Proposed taxes will increase cost of doing business

On April 1, Finance Minister Matia Kasaija proposed a raft of tax amendments, most of which tax analysts say if passed in their current form, will deepen the tax burden.

Government is looking to collect at least Shs400 billion from the 10 Tax  (Amendment) Bills including; the Traffic and  Road  Safety Act (Amendment) Bill, 2021, The  Fish (Amendment) Bill 2021, The  Stamp Duty (Amendment) Bill 2021, The  External Trade (Amendment) Bill, 2021 and the Mining  (Amendment) Bill, 2021.

These are in addition to the Value Added Tax (Amendment) Bill 2021, The Tobacco Control (Amendment) Bill 2021, The Income Tax (Amendment) Bill 2021, The Tax Procedures Code (Amendment) Bill 2021 and The Stamp Duty (Amendment) Bill 2021.

Uganda’s government runs an incremental budget. Every financial year, the budget increases by about Shs1 trillion.  

Implications

While submitting their alternative revenue mobilisation proposals to the Parliamentary Committee on Finance last week, members of Tax Justice Alliance Uganda (TJAU) noted that everyone should pay their fair share of taxes. 

Under the Income Tax (Amendment) Bill, 2021, government wants to amend a law that will compel whoever earns rental income from more than one rental building to pay tax for each of the buildings separately. In addition the person will account for each building separately without combining income or expenses from one building with another.

This is aimed at removing any distinction between buildings owned by companies and individuals. Further, the amendments restrict deductions which reduces your tax burden. This means whether your investment has been 100 per cent you will not be allowed to expense to a tune of more than 60 per cent for a case of commercial building being managed under a formal company and not more than 20 percent for an individual. 

This is emphasised in the Domestic Revenue Mobilisation Strategy as the way forward to “rationalise the rental income tax structure to minimise abuse and profit shifting.”

However, the amendment is more likely to focus on commercial buildings and not commercial property for example land that is rented out for farming, beaches among others.

The provision will cap deductions at 60 per cent for both individuals and non-individuals. Currently, deductions for individuals are capped at 20 per cent while non-individuals are uncapped. However, whereas the 20 per cent deduction for individuals is automatic, it is unclear whether the 60 per cent will be automatic.

The chairman of the Committee on Finance, Mr Henry Musaasizi, believes the implementation of this provision will be difficult and unfair.

Steep target

Uganda Revenue Authority intends to collect Shs21.6 trillion in the 2021/22 financial year, up from Shs19.6 trillion in this financial year (2020/21), a figure that was reviewed from Shs21.8 trillion due to the Covid-19 pandemic.

Exemptions

Strategic sectors such as manufacturing chemicals for agricultural and industrial use, textiles, glassware, leather products, industrial machinery and electrical equipment, sanitary pads and diapers will qualify for the 10-year income tax incentive.

The issue, however, is that the annual increase in the list of sectors that can benefit from these exemptions is becoming a matter of concern. Since 2018 when the provision was first introduced, the list of benefiting sectors has been expanded without any tangible benefit. This is because tax exemptions are a form of tax expenditure and the appropriation of revenue should generally be public information.

Shs230 tax on non-alcoholic drinks

There is a clause in there that introduces an excise duty rate of 30 per cent or Shs 230 per litre whichever is higher for any other non-alcoholic beverage locally produced made out of fermented sugary tea solution with a combination of yeast and bacteria.

The proposal seeks to impose an excise duty on locally produced non-alcoholic beverages which had not previously been provided for. This means beverage product made locally such as “Mukanayamba” will be taxed. 

Government also proposes an excise duty rate of 5 per cent or $150 per tonne whichever is higher for plastic packaging and 5 per cent or $100 per tonne whichever is higher for plastic granules.  

This is aimed at expanding the tax base on plastics to protect the environment. However, given the lack of alternative packaging materials such as glass, this proposal will impact on Small and Medium sized enterprises’ access to affordable food-grade packaging materials.

12% tax on Internet data

Governments want to repeals part of the Excise Duty Act which provides for a Shs200 daily excise duty rate for Over The Top (OTT) Services and introduces an excise duty rate of 12 per cent of the fee charged for internet data except data for provision of medical services and education services. The chairman of the Committee on finance, Mr Musasizi says there is nothing wrong with it, and it must be taxed. 

