CSO ALTERNATIVE TAX PROPOSALS FOR FY - 2019/2020 FEBRUARY 2019 - SEATINI UGANDA
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CSO ALTERNATIVE TAX
PROPOSALS FOR FY
2019/2020
FEBRUARY 2019
1
C S O A L T E R N A T I V E T A X P R O P O S A L S F O R F Y 2 0 1 9 / 2 0 2 0
Acknowledgment
The preparation and development of the
Shs.18,375 billion
alternative CSO tax proposals for FY 2019/20 was Revenue projection for FY 2019/20
coordinated by SEATINI Uganda, with support
from Oxfam and Democratic Governance Facility.
Special thanks goes to members of the Tax Justice
Alliance Uganda1 who took part in the process.
In the quest to mobilise revenue domestically,
Introduction government should do it in a fair and just way.
Taxation should be looked at as a tool in fulfilling
Countries commit to set up social protection the 4Rs (Revenue, Redistribution, Repricing
systems, with national spending targets for and Representation). To this effect, Government
essential services like health and education. If needs to raise revenue in order to provide
countries cannot fund these through domestic essential services such as health care education,
resources, the international community pledges security as well as infrastructure for the citizens.
to provide international assistance.2 The Domestic In comparison to aid and debt, it is better for
Revenue projection for the FY 2019/20 stands at government to rely on tax revenues to meet
Shs.18,375 billion, of which Shs.17,855 billion the needs of the country because domestically
is tax revenue and Shs. 521 billion is non-tax mobilized resources are relatively secure and
revenue.3 This amounts to about 53% of the total more predictable. Beyond revenue, tax should
resource envelope which has been estimated at play a major role in redistributing wealth and
Shs. 34,304.7 billion to finance the budget under income and ensure the reallocation of resources
the theme: “Industrialization for job creation and among the population in order to address
shared prosperity”. Therefore there is need to poverty and inequality. This can be done by
have a healthy and vibrant domestic revenue government providing public services such as
base as the main contributor to the resource health, education and water. Taxation can also
envelope. be a tool for regulating the behaviour of citizens
However, given past trends there has been a by encouraging the consumption of basic and
variance between the revenue projected and healthy goods and services and discouraging the
actual collection. In FY2017/18 net revenue consumption of goods and services that may be
collections amounted to UGX14, 456.11 billion deemed socially undesirable. Taxation can also
registering a shortfall of UGX 606.32 billion4. play a key role in economic growth by protecting
Therefore, in order to cover up the shortfalls, and nurturing key sectors through higher import
Government of Uganda has had to greatly rely taxes on goods that are similar to those being
on external and domestic debt which currently produced locally. Taxation provides citizens with
stands at Shs 41.51 trillion as at June 30, 2018.5 the right to demand for accountability in return for
It is thus important that the country generates as their hard earned money which can be withheld
much revenue as it can domestically in order to in case government does not act well for example
reduce the debt burden and be able to finance its misuses the resources.
own development. It is against this background that Civil Society
1Southern and Eastern Africa, Trade Information and Negotiations Institute (SEATINI) Uganda;
Organisations under the Tax Justice Alliance–
Oxfam in Uganda; Civil Society Budget Advocacy Group (CSBAG); Uganda Debt Network (UDN);
Action Aid Uganda (AAIU); Citizens Watch-Information Technology (CEW-IT); Women and Girl
Uganda have jointly generated tax policy
Child Development Association (WEGCDA); Water Governance Institute (WGI);); Initiative for proposals/measures for FY 2019/20 to feed into
Social and Economic Rights (ISER); Uganda National Health Consumers Organisation (UNHCO);
The Open Forum Initiative (TOFI), Equality Now-Uganda, Community Empowerment for Rural the preparation of the tax bills by government
Development (CEFORD), Community Empowerment Education and Development (CEED), Tax
Justice Network Africa (TJNA), Transparency International Uganda (TIU),Youth for Tax Justice through the Ministry of Finance, Planning and
Network (YTJN), Africa Freedom Information Centre (AFIC), Cyber Law Initiative (Cyber-Line),
Kalangala District NGO Forum, Public Affairs Centre (PAC), Rwenzori Anti-Corruption Coali-
Economic Development. Consultations were
tion(RAC), Kalamba Cow Development Organisation, Arua District NGO Forum, Nkore Kigezi
Resources for Development, Kanungu Community Efforts for Rural Transformation, Mukono NGO
also made from Small and Medium Enterprises
Forum, Africa Freedom of Information Centre (AFIC), Agri-Point Uganda, Edden Juice, Pelere (SMEs) as well as citizens /communities at the
Group Ltd, Equality Now Uganda, Forum for Women in Development (FOWODE), West Nile
Youth Empowerment Centre. sub national level through their representatives.
