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Executive summaryOn 4 April 2017, Uganda’s Minister of Finance Planning and Economic Development (Minister of Finance) tabled the Income Tax (Amendment) Bill, 2017, the Income Tax (Amendment) (No. 2) Bill, 2017, the Excise Duty (Amendment) Bill, 2017, the Lotteries and Gaming (Amendment) Bill, 2017, the Tax Procedures Code (Amendment) Bill, 2017 and the Value Added Tax (Amendment) Bill, 2017 before Parliament. On 10 April 2017, the Sessional Committee on Finance, Planning and Economic Development invited all stakeholders and other interested parties to present their views on the 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 2017 with the exception of the Income Tax (Amendment) Bill, 2017 which will become law with retroactive effect from 1 July 2015. Passage of the Bills is anticipated in early June.
The key reforms proposed by the 2017 Tax Amendment Bills include: • Requirement to report specified financial transactions to the Commissioner
• Limitation of the interest payable on unpaid income tax or Value Added Tax (VAT)
• Re-instatement of initial allowance for certain capital investments
• Empowerment of the Minister of Finance to issue estimates of rent for purposes of assessing rental tax
20 April 2017
Global Tax Alert
Uganda issuesTax Amendment Bills 2017
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• Amendment of the formula for assessing an employee’s motor vehicle benefit
• Establishment of penal tax for failure to provide transfer pricing records
• Specification of operations under which VAT is deemed to have been paid in respect of aid-funded projects
• Restriction of input tax credit claimable by taxable persons
• Specification of due dates for filing returns under the Lotteries and Gaming Act 2016
• Provision for tax stamps on specified locally manufactured or imported goods
• Reduction of gaming tax from 35% to 20%
Detailed Discussion The Income Tax (Amendment) Bill, 2017Amendment of the Income Tax Act with respect to limitations on deductions on petroleum operations An amount that a licensee may deduct under the Income Tax Act (Section 89GA) in relation to petroleum operations undertaken by a licensee in a contract area in a year of income shall not exceed the cost oil by the licensee from those operations in the contract area for that year.
Where in any year of income, the total deductions of a licensee in relation to petroleum operations undertaken in a contract area exceed cost oil for that year of income arising from those operations in the contract area, the excess shall be carried forward to the following year of income and is deductible for that year of income against cost oil for that year of income arising from the petroleum operations in the contract area until the excess is fully deducted or the petroleum operations in the contract area cease.
Currently, deductions and tax losses by a licensee undertaking petroleum operations are allowed against the gross income derived by the licensee from the operations in the contract area for that year. The object of the amendment is to align Section 89GA of the Income Tax Act to the Production Sharing Agreements. These amendments imply that the deductible amounts and tax losses from a contract are only available against cost oil from the same contract area. If a licensee earns profit oil or other income from a contract area, they would be subjected to tax although carry forward losses exist from that contract area.
The Income Tax (Amendment) (No. 2) Bill, 2017Requirement to report specified financial transactions to the CommissionerA financial institution, micro finance institution, forex exchange bureau or money transferring institution shall report any transaction exceeding UGX20 million (US$5,525) to the Commissioner General of the Uganda Revenue Authority (the Commissioner) not later than 15 days after the end of the month to which the transaction relates or as may be required by the Commissioner. This amendment is intended to provide the Uganda Revenue Authority (URA) with more information that could be used to validate a taxpayer’s record in the event of a tax audit. The URA will also be able to obtain information on non-compliant taxpayers in order to widen the tax base. Taxpayers should therefore be vigilant in declaring all transactions on their income tax returns.
Limitation on the interest payable on unpaid taxInterest that is due and payable as a result of any unpaid income tax and which exceeds the aggregate of the principal tax and the penal tax shall be waived. Specifically, where interest due and payable as of 30 June 2017 exceeds the aggregate of the principal tax and the penal tax, the interest in excess of the aggregate shall be waived. The proposal is not clear on circumstances where interest will be due and payable after 30 June 2017.
Re-instatement of initial allowance for certain capital investments A person who places an item of eligible property into service for the first time outside a radius of fifty kilometers from Kampala, during a year of income is allowed a deduction for that year for an amount equal to 50% of the cost basis of the property at the time it was placed into service. The term “item of eligible property” is defined to mean plant and machinery wholly used in the production of income included in gross income but does not include goods and passenger transport vehicles; appliances of a kind ordinarily used for household purposes or office or household furniture, fixtures and fittings.
A person who places a new industrial building (excluding an approved commercial building) in service for the first time during the year of income is allowed a deduction for that year of an amount equal to 20% of the cost basis of the industrial building at the time it was placed in service. A new industrial building is a building whose construction commenced on or after 1 July 2000.
