How govt plans to tax you

The State Minister (General Duties, Finance), Mr Henry Musasizi

What you need to know:

  • The new tax proposals are contained in the draft Income Tax (Amendment), Bill, 2022 to Parliament. 

Any person selling land, house or any piece of property or equipment purchased exclusively or primarily for business use will be required to pay tax if Parliament approves the proposed tax measures. 
 The new tax proposals touching land transactions, rental income, tax holidays to selected beneficiaries and related matters, are contained in the draft Income Tax (Amendment), Bill, 2022 to Parliament. 
The State Minister (General Duties, Finance), Mr Henry Musasizi,  tabled nine tax bills on March 31 including the new Income Tax (Amendments) Bill, 2022. 
When contacted last evening to explain the proposed government tax measures for the 2022/2023 Financial Year including the plan to tax land as a business asset, Mr Musasizi said: “I have no idea”. 
Land, according to Mr Nathan Nandala Mafabi, a professional accountant, is classified as a long-term asset on a business’s balance sheet, because it typically isn’t expected to be converted to cash within the span of a year. 
“We don’t want to burden people who are already struggling with high commodity prices. We will scrutinize these tax proposals because not every item that is purchased for use in a business operation can properly be identified as a business asset,” Mr Mafabi explained. 
The State minister for Planning, Mr Amos Lugoloobi, declined to speak on the plan to tax land and instead referred Daily Monitor to either acting director economic affairs at Finance ministry Moses Kaggwa or the deputy Secretary to Treasury, Mr Patrick Ocailap. Mr Ocailap said he had all the information on the matter but invited Daily Monitor to his office for an interview today. 


Finance Minister Matia Kasaija wants Parliament to amend Section 118B of the Principal Act which relates to withholding of tax by the purchaser of an Asset by introducing sub-section 3.
The new sub-section will now read as follows: For the purposes of this section, “business asset” means land, whether the whole or any part of the land, which is used or held for use in any business except land held as a trading stock and includes—(a) Land that is used in business to generate income other than land of an individual that is subject to rental tax; and (b) Land owned by a company, trust or partnership.
However, under sub-section (4) of the proposed amendments, the new tax shall not apply to a seller where the Uganda Revenue Authority Commissioner is satisfied that the seller has regularly complied with the obligations imposed on that person under this Act and in situations where the disposal of any property by means of gift, bequest, devise or inheritance that does not generate a gain included in business, employment or property income
In his analysis, Mr Gerald Sebandeke, a tax advisor at Ligomarc Advocates, said currently “business asset” has been encompassing all assets that are held for using business. 
However, this particular Bill has limited the definition of business assets to only land including that is used in business to generate income other than land of an individual that is subject to rental tax or land owned by a company, trust or partnership. 
“The only importance we are taking out of this is that if one is buying a different asset other than a particular land that has been provided for in the Bill, it then means one should not withhold tax on it,” Mr Sebandeke said. 
“So ideally the government is proposing to define a particular set of land as a business asset.” He added. 
Lawmakers on the Finance Committee as well as policy analysts reasoned Section 118B of the principal Act (amended) means that the proposed tax may affect business property developers, land agents who buy land for purposes for resale, among other groups of people. 
Former Kabarole MP Sylvia Rwabwogo explained that in the proposed amendments, the government seeks to tax land transaction where someone is a property dealer or developer.
“The seller under this [proposed] law incurs a tax cost because it is property sold for business and not home ownership…if I sell my house to another person in order for me to relocate, then, I don’t incur that cost,” Ms Rwabwogo explained.
She reiterated that the proposed tax is will affect business, developers or real estate dealers as well as individual land agents who buy land for purposes of resale.      
Although the draft Bill contains specific proposed amendments, senior officials in the Ministry of Finance who requested not to be quoted, explained that this is just a clarification on what land amounts to a business asset and that there has ambiguity on its meaning.   
Under the same Income Tax (Amendment) Bill, 2022, the government proposes to provide for the extension of the tax holiday for Bujagali Hydro Power Project for five years. 
In 2017 Bujagali Hydro Power project was granted an exemption from income tax for a period of 5 years that lapses on June 30th 2022. 
The new Bill proposes to extend the exemption again for another 5 years up to 30th June 2027. 
The tax holiday was granted by the government in a bid to reduce the cost of power from the project supplied to the national grid.
What is in other Bills? 
Among the other Bills that will be processed at Parliament include the Tax Procedures Code (Amendment) Bill, 2022, Value Added Tax (Amendment) Bill, 2022, the Excise Duty (Amendment) Bill, 2022, among others. 
Value Added Tax proposals  
Then, under the Value Added Tax (Amendment) Bill, 2022, cotton seed will be subject to Value Added Tax (VAT) at the standard rate of 18 per cent while menstrual cups will be elevated to the preferential zero rated status.
Excise Duty
For the Excise Duty (Amendment) Bill, 2022, there is a proposal to increase taxes in un-denatured spirits of alcoholic strength of locally produced raw materials from 60 per cent to 80 per cent and for imported spirits, increasing taxes from 80 per cent to 100 per cent. 
Tax Procedures Code
In the Tax Procedures Code (Amendment) Bill, 2022, one of the proposals is that the commissioner shall pay to a person who provides information leading to identification of unassessed tax or duty one per cent of the tax or duty assessed or Shs15 million, whichever is less or provides information leading to recovery of unassessed tax or duty five percent of the tax or duty recovered or Shs100 million, whichever is less. 
In addition, there is a proposal for the temporary closure of businesses until compliance with the requirements of electronic receipt and invoicing or tax stamps. 
The objective of this Bill, among others,  is to amend the Tax Procedures Code Act, 2014, Act, 14 of 2014 to provide for the time frame for registration of a tax agent.


