Why overtax rental income?
What you need to know:
As we speak, government has taken various tax proposals parliament to increase the tax base and raise additional revenue
According various sources including Uganda Bureau of Statistics, Uganda’s housing deficit stands at 2.4 million housing units, out of which 210,000 units are in urban areas and 1.395 million units in rural areas. An estimated 900,000 units are substandard and in need of replacement or upgrading. By 2022, Uganda’s population is projected to be about 48 million. The housing deficit can only get worse. The impact of Covid-19 on personal and household income is yet to be fully quantified and understood.
As we speak, government has taken various tax proposals parliament to increase the tax base and raise additional revenue. I will focus on just one of these proposals which is to raise the tax on rental income from 20 to 30 per cent.
While taxation is a necessity, it must be balanced with commonsense and retain incentive for those who spare their little income to invest in housing/real estate. Majority of people in Uganda are not able to save enough to be able to construct a house, let alone any form of decent accommodation. Proper housing in addition to availability of key utilities such as running clean water and electricity are pre-requisites to socio-economic development, prosperity and well-being of citizens. It therefore defeats government’s own purpose, if taxation is viewed as a punishment for those who endeavoured to save their little income to put up houses for rent; thereby improving the quality of life of citizens.
I urge Members of Parliament to balance the need to increase the tax base and raise revenue with the need to keep incentives and reward those who spare their hard-earned income to construct houses.
A fair rental tax should include grace periods for house owners to recoup their investment (three to five years) and a fair tax that ultimately will be passed on to the tenants. I would propose a modest tax rate of five per cent. This is our country and these are our citizens.
Also government must create incentives such as easing the process and costs of electricity and water connections, improve roads within communities and ensure that the landlord – tenant law respects both the interests of both parties in particular, ensure that for purposes of harmony, the tenants pay their dues in time and landlords allow tenants undisturbed enjoyment of their rights as envisaged in natural contract law.
I hope Parliament and the President will not use tax as a measure to disincentivise investment in real estate nor use it as a punishment for those who have invested their hard-earned money to construct rental income.
I would actually argue that there should be a different rate for residential accommodation (five per cent) and for commercial buildings (10 per cent).
Dr Patrick Okello,
