Real estate developers query new VAT rates

The introduction of a tax on land sales including old transactions has propelled real estate developers to challenge the revenue authority’s move. The dealers say the Value Added Tax (VAT)could push them out of business since they are required to pay VAT arrears on transactions that were conducted years ago.

In a letter addressed to all real estate dealers, Mr Sillaj Kanyesigye Baguma, the URA medium tax payers’ officer, said whereas a number of dealers were selling improved land, there were no VAT returns recorded.

Thus, according to Mr Baguma, VAT arrears must be paid and in future all transactions on improved land shall be charged with VAT. According to URA, land that has been improved refers to that whose essential services including road access, water and electricity among others have been extended.

However, land transactions on undeveloped plots are not liable to VAT payment.
Uganda’s real estate industry has in the last two decades posted tremendous growth, growing at about 12 per cent annually.

This has uplifted growth in the construction industry that in 2012 recorded a growth rate of about 36 per cent. The real estate industry is still attracting more players. However, they are concerned that the tax agency is introducing arbitrary policies.

Argument
They argue that whereas they are not opposed to the payment of taxes on new transactions, it is inconsiderate that they have to pay arrears on transactions conducted years back.
Mr Kezekiah Ddamba, the director of Umoja Property Holdings said: “Taxes should instead promote businesses. Why would the government charge transactions that were conducted years ago?”

Dealers are also concerned about the impact of the tax on prices considering that land transactions are currently experiencing price instabilities. “...If this doesn’t change, land prices are likely to escalate,” said Mr John Male, a real estate dealer in Kampala.