THE INCOME TAX (AMENDMENT) ACT, 2022
10. Amendment of section 118B of the Principal Act 
Section 118B of the Principal Act is amended by inserting immediately after subsection (2) the following—
“(3) For the purposes of this section, “business asset” means land, whether the whole or any part of the land, which is used or held for use in any business except land held as a trading stock and includes—
(a) Land that is used in business to generate income other than land of an individual that is subject to rental tax; and
(b) Land owned by a company, trust or partnership.
(4) This section shall not apply to—
(a) A seller where the Commissioner is satisfied that the seller has regularly complied with the obligations imposed on that person under this Act; or
(b) The disposal of any property by means of gift, bequest, devise or inheritance that does not generate a gain included in business, employment or property income
 118B relates to withholding of tax by the purchaser of an asset.
According to a business advisor with PwC Uganda, Withholding Tax is imposed on suppliers of goods and services, that is persons earning or generating income from a business activity.                                                              The tax is applied to income earned in circumstances where the recipient might otherwise avoid declaring the income earned. The person who withholds the tax (the purchaser) is merely a collecting agent. Their role is to collect the tax and remit it to the revenue authority on behalf of the seller.
 In 2019, the tax law was amended to require every resident person who purchases a business asset to withhold tax at a rate of 6 percent on the gross payment.
 A business asset is defined by the tax law to mean an asset which is used or held ready for use in a business, and includes any asset held for sale in a business and any asset of a partnership or company. 
Therefore, for the withholding tax to apply, the seller must be carrying out a business and the land, house or asset that they are selling must be one that is used or held ready for use in the business (an amendment to this law has been proposed by the Income Tax Bill, 2022).

The proposed government tax measures 
Income Tax  (Amendment) Bill, 2022
 To revise the tax rate applicable to individuals and companies for purposes of rental income.
 To provide for a ceiling on deductible expenses on rental income for non-individuals.
 To provide for the extension of the tax holiday for Bujagali Hydro Power Project for five years.  
To provide for exclusion of income from transportation of cargo embarking outside Uganda.
To clarify the distribution of income qualifying for exemption under the 10- year tax holiday.


Tax Procedures Code (Amendment) Bill, 2022
To provide for the temporary closure of businesses until compliance with the requirements of electronic receipt and invoicing or taxstamps
 To provide for penalties for failure to affix or activate tax stamps, printing over or defacing of tax stamps, forgery of tax stamps, failure to use electronic receipting or invoicing, forgery of electronic receipt or invoice interference with the electronic fiscal device or the electronic dispensing control device
 A person who forges or is found in possession of a forged tax stamp commits an offence and is liable, on conviction, to a fine not exceeding Shs30 million or imprisonment not exceeding ten years or both.


Value Added Tax (Amendment) Bill, 2022
The following items have been added to the VAT exempt category under the second schedule to the VAT Act.
  Oxygen for medical use
 Assistive devices for persons with disability
  Cotton seed cake and menstrual cups are proposed to be removed from the exempt supplies list.
  Cotton seed will be subject to VAT at the standard rate of 18 per cent while menstrual cups will be elevated to the preferential zero rated status.

The Excise Duty (Amendment) Bill, 2022
     Increase in taxes in un-denatured spirits of alcoholic strength of locally produced raw materials from 60 per cent to 80 per cent.  
  Imported spirits, increasing taxes from 80 per cent to 100 per cent.

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