Under the NDP 3 there is a focus on leveraging opportunities for advances in ICT for Development.

Other government programmes aimed at improving interaction between citizens and government are ICT- oriented and these would be affected by this tax. This would affect the efforts to implement the access to information law which creates barriers for access to government programmes for the citizens.

While Uganda is in support of a transformative digital economic agenda, this proposed Excise Duty on Internet might hinder e-Commerce. According to the UNCTAD (2018) Rapid eTrade Readiness Assessment, one of the key impediments to E-Commerce in Uganda is 3As of Internet that is Accessibility, Availability and Affordability.

High Internet costs

According to the UN International Telecommunication Union (ITU), in contrast to other EAC partner states, the cost of Internet in Uganda remains high per Gigabyte ($2.67) compared to Kenya ($2.41), Tanzania ($2.18) and Rwanda ($2.18) as of December 2020.

While some CSOs want the the Excise Duty rate on both airtime and data be reduced to 5 per cent, the Public Accounts Committee chairman Nandala Mafabi wants it entirely discarded. 

Ms Jane Nalunga, the executive director of SEATINI Uganda and the programme coordinator, Financing for development, Ms Regina Navuga who presented the TJAU proposals before committee on Finance last week, say government tax digital companies such as Facebook, Google among others to widen the tax base.

On the Tax Procedures Code (Amendment) Bill, 2021

There is a provision in there barring a local Authority, government institution or regulatory body from issuing a licence or any form of authorisation necessary for purposes of conducting any business in Uganda to any person who does not have a taxpayer identification number.

This is a positive provision in the spirit of expanding the tax base. However, this is not implementable in its current state.

External Trade (Amendment) Bill, 2021

There is provision to impose  $0.4 export levy per kilogram on wheat bran, cotton cake, maize bran and other by-products of the milling industry.    

This levy will help government to promote access to animal feeds at the domestic market, through regulating export of these products. Therefore, this is critical for the domestic Livestock sector and is in line with the import substitution strategy.

According to Mr Africa Kiiza , a trade economist, this levy has been adopted by Angola (10%), Benin (10%), Burkina Faso (10%), Botswana (10%), and Central African Republic (10%).

 “However, this levy alone won’t necessarily address the underlying challenge of access to good quality animal feeds,” Ms Navuga told the Committee on Finance.

The Fish Amendment Bill seeks to impose 70,000 per Kg of fish maw exported outside Uganda. While this levy is likely to widen the tax base, there is a risk of depleting fisheries due to high demand for maw.  For a while trade of fish maw has been informal.  More still, the price of fish maw differs according to the size and age of the fish.  Therefore, imposing a flat rate on all fish maw poses a risk in terms of revenue loss.

Another contentious tax is the annual road licence fee of Shs200,000 for car owners and Shs50,000 motor cycle owners under the Traffic and Road Safety Amendment Bill 2021. 

If you fail to pay a prescribed annual fee before January 31, you will pay a penalty of 10 currency points for each day on which the contravention continues.

Road licence fee

There are concerns that this is a return of the road licence fee which was already incorporated into the price of fuel in the 2007/08 Budget. So re-introducing it as an independent fee amounts to double taxation. In addition, its administration will be costly. It will encourage corruption and discourage motor vehicle purchase.  

While analysing this proposed law, tax experts and legislators such as Mr Nandala, Mr Muhammed Nsereko, all are opposed to this law.

“This is because this provisions are irrational in a way that ten currency points chargeable per day is extremely too high. For instance, a period of 30 days, the penalty would amount to Shs6million,” Ms Navuga said. 

The Mining (Amendment) Bill 2021, provides for a levy on the export of processed gold  and  unprocessed  minerals. CSOs say the proposed  levy is  low, considering that gold is a unique commodity of very high value which attracts a market price of $40,000-$45,000. The levy on unprocessed minerals should be imposed depending on the type and value of the  mineral.

Remove tax on dATa

12% Excise Duty on Internet data

Government want to repeals part of the Excise Duty Act which provides for a Shs200 daily excise duty rate for Over The Top (OTT) Services and introduces an excise duty rate of 12 per cent of the fee charged for internet data except data for provision of medical services and education services. 

While some CSOs want the the Excise Duty rate on both airtime and data be reduced to 5 per cent, the Public Accounts Committee chairman Nandala Mafabi wants it entirely discarded.