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Estimates of rent to be issued by the Minister of Finance for purposes of assessing rental taxThe Minister of Finance is empowered, to prescribe, by Statutory Instrument, estimates of rent (based on the rating of the rental property in a specific location) for the purpose of assessing rental tax under the Income Tax Act. These rates will only be used in case of landlords that do not file returns or file inaccurate returns.
Amendment of the formula for assessing an employee’s motor vehicle benefit for income tax purposes The formula for computing the employee motor vehicle benefit for income tax purposes has been amended in order to allow for the value of the vehicle to be depreciated on a reducing balance basis at a rate of 35% per annum. The new formula for computing the motor vehicle benefit is (20% x A x B/C) – D, where:• A is the market value of the motor vehicle at the time when
it was first provided for the private use of the employee depreciated on a reducing balance basis at a rate of 35% per annum for the subsequent years
• B is the number of days in the year of income during which the motor vehicle was used or available for use for private purposes by the employee for all or a part of the day
• C is the number of days in the year of income
• D is any payment made by the employee for the benefit
This amendment will ensure that employees who receive the motor vehicle benefit will pay less tax because the value of the vehicle will be depreciated over time as explained above.
Arm’s length principle is applicable to transactions between associates or persons in an employment relationship The Commissioner may distribute, apportion, or allocate income, deductions or credits between the associates or persons who are in an employment relationship, as the case may be, as is necessary to reflect the chargeable income realized by the taxpayer in an arm’s length transaction. This amendment is intended to extend the arm’s length principle to employment relationships, which include the directorship of a company.
Re-instatement of withholding tax on winnings of sports betting or pool bettingPayments for winnings of sports betting or pool betting are subject to withholding tax at the rate of 15%. Currently, withholding tax is not applicable to winnings of sports betting or pool betting because the enabling provision was repealed by the Income Tax (Amendment) Act 2016.
Exemption of the income of statutory professional regulatory bodies from taxA body established by law for the purpose of regulating the conduct of professionals is an exempt organization for income tax purposes. The law requires such organizations to apply to the Commissioner for an exemption license.
Exemption from tax of the income of Bujagali Hydro Power Project up to the year 2033The income of Bujagali Hydro Power Project will be exempted from income tax up to the year 2033. Currently, the income of Bujagali Hydro Power Project is not exempted from income tax.
The Value Added Tax (Amendment) Bill, 2017 VAT is deemed paid in respect of aid-funded projectsThe tax payable on a taxable supply made to a government ministry, department or agency by a contractor executing an aid funded project is deemed to have been paid by the ministry, department or agency, if the supply is solely and exclusively for the aid-funded project. Currently, all VAT incurred by a contractor executing an aid funded project is deemed to have been paid. This implies that suppliers to government ministries, departments or agencies that are executing an aid funded project should charge VAT on taxable supplies, however, the VAT is deemed paid and consequently, the contractor would not be required to remit this VAT to the URA. Currently, VAT charged by such contractors is payable to the URA.
Restriction of input tax credit claimable by taxable personsA taxable person is not eligible for input tax arising from a taxable supply for which the input tax is paid or payable in cash and it is at least UGX100 million (US$27,663), excluding tax. The bill seeks to reject claims of input VAT arising from taxable supplies whose value exceeds UGX100 million, if the payment for the supply is made in cash.
Due date of payment of taxAccording to the amendment, VAT in the normal course of business of a taxable person should be paid on the due date of the return for the tax period, VAT due in relation to an assessment issued under the Act is payable on the date specified in the notice of assessment and VAT due in any other case is payable on the date the taxable transaction occurs as determined under the Act. Effective 1 July 2016, Section 34 of the VAT Act regarding due date of payment of tax was repealed following the entry in to force of the Tax Procedure Code Act, 2014 (TPCA). The TPCA provided that the due dates
4 Global Tax Alert
of payment of tax would be those specified in the VAT Act. This amendment seeks to reinstate the due date of payment of VAT under the above specified circumstances.
Where an objection to or notice of appeal against an assessment has been filed, the tax payable under the assessment is due and payable, and may be recovered notwithstanding that objection or appeal.
Where the Commissioner has reasonable grounds to believe that a person may leave Uganda permanently without paying all the tax due under the VAT Act, he/she may issue a certificate containing particulars of the tax to the Commissioner of Immigration in order to prevent that person from leaving Uganda until the tax is paid in full or an arrangement satisfactory to the Commissioner for payment of tax is made.
