May 25, 2022
Uganda issues Tax Amendment Bills for 2022
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:
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.
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
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
In this respect, it is proposed that;
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:
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:
Introduction of new exempt supplies
Repeal of VAT exemptions for the following supplies
The bill proposes to remove certain Items from being exempt supplies. These include:
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
Introduction of new duty rates
The bill proposes to amend Schedule 2 to the Excise Duty Act to modify excise duty as follows:
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
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
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:
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 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