What you need to know:
- The Valued Added Tax Act necessitates foreign remote providers of electronic goods and services to account for 18 percent VAT on goods and services sold in Uganda.
- Electronic services on which VAT is applicable now include films, games of chance, advertising platforms, streaming platforms, cab-hailing services, cloud storage, and data warehousing.
To limit revenue losses, beginning next financial year, a fortnight away, the government will be looking to restrict arrangements and deals that expose the country to a revenue loss.
According to Finance Minister Matia Kasaija, government has started rationalising tax exemptions, a shift from what analysts describe as unwarranted dishing out of tax exemptions and incentives that otherwise should have found their way into the national kitty – treasury.
However, in his Budget Speech Presentation last week, Mr Kasaija said government will continue providing tax exemptions in a more transparent way.
He pointed out that there will be minimum requirements for application of any new tax exemptions, including assessing the costs and benefits of all tax exemptions to ensure adherence to initial objectives, which include creating jobs, transferring technology and using local materials among other conditions.
Now, provisions in the tax laws that provide deductions allowed for accelerated wear and tear on plant and machinery have been repealed. This means normal depreciation will apply.
And exemptions on Value Added Tax (VAT) for diapers, inputs for processing hides and skins into finished leather; and inputs into iron ore smelting into billets have also been repealed.
The tax laws have been amended to improve the tax system and ensure fairness. These measures will generate Shs615 billion in additional revenue next financial year.
Meanwhile, the Income Tax Act has been amended to allow taxpayers who obtain credit facilities from SACCOs, non-deposit taking microfinance institutions, self-help groups, and community-based microfinance institutions to deduct the entire interest on loans as a business expense. This is the practice for taxpayers borrowing from commercial banks and micro-finance institutions. This measure is aimd at extending this benefit to borrowers of microfinance institutions and money lenders, according to Mr Kasaija.
This, he said, will support low-income individuals and groups to enable them access financial services and improve profitability and survival rate of Small and Medium sized Enterprises (SMEs).
Withholding tax of 10 per cent has been imposed on commissions paid to agent bankers to equalise their tax treatment with other agents operating similar businesses such as mobile money agents.
VAT Act has been amended to exempt the supply of concentrates and seed cake from paying this tax – VAT. This is to incentivise local manufacturing of animal feeds and premixes, allow non-resident taxpayers to file returns and pay tax in United States dollars to facilitate compliance of non-resident taxpayers operating in Uganda.
The amended Valued Added Tax Act also necessitates foreign remote providers of electronic goods and services to account for 18 percent VAT on goods and services sold in Uganda. The move is aimed at bringing e-commerce transactions into the tax system.
It will also require foreign remote providers of electronic goods and services to account for VAT on goods and services sold in Uganda, to bring e-commerce transactions into the tax system.
In addition, the scope of electronic services on which VAT is applicable has been expanded to include among others, films, games of chance, advertising platforms, streaming platforms, cab-hailing services, cloud storage and data warehousing.
The Excise Duty Act has been amended to remove the excise duty of US Dollar 9 cents per minute on incoming international calls originating from the United Republic of Tanzania. This will include Tanzania in the One Area Network comprising the other East African Community member states.
“Phone users in the EAC will now be able to make and receive calls at local rates regardless of their location within the One Network Area,” Mr Kasaija said while delivering the Budget Speech.
Further, the size of investment capital required for an investor to benefit from excise duty exemption on construction materials, has been reduced to $5million from $50 million for Uganda nationals. Foreign investors will be required to have investment capital of at least $50 million in order to benefit from this exemption.
Also, to deter under-valuation, excise duty on mineral water, bottled water and other water purposely for drinking has been imposed at 10 per cent or Shs75 per litre whichever is higher.
The Excise Duty Act has also been amended to clarify the taxation of spirits for human consumption on the one hand, and the exemption from excise duty of spirits used as raw materials for the production of disinfectants and sanitisers.
Meanwhile, the Tax Procedures Code Act has been amended to waive any interest and penalty on tax arrears outstanding as at 30th June 2023, in order to address requests from taxpayers who have cited hardships caused by the Covid-19 lockdown.
This provision, according to Mr Kasaija, is however, limited to taxpayers who come out and pay by December 31, 2023.
Where the taxpayer pays part of the principal tax outstanding by the deadline, the payment of interest and penalty shall be waived. After that date, Uganda Revenue Authority (URA) will enforce recovery of all taxes and penalties.
Tackling Illicit Financial Flows
Mr Kasaija also noted that Parliament has enacted the Convention on Mutual Administrative Assistance in Tax Matters (Implementation) Act 2023 meant to increase cooperation among tax authorities in the participating countries to tackle tax avoidance and cross-border tax evasion.
This will assist URA to receive correct information to deter illicit financial transactions where the country is estimated to lose revenue amounting to Shs300-500 billion annually