 million in the case of a citizen

Nil

The Tax Procedures Code (Amendment) Bill, 2022: Key reforms

License expiry date

The bill proposes the introduction of an expiry date for tax agent licenses as 31 December every calendar year.

Penalty for failure to activate tax stamps

The bill proposes the introduction of a new obligation on taxpayers who are required to use digital tax stamps. The penal sanctions of double the tax due on goods or UGX50 million, whichever is higher, which are imposed on persons who don’t affix digital tax stamps, are proposed to be extended to persons who fail to activate the affixed stamps.

Expansion of URA’s powers to temporary Closure of business

  • The bill proposes to extend the Uganda Revenue Authority’s (URA) duty to issue a notice of intention to temporarily close a taxpayer’s business for failure to comply with the requirements of electronic receipting and invoicing or tax stamps.

  • The bill seeks to extend the URA’s right of temporary closure to businesses that don’t comply with the requirements of electronic receipting and invoicing or tax stamps.

  • The bill obligates the URA to immediately remove a notice of temporary closure of business if the taxpayer complies with the tax obligations that necessitated the closure.

Mandatory disclosure for businesses in construction and extractives industry

The Bill proposes to introduce a requirement on a person engaged in the construction or extractive industry to disclose to the URA the names of persons contracted during the performance of their duties or business within seven days. The Bill proposes the introduction of a penalty of UGX20 million for persons that fail to comply with this mandatory disclosure requirement.

Increased penalty for false or misleading statements

The Bill proposes the introduction of an increased penalty for making false and misleading declarations while complying with one’s tax obligations. The proposed penalty is UGX110 million from UGX4 million.

Penal sanctions for failure to comply with tax stamp and EFRIS requirements

  • The Bill proposes criminal sanctions for a taxpayer who fails to affix or activate a tax stamp thus creating an offense punishable by a fine of UGX30 million or a prison sentence not exceeding 10 years or both.

  • The Bill proposes criminal sanctions for a person who prints over or defaces a tax stamp thus creating an offense punishable by a fine of UGX30 million or a prison sentence not exceeding 10 years or both.

  • The Bill proposes criminal sanctions for a person who forges or if found in possession of forged tax stamp thus creating an offense punishable by a fine of UGX30 million or a prison sentence not exceeding 10 years or both.

  • The Bill proposes criminal sanctions for a taxpayer who fails to deploy and use the Electronic Fiscal Receipting and Invoicing System (EFRIS) system thus creating an offense punishable by a fine of UGX30 million or a prison sentence not exceeding 10 years or both.

  • The Bill proposes criminal sanctions for a person who is found in possession of forged EFRIS documents thus creating an offense punishable by a fine of UGX 30 million or a prison sentence not exceeding 10 years or both.

  • The Bill proposes criminal sanctions for a person who conducts unauthorized interference with EFRIS hardware and software thus creating an offence punishable by a fine of UGX 30 million shillings or a prison sentence not exceeding 10 years or both.

Criminal sanctions for failure to comply with automatic exchange of information requirements (section 62H)

The Bill proposes criminal sanctions for a person who fails to provide information for purposes of automatic exchange of information or fails to maintain records for purposes of automatic exchange of information or makes a false or misleading declaration in an automatic exchange or information return and omits some information while making an automatic exchange of information thus creating criminal offences for each of the above-mentioned scenarios punishable by a fine of UGX50 million or a prison sentence not exceeding 10 years or both.

Introduction of reward categories for Informers (Section 74A)

The bill proposes introduction of two categories of remuneration to informers:

  • Where the informer provides information leading to identification of unassessed tax or duty: 1% of the tax or duty assessed or UGX15 million, whichever is less.

  • Where the informer provides information leading to the recovery of unassessed tax or duty: 5% of the tax of the tax or duty recovered or UGX100 million, whichever is less.

The Tax Appeals Tribunal (Amendment) Bill, 2022: Key reforms

The bill proposes to increase the number of members of the Tribunal from four to eight in addition to the chairman.

Uganda Revenue Authority (Amendment) Bill, 2022: Key reforms

The bill proposes to grant to the Minister of Finance Planning and Economic Development authority by statutory instrument to amend the First and Second Schedules to the Uganda Revenue Authority Act Cap 196.

The Bill also proposes to amend section 11 of the URA Act to substitute the word manager with that of Assistant Commissioner.

The Stamp Duty (Amendment) Bill, 2022: Key reforms

The bill proposes to amend various items under the Schedule 2 to the Stamp Duty Act, 2014:

  • The proposed amendment to item 6 seeks to introduce a nil duty rate for the agreement relating to deposit of title-deeds, pawn pledge. Item 6 is currently taxed at a duty rate of 1% of the total value.

  • Proposed amendment to item 56 seeks to introduce a nil stamp duty rate for security bond or mortgage deed executed by way of security for the due execution of an officer to account for money or other property received by virtue of security bond or mortgage deed executed by surety to secure a loan or credit facility– of entry total value. Item 56 is currently taxed at a duty rate of 1%.

  • The proposed amendment to item 63 seeks to widen the taxing scope for a trust under Item 63 to include, any property made by any writing including a transfer from a holder of letters of administration or Probate orders to a beneficiary which attracts a duty of UGX15,000.

The proposed amendment to item 60A (f) seeks to reduce the minimum investment capital thresholds from US$50 million to US$35 million for manufacturers to qualify for stamp duty exemption on instruments executed under strategic investment projects.

_________________________________________

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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