Mr Aloysious Kittengo, a tax justice at Tax Justice Alliance Uganda. PHOTO/ISMAIL MUSA LADU
What outcomes are you hoping for with government-fronted tax proposals?
We welcome the tax provisions that, among other things, ease the cost of doing business and tax administration while bringing groups that were not originally taxed into the taxable bracket.
According to the recently released Second Budget Circular estimates for the Financial Year 2025/26 by the Finance Ministry, Uganda’s resource envelope stands at Shs66 trillion, setting the domestic revenue target at Shs36.71 trillion in the form of tax and non-tax revenues. This is more likely to exert additional pressure on the government to double its efforts to meet the set revenue targets. On one hand, it is an opportunity for the Government to enact progressive tax policies and improve efficiency in tax administration. On the other hand, it could compel the Government to over-rely on indirect taxes and other regressive tax measures, which may disproportionately affect the poor and most vulnerable categories of people.
What do the various proposals imply, beginning with the one seeking to eliminate cartels in import business?
The anti-fragmentation rule for imported goods aims to prevent cartels formed by importers who deliberately split their shipments into multiple consignments to stay below the Value Added Tax (VAT) threshold. This amendment also seeks to reduce the exploitation of groupage cargo importation and ensure that importers who meet the VAT registration threshold are registered.
However, the amendment may not address the issue of multiple consignments. Instead, it could unfairly burden small importers who, due to limited capital, import goods in smaller consignments. Additionally, there is a risk that the amendment could lead to the unnecessary registration of small traders who make multiple importations but do not meet the VAT threshold. This would result in an overpopulated VAT register.
Therefore, we recommend rejecting this proposal. The issues it aims to address can be better resolved through administrative measures.
Then there is an amendment of the Income Tax Act seeking to exempt the Income of Bujagali Hydro Power Project up to June 30, 2032. The goal of this exemption is to allow Bujagali Energy Limited (BEL) to recover its investment costs and eventually earn a profit that would be subject to taxation. This is also intended to keep electricity generation and supply affordable, thereby reducing operational costs (tariffs) for both consumers and businesses.
The government argues that without extending this exemption, the tariff for Bujagali’s power generation would increase by nearly 16%, from US cents 8.31 per unit to US cents 9.60. This would push the end-user tariff from Shs 45.8 per unit to Shs 881.7 per unit.
But, according to the Ad Hoc Committee of Parliament's report, Bujagali Energy Limited has already benefited from this tax exemption for some time. Additionally, the Finance Ministry’s certificate of financial implication indicates that Uganda stands to lose approximately Shs115.47 billion (or $31.55 million) annually if the exemption is extended.
Upon assessment, it appears that the company’s financial position is not in distress. Therefore, we suggest that Bujagali Energy Limited explore alternative funding mechanisms, such as a tariff subsidy. This approach could effectively lower the cost of power while also reducing the cost of domestic goods, without the need for further tax exemptions.
Is there any squabble with the Income Tax Act amendment to provide a three-year exemption on the income of new businesses established after July 1, 2025?
This amendment intends to give room for small and medium-sized start-ups to establish themselves and remain in existence. It also intends to formalise small and medium-sized businesses. Government is also looking at ways to widen the tax base. The amendment will also help startups to keep records thus easing taxation and the idea of filing returns by the beneficiaries would help Uganda Revenue Authority (URA) to track the performance of the startups over three years.
A worker sorts coffee beans. The Income Amendment Bill 2025 intends to give room for small and medium-sized start-ups to establish themselves and remain in existence. It also intends to formalise small and medium-sized businesses. PHOTO/ MICHAEL KAKUMIRIZI
While the government-proposed exemption of up to three years, we question its rationale. Based on market experience, startups typically reach a break-even point after approximately five years, depending on the nature of the business. Given this, we believe a five-year period would be a more appropriate timeline to consider the introduction of taxation for startups.
For that, we recommend that this tax proposal is revisited or reviewed to go for five years because according to the available information, the time frame for break-even for a business is normally five years. At the same time, the government should come up with clear policy guidelines detailing who should qualify for tax incentives.
Then there is the proposal by the government to use the national identification number (NIN) as a tax identification number. Synchronization should be the way to go isn’t it?
The overall rationale of this is to increase the tax register and in turn, tax collection as well as tax compliance. It is anticipated that the use of NIN will expand the tax register and could bring about an increase in revenue collections.
However, not everyone with a NIN is eligible to pay tax. If this proposal gets passed into law, it means that the current Tax Identification Number (TIN) will be scrapped and replaced with the NIN. If passed into law, it lessens the burden of a taxpayer from running from place-to-place while registering a business.
The concern, however, is that we still see the government (NIRA) having trouble issuing National Identification Numbers and subsequently, the national identity cards within a reasonable time frame in case of replacement for whatever reason.
Isn’t the amendment in the Tax Procedure Code Act seeking to deny services such as opening a business without having a NIN prohibitive?
The amendment is disempowering 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 National Identification Number.
This is generally meant to enhance compliance as it will require an individual to provide both the TIN and the NIN. For a non-individual, one should provide the TIN for the company and the registration number from Uganda Registration Services Bureau (URSB). The amendment, if passed, is likely to solve the issue of revenue loss due to multiple and redundant TINs.
We are also concerned that this may cause corruption tendencies as the proposal lacks a penalty clause for extortion. But if passed into law, URA should write off all TINs that are not linked to the NINs.
Waiver of interest and penalty on payment of principal tax is another proposal by the government. What is the significance of this?
Any interest and penalties outstanding as of June 30, 2024, shall be waived where the taxpayer pays the principal tax by June 30, 2026.
Where the taxpayer pays part of the principal tax outstanding as of June 30, 2024 by June 30, 2026, the payment of interest and penalty shall be waived on a pro-rata basis – depending on time and payment made.
This is meant to increase taxpayers' compliance through the waiver and continue supporting businesses as they recover from the effects of Covid-19. We welcome this amendment but also propose that the government write off arrears accrued from administrative assessment or system-generated tax liabilities.
The proposal to remove Stamp Duty from loan instruments to reduce the duty chargeable on mortgage deeds seeks to eliminate the 0.5 percent chargeable tax, thus facilitating access to credit. Also in line with our proposals, under the VAT (Amendment) Bill 2025, the government proposed to exempt the supply of biomass pellets, which intends to promote the use of renewable energy that is cleaner and more environmentally friendly.
There are also proposals on the Excise duty Act (Amendment) Bill 2025. Why is this important?
The object of this Bill is to amend the Excise Duty Act, Cap. 336 to provide for the remission of excise duty paid on damaged, expired or obsolete goods; to revise the rate of excise duty on certain excisable goods and services under Schedule 2 to the Act and for related matters. Under this amendment, we agree with all the proposed amendments as they intend to increase revenue and regulate the “sin goods and services”, except the Amendment which proposes increasing gasoline (fuel) at Shs1,650 per litre and gas oil (automotive, light, amber for high-speed engines) at Shs1,380 per litre.
Although increasing tax on fuel is a cash cow and a soft point for revenue collection, an increase in fuel in 2025 following an increase in 2024, is unfair as it will make fuel expensive to the fuel users, and increase the cost of production among others.