Capping of interest on unpaid taxInterest that is due and payable as a result of any unpaid VAT and which exceeds the aggregate of the principal tax and the penal 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 and penal tax.
Exempting certain supplies and taxing of wheat gain While wheat gain has been proposed to be excluded from the exemption (i.e., now taxable), the following supplies have been proposed to be exempted from VAT: • Animal feeds and premixes
• Crop extension services
• Irrigation works, sprinklers and ready to used drip lines
• Deep cycle batteries and composite lanterns
• Tourist arrangement services, access to tourist sites, tour guide and game driving services
This implies that suppliers of the above products will become exempt suppliers and will not be eligible for VAT registration. The input tax incurred on purchases and expenses in the course of their business will not be claimable.
The Tax Procedures Code (Amendment) Bill, 2017Penal tax for failure to provide transfer pricing records and other documentsA person who upon the request of the Commissioner, fails to provide records in respect of transfer pricing within 30 days after the request, is liable to a penal tax equivalent of UGX50 million (US$13,813). A person who fails to provide information to the Commissioner in any other case (other than transfer pricing) is liable to penal tax of UGX20 million (US$5,525).
Due dates for filing returns under the Lotteries and Gaming Act 2016A person licensed under the Lotteries and Gaming Act, 2016 is required to furnish a weekly tax return by Wednesday of the following week and a monthly return by the 15th day of the following month.
Tax stamps on locally manufactured or imported goodsPersons dealing in goods, whether locally manufactured or imported shall affix a tax stamp as may be prescribed by the Minister of Finance. The penalty for failure to affix a tax stamp is double the tax due on the goods or UGX50 million (US$13,813), whichever is higher.
The Lotteries and Gaming (Amendment) Bill, 2017 The gaming tax will be reduced from 35% to 20%.
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The Excise Duty (Amendment) Bill, 2017 Revised excise duty rates of certain items specified in Schedule 2 of the Excise Duty Act, 2014
No. Item Current Excise duty rate Proposed amendment of the Excise duty rate
1. Cigarettes(a) Soft cup Shs (UGX) 50,000 per 1,000 sticks UGX55,000 per 1,000 sticks2. Beer(a) Malt beer 60% 60% or UGX1,860 per liter,
whichever is higher(b) Beer whose local raw material
content, excluding water is at least 75% by weight its constituent
30% 30% or UGX700 per liter, whichever is higher
(c) Beer produced from barley grown and malted in Uganda
30% 30% or UGX950 per liter, whichever is higher
3. Spirits(a) Made from locally produced raw
materials60% 60% or UGX5,000 per liter,
whichever is higher(b) Undenatured spirits UGX2,500 per liter or 100%,
whichever is higher100% or UGX2,500 per liter, whichever is higher
(c) Other spirits 70% 80%4. Wine(b) Other wines 80% 60% or UGX6,000 per liter,
whichever is higher5. Non-alcoholic beverages(a) Non-alcoholic beverages not
including fruit or vegetable juices13% 13% or UGX240 per liter, whichever
is higher(b) Fruit juice and vegetable juice,
except juice made from at least 30% of pulp from fruit juice and vegetables grown in Uganda
N/A 13% or UGX300 per liter, whichever is higher
16. Sugar confectionaries (chewing gum, sweets and chocolates)
20% Nil
17. Furniture(a) Specialized hospital furniture Nil Nil(b) Furniture manufactured in Uganda
using local materials but excluding furniture which is assembled in Uganda
N/A Nil
(c) Other furniture 10% 20%
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For additional information with respect to this Alert, please contact the following:
Ernst & Young (Uganda), Kampala• Muhammed Ssempijja +256 414 343520 [email protected]• Hadijah Nannyomo +256 414 343520 [email protected]• Prosper Ahabwe +256 414 343520 [email protected]• Edward Balaba +256 414 343520 [email protected]• Rita L. Zabali +256 414 343520 [email protected]
Ernst & Young Advisory Services (Pty) Ltd., Johannesburg• Justin Liebenberg +27 11 772 3907 [email protected]
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London• Leon Steenkamp +44 20 7951 1976 [email protected]• Byron Thomas +44 20 7951 4144 [email protected]• Gonçalo Dorotea Cevada +44 20 7951 2162 [email protected]
Ernst & Young LLP, Pan African Tax Desk, New York• Silke Mattern +1 212 360 9707 [email protected]• Dele A. Olaogun +1 212 773 2546 [email protected]• Jacob Shipalane +1 212 773 2587 [email protected]
Ernst & Young LLP, Pan African Tax Desk, Houston• Elvis Ngwa +1 713 750 5941 [email protected]
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