JOSHUA KATO (CA): What you need to know about the new tax bills (amendments)

It is the responsibility of Ministry of Finance, Planning and Economic Development to initiate, evolve and formulate tax policies to achieve economic policy goals and objectives and raise domestic revenues to finance government budget. These policies are then presented to the Parliament of Uganda as bills and if successfully approved, they become laws. Once these laws are effected, these are administered by the revenue collection body which is the Uganda Revenue Authority which is a statutory authority established by the Uganda Revenue Authority Act, Cap 196 with a mandate of, assessing, collecting and administering of taxes, fees and non-tax revenue in Uganda.

Over the years, the MoFPED has suggested and introduced amendments in the tax policies with an aim of closing the gap towards tax evasion, fair distribution of resources and promoting of the economy. A number of tax acts are in existence today in Uganda, to mention among others;- VAT Act Cap 349, Income Tax Act 340, Withholding Tax etc

On 30th March, 2023 Ministry of Finance introduced tax bills (amendments) under BILLS

SUPPLEMENT No. 5 that will effectively 1^st July 2023 become laws upon being passed by the Parliament. These include;- The Tax Procedures Code (Amendment) Bill 2023, Value Added Tax (Amendment) Bill 2023, Assistance in Tax Matters (Implementation) Bill 2023, Income Tax (Amendment) Bill 2023, Excise Duty (Amendment) Bill 2023 among others.

Below is a summary in brief about what you need to know about some of these bills (amendments).

VALUE ADDED TAX (AMENDMENT) 2023

1. Restriction on Offsets.

The URA will now forcefully require tax payers whose input tax credits exceed their output tax credits by UGX 5million and above as provided for under S.42 (1)  in the VATA. Initially, taxpayers have been at liberty to claim for this refund at their point of convenience.

2. Widening of Electronic services.

Effective July 2022, Uganda joined other countries in expand VAT to Digital/electronic services at 18%. The new amendments seeks to widen the scope  to electronic services such as cab-hailing, cloud storage, data warehousing, advertising platforms and others unlike previously where it was only limited to web hosting, software and streaming services. The new amendment is a basket that will harbor a number of digital services that have come in.

3. VAT on Auctioning.

Auctioned goods will attract VAT @18%. It will therefore be a must for auctioneers to charge and account for VAT on auctioned goods come 1^st July 2023.

4. No Input VAT claim for non-residents.

Non-residents who make taxable supplies in the boundaries of Uganda shall not be entitled to claim for Input VAT credit incurred

INCOME TAX BILL (AMENDMENT), 2023 

1. Initial Allowance

S.27A has been providing for a person who places an eligible property into service for the first time oiutside a radius of 50km from the boundaries of Kampala during a year of icome is allowed a deduction for that year of an amount equal to 50% of the cost base of the property at the time it waas placed into service.

The new amendment seeks to repeal the 50% Initial allowance provision.

2. Tax losses.

Tax losses that have been carried forward for as many years as they appear will now be capped to 5years beyond which only 50% of the assessed tax loss will be allowed.

3. Withholding tax on Asset purchases

The new bill seeks to introduce a 5% WHT on any purchase of assets as a final tax. This entails also Shares. There will be exemptions to such a tax although they are so limited.

4. Capital Gains tax.

Initially, capital gains were included in business or employment income and then taxed on thereof. The new bill however will not tax capital gains as business income. The gross proceeds will just be subjected to a final WHT of 5%. This implies therefore that capital losses will also not be deductible from employment income.

5. Deductibility on Interest.

For tax purposes, interest incurred by micro-finance institutions will be fully deducted

6. Digital Services Tax (DST)

The new income tax amendment bills introduces a 5% WHT on non-residents that source income from Uganda from providing digital services. Effective 1^st July, all non-residents will suffer a 5% DST on provision of digital services in Uganda.

THE TAX PROCEDURES CODE (AMENDMENT) ACT, 2023

THE CONVENTION ON MUTUAL ADMINISTRATIVE ASSISTANCE IN TAX MATTERS (IMPLEMENTATION) BILL, 2023

This bill seeks to aid in the strengthening member ties of the OECD fraternity as far as tax matters are concerned. Over years, there has been a common misinterpretation of member state tax laws, there has been tax frauds especially from non-resident persons who source income form the different countries. Taxing of such personnel has not been easy as there has been diverging tax laws in the different countries. Different countries therefore through OECD have tried to develop ways and action points to make international taxation easily administered.

The member states (Uganda being part of the organization) therefore formed the Convention on Mutual Administrative Assistance in Tax Matters. One of the key objective here was an Agreement on

Automatic Exchange of Financial Account Information between member states.

The bill therefore will be there to give the force of law to the Convention on Mutual Administrative Assistance in Tax Matters and the Multilateral Competent Authority Agreement on Automatic

Exchange of Financial Account Information in Uganda. The authority therefore shall require the competent authorities to provide information on beneficial owners (who should be natural person), information in relation to trusts, and disclosure in regards to any legal arrangements. Competent authorities have to employ due-diligence, apply the common reporting standards, and will have reporting obligations as far as taxation of such individuals is concerned.

For more information on these bills, please extensively read about them and their impact to your business or transactions as failure to understand their requirements is penalized in accordance to the tax act.