Is government insensitive as it raises rent, fuel taxes?

Tuesday April 7 2020

Petroleum. Fuel tankers off-load fuel at Vivo

Petroleum. Fuel tankers off-load fuel at Vivo Energy Depot in Namuwongo in Kampala recently. Photo by Rachel Mabala 

By Franklin Draku, Nobert Atukunda, Damalie Mukhaye & Patience Ahimbisibwe

Government last week announced new tax measures, which it said will help in raising more funds to run the country in the next financial year. Among the levies revised includes taxes on rentals, fuel and beers.
Increment in taxes came at a time when all businesses are struggling after the lockdown following Covid-19 pandemic.
However, a number of countries are already offering incentives for businesses to stay afloat. US last week announced $2 trillion stimulus plan, UK announced zero taxes on a number of businesses, including loan repayment plans and mortgages. In East Africa, Kenya also announced reduction on taxes to boost production.

According to the Bill, under the new measures, the new Valued Added Tax (VAT) will require an owner of a commercial building to account for the tax of each building separately and the same applies under income tax.
Government also seeks to revise the tax rate applicable to individuals and companies for purposes of rental income from 20 per cent to 30 per cent. The new ceiling of allowable deductible expenses on rental income has been revised to 50 per cent, up from 20 per cent contained in the current law.
Clause 3 of the Bill reads: “A person who earns rental income from more than one building shall account for the income and expenses of the buildings and shall pay tax for each of the buildings separately.”

Landlords shall, however, be allowed to deduct “50 per cent of the rental income as expenditures and losses incurred by a person in the production of such income.”
However, industry players in the real estates sector, economists and other groups say the proposed Bill will further add strain on to the existing burden and will affect not only the landlords, but also the tenants. They ask government to be sensitive.
Ms Shirley Kongai, the president of Association of Real Estates Agents says already landlords are struggling to collect rent from the tenants.

She said they have been engaging in discussions on whether to collect rent from those that have closed business or wait until the situation stabilises.
Ms Kongai said while residential buildings are still being occupied, commercial structures are limping because businesses have closed.
She also said already a number of real estate owners are struggling with loan repayments because they are not collecting rent to repay the loans.
According to Ms Kongai, the current discussion should be if the rental rates are coming down, will the banks also lower the interest rates and whether government will lower taxes.

Meera Investment limited, a real estates company, has also written to Mr Matia Kasaija, the Finance minister, about the proposed taxes, saying they are unfair and unrealistic to the sector.
In an April 2 letter, the company says in a situation where a company has many buildings, it will be difficult to account for the buildings and prepare documents.
“With the current global situation regarding coronavirus, we do believe that this is not the right time to introduce the proposed amendments. Together with our lawyers, we propose some tax incentives we believe shall boost the reckoning and heal businesses and the local people from the devastating effects of the virus,” the letter reads in part.

“During the current lockdown, we were made aware of the tabling of the 2020 Tax Amendment Bills. We have had consultations with our tax lawyers, Kampala Associated Advocates, and we write to inform you that some of the Bills will have an adverse effect on many of our businesses and we seek your indulgence to prevent an adversity,” it adds.
Uganda Manufactures Association (UMA) has also poured cold water on the proposed amendments, saying it will negatively affect them.

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Mr Daniel Birungi, the Executive Director UMA, told Daily Monitor that they already have a position which they will present to Parliament.
“....For us anything to do with increased cost is definitely not in our best interest, because we are trying to cut costs as much as possible… We are optimistic that our views will be listened to,” Mr Birungi said.
Mr Everest Kayondo, the chairperson of the Kampala City Traders Association, said this is the time to peruse rational measures to revamp the economy.

Mr Albert Beine, the founder and managing director at Global Taxation Services Ltd, yesterday said government should finalise the database of those who own rental property first or any measure to collect rental income will not yield success.
Mr Beine said: “Although government is proposing allowing 50 per cent of rental income as allowable expenses and then taxing the balance at 30 per cent, where does this leave properties that are in a loss.”
He said this measure will increase non-compliance and discourage Ugandans from investing in property.

The president of the Opposition Forum for Democratic Change (FDC), Mr Patrick Amuriat, said government should go slow on taxes that directly affect Ugandans who are currently in the lockdown and not earning.
“It is very unreasonable for the government to slap more taxes on essential commodities. Even after the lockdown is lifted, it will take long for both the country and its people to recover. The government should put in mind that people are suffering,” Mr Amuriat said.
Mr Erias Lukwago, the Kampala City Lord Mayor, said it is very ironical for the government to come out at this time to increase taxes on fuel and rent. He asked Parliament to reject this proposal.

Ministry of finance
Mr Keith Muhakanizi, the permanent secretary in the Ministry of Finance, Planning and Economic Development and secretary to the Treasury, said the proposals take effect in the coming financial year if passed by Parliament.
“We are not insensitive. The world will continue, it will not stop. This is for the future, it is not for this budget and it’s in Parliament. It will be discussed,” Mr Muhakanizi said.

“Government is not insensitive. Haven’t we distributed food? There are other areas which government is coming in to help the private sector. I can’t say them now. It will be discussed and finalised maybe Monday or Tuesday. I can’t talk about things when they are still in policy matter. After they have been discussed, I can then respond,” he added.

editorial@ug.nationmedia.com

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