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What the new taxes mean for you

Updated: Oct 21, 2023

A number of the proposals in the Bills are aimed at broadening the tax base. According to the ministerial policy statement that was recently made by Uganda Revenue Authority (URA) before Parliament's Committee on Finance, the government expects to collect shs. 29 trillion from domestic tax revenue in the next financial year 2023/2024 (FY 24) from both existing and new tax policy measures. The government has released the Tax (Amendment) Bills that contain the proposed tax measures for FY23/24 and these have been tabled before parliament for discussion.

A number of the proposals in the Bills are aimed at broadening the tax base by bringing income that was previously untaxed/(or Exempt) into scope, proving clarity in taxation of certain tax provisions that had ambiguity as well as introducing administrative measures to encourage and enhance tax compliance.

Restriction on Carrying forward tax losses

The current situation:

Companies in Uganda are currently permitted to deduct all expenses incurred in the course of doing business when calculating the corporation tax payable on an annual basis. Furthermore, if the company has previously assessed tax losses from previous years, the previously assessed tax losses will be deducted in the current financial year of income until they are fully utilized by the company/taxpayer.

Proposed Amendment

The Income Tax (Amendment) Bill, 2023, is now proposing to restrict the carrying forward of losses to five years. Thereafter, any losses carried forward will be limited to 50% of the available assessed tax loss.

If this proposal becomes law, it is likely to have a negative impact on infrastructure-intensive business that incur large start-up investment costs and end up in huge loss positions before they break even. Some of these businesses must carry forward losses for more than 10-15 years before they can break-even.

Collective Investment Schemes

The Income Tax (Amendment) Bill proposes to introduce a 5% and 15% WHT on profits earned by members of Collective Investment Schemes (CIS). An example of the CIS is the commonly known "Unit Trusts" embraced by several Ugandans as a means of saving.

Members to such unit trusts whose savings are not more than shs. 100 million will have their profits taxed at 5% while members that have invested more than shs. 100 million will have their profits taxed at a rate of 15%.

Previously, the Government did not tax earnings from unit trusts in order to encourage Ugandans to save.

However, in the past, URA has sought to tax profits from such Collective Investment Schemes at a 15% rate on basis that they amounted to dividends earned by Investment Scheme members. A lower tax rate may thus be preferable tp avoid discouraging a growing saving culture.

Exemptions of animal feed concentrates from VAT

Last year, there was a lot of squabbling between farmers and the taxman when the taxman tried to impose VAT on animal feeds imported in the form of concentrates. The Taxman attempted to tax these concentrates on the basis that they are not specifically listed among the exempt items in the VAT Act, which Sparked widespread public outrage from farmers.

The VAT (Amendment) Bill, 2023 proposes to exempt animal feed concentrates. If passed into law, the proposed amendment to the VAT Act is expected to put this dispute to rest and provide farmers with much-needed tax relief.

Waiver of Interest and penalties on tax outstanding by June 30th

The Tax Procedures (Amendment) Bill, 2023, is proposing to grant the URA power to waive interest and penalties to taxpayers that voluntarily pay outstanding principal tax as at June 30 2023, by December 31, 2023.

Currently, taxpayers obtain a waiver for penalties and interest in relation to tax liabilities relating to the period before July 1 to June 30 2020, which was one of the Covid relief measures that was introduced in 202 at the helm of the pandemic. If this proposal becomes law, taxpayers will have the opportunity to have all interest and penalties on taxes due by June 30, 2023 waived.

New digital services Tax for non-resident companies in Uganda;

The income Tax (Amendment) Bill, 2023 is now proposing to introduce a separate direct tax in form of digital services tax (DST) on such services.

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Why are the Tax amendment bills being tabled to parliament now and not 10 or 20 yrs ago?Could this have something to do with a struggling economy other than a seemingly noble move to streamline and improve the taxation process? If certain taxes were exempt then what makes them taxable now/

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