By CPA Tindyebwa Obed Bampe
Managing Partner Grand & Noble Certified Public Accountants
Every fiscal year (1 July to 30 June), the Government of Uganda (GoU) makes amendments to tax laws. Tax administration is concerned with the management and implementation of the applicable tax laws. In Uganda, it covers different taxes including; Import Duty, Excise Duty, Income Taxes (Corporation tax, Pay As You Earn – PAYE, Withholding Tax – WHT, Rental Tax, Capital Gains Tax – CGT, Presumptive Tax), Value Added Tax and Non-Tax revenue like Stamp Duty.
Some of the salient aspects of the 2022/23 amendments to the tax laws covering mainly; filing, penalties, and other aspects of the tax administration process.
1. Cash basis accounting for Value Added Tax (VAT)
Under the amendments to the VAT Act, a supplier who supplies goods or services to the Government may use cash basis accounting. A taxpayer using cash basis accounting for VAT must account for both the output tax payable and the input tax credited on a cash basis. Prior to this amendment, Section 26 of the VAT Act allowed only taxpayers whose taxable turnover did not exceed Ushs 500 million to use cash basis accounting, upon application to the Commissioner General of Uganda Revenue Authority (URA). The above meant that those taxpayers not qualifying for cash basis accounting would pay VAT to URA, irrespective of whether they had been paid by the government or not. Given that most times, payments from the government delay, taxpayers would be cash strapped because of paying VAT that had not been received or would choke on the penal interest of 2% per month, compounded. The above amendment, therefore, provides relief as taxpayers no longer suffer penal interest on VAT payable on supplies to the government where government has not paid them.
2. Penalties for Licensees under mining and petroleum operations
Section 89QA of the Income Tax Act (ITA) – Failure to furnish returns, was amended as follows: Notwithstanding the provisions of sections 48 and 49A of the Tax Procedures Code Act, 20l4 (TPCA), a licensee who fails to furnish a return or provide any other document within the time prescribed by this Act is liable to a penalty of not less than fifty thousand United States Dollars (USD 50,000) and not exceeding five hundred thousand United States Dollars (USD 500,000).
Section 48 of the TPCA provides that; A person who fails to furnish a tax return by the due date, or within a further time allowed by the Commissioner under this Act is liable to pay a penal tax equal to 2 per cent of the tax payable under the return before subtracting any credit allowed to the taxpayer on his or her tax return or ten currency point per month (Ushs 200,000), whichever is higher, for the period the return is outstanding.
Section 49A of the TPCA provides that; (1) A person who, upon request by the Commissioner, fails to provide records in respect of transfer pricing within 30 days after the request, is liable to a penal tax equivalent to fifty million shillings (Ushs 50m).
(2) A person who fails to provide information other than information referred to in subsection (1), to the Commissioner upon request, is liable to a penal tax of twenty million shillings (Ushs 20m).
The above amendment was meant to clarify on the provision of the ITA in relation to that of the TPCA as regards penalties for failure to furnish returns and records. Note that a licensee is treated separately from other taxpayers but also that the penalties under Section 89QA and 49A seem excessive.
3. Rental tax administration
The administration of rental tax was significantly changed from the previous regime. For persons other than individuals, the amendment provides that, Where the expenditure and losses incurred by a person other than an individual or partnership (like a company) in the production of rental income exceeds 50% of the rental income, the allowable deduction shall be 50% of the rental income for that year of income. This limits/ caps allowable deductions to 50% of rental income.
For individuals, a Flat Rate of 12% is imposed on gross rental income in excess of the threshold of Ushs. 2,820,000 per annum. This removes all expenses relating to earning rental income.
This means that landlords will have higher rental tax bills which may be partly transferred to tenants. It also signifies the shift of government towards Flat Tax regimes possibly due to the perceived simplicity.
4. The Income Tax (Designation of Payers) Notice, 2022 – WHT Tax Agents
The list of designated WHT agents was significantly expanded from 5,004 in 2018 to 9,784 in 2022. Note that in 2012, designated WHT agents were only 254.
The listed agents must withhold from suppliers of goods and services that are not WHT exempt when they make payments to the suppliers where aggregate contract value exceeds Ushs 1,000,000. This has increased the likelihood of taxpayers suffering WHT. It is expected that the scope of WHT will continue to widen in future.
5. Offences relating to tax stamps and Electronic Receipting and Invoicing under Section 62 TPCA
The offences listed below attract (on conviction) a fine not exceeding one thousand five hundred currency points (Ushs 30m) or imprisonment not exceeding ten years, or both.
- 62B. Failure to affix or activate tax stamps
- 62C. Printing over or defacing tax stamps
- 62D, Forgery of tax stamps
- 628. Failure to use an electronic receipting or invoicing
- 62F. Forgery of electronic receipt or invoice
- 62G. Interference with the electronic fiscal device or electronic dispensing control device
5. Payments to informers that provided information leading to the identification of unassessed tax – the lesser of Ushs 15m and 1% of tax or recovery of unassessed tax – the lesser of Ushs 100m and 5% of tax
This has the danger of spurring trading in taxpayers’ information including by tax officials working underground and even blackmail from especially disgruntled employees, current or former and even unprofessional tax consultants.