2 http://www.undp.org/content/undp/en/home/blog/2015/7/21/The-Addis-Ababa-Action-Agenda-A-
step-forward-on-financing-for-development-.html The policy and administrative proposals are
3 National Budget Framework Paper 2019/20, MoFPED 2019
4 Revenue Performance Report FY 2017/18, URA 2018
discussed in the matrix.
5 https://observer.ug/news/headlines/59574-uganda-s-public-debt-rises-by-22-hits-shs-41-5-trillion
2Shs.17,855 billion Shs. 521 billion
tax revenue for FY 2019/20 non-tax revenue for FY 2019/20
Issue Observation Recommendation
Policy/Legal Issues
Income Tax Cap 340
Section 21(y) This provision is subject to abuse because the law benefits The provision should only benefit those
(ii)(aa) Exempt anyone who exports at least 80% of his commodities whether who produce using at least 50% of raw
Income ; or not the raw materials are from Uganda. materials from Uganda. This is in line
The income with the Buy Uganda Build Uganda and
of a person For example, an individual may import goods such as Local Content Policy.
derived from sugar from another country, re-package and export it, thus
the exportation benefiting from this provision. A clause should be inserted to replace
of finished ten years with five (5) years and the
We also note that some companies, especially foreign exemption may be renewable upon
consumer and
owned, are free to repatriate 100% of their profit and are likely satisfactory evaluation. However, even
capital goods for
to benefit from this provision, which will deny government the with renewal the total number of years
a period of 10
revenue that could trigger economic growth. over which an investor may be exempted
years
should not exceed 10 years.
This provision was made in FY 2007/8 for a period of 10 years
yet we are in 2019, do the ten years still count? The section should provide definitions
for finished consumer and capital
The section does not define what are finished consumer
goods.
and capital goods, which leaves room for a variety of
interpretations. The law should be harmonized with the
Petroleum law, which allows foreign
companies to only repatriate 50% of
their profit in a given financial year.
Section 38: Carry Based on our engagements with Uganda Revenue Authority A clause should be inserted to limit the
forward losses (URA) on tax policy issues it was revealed that in FY time period of carrying forward losses to
2015/16, 13.8 trillion was declared as carried forward losses 5 years after which a company should
by different companies. Many companies continue to take be subject to an audit by URA in order
advantage of this provision and have perpetually declared to determine whether or not they are
losses for many years by using various mechanisms e.g. actually making losses.
creative accounting.
The government should also be able
Section 15 of the Tax Procedure Code Act limits companies to develop a schedule with an estimate
to keep books of accounts to 5 years, which jeopardizes tax of the rate of return on investment in
administration audit efforts for such companies. different businesses. This will enable
Uganda Revenue Authority (URA) to
assess the viability of businesses, which
have continuously declared losses, but
have remained operational.
Carry forward losses should be limited
to companies in specific sectors like
education, health or agriculture and not
just made general across the board
3C S O A L T E R N A T I V E T A X P R O P O S A L S F O R F Y 2 0 1 9 / 2 0 2 0
Issue Observation Recommendation
Section 21 (ad) As of January 2017, there were 8,285 registered SACCOs in The exemption on all SACCOs should
Exemption of Uganda. be repealed.
the income of
SACCOs In FY 2017/18 Uganda lost revenue amounting to UGX 10 The rate of tax on the income of
billion. SACCOs should be progressive in
relation to the income portfolios of the
Repealing the exemption does not affect SACCO savings but said SACCOs as it is with PAYE
interest income earned from SACCOs, which is income like
any other from normal business operations. URA should closely monitor the activities
of SACCOs and ensure that it taxes their
The Exemption creates a disincentive for the tax administration investments.
to monitor SACCO operations including others from which
they could be earning taxable income thereby breaking the
tax chain.
Section 21(1) As a result of exempting these groups from paying tax on their The clauses should be repealed in order
(q) exemption employment income and emoluments, other professional to subject all groups to payment of tax
of a person groups offering public services such as teachers, doctors on their emoluments and employment
employed in the and prosecutors, councillors, are now demanding for similar income.
Uganda People’s exemptions. Such action promotes inequality and exclusion
Defence Force, and has dire consequences on the overall resource envelope.
the Uganda For example, government foregoes over 49 billion shillings
Police Force, the annually as a result of the exemption of MPs. This limits the
External Security amount of money available to provide social services; hence
Organisation, the government resorting to borrowing that is also at the expense
Internal Security of the taxpayer. This is not sustainable in the long run.
Organisation
or the Uganda It’s due to these untaxed emoluments of the MPs that
Prisons Service Government can have excessive short falls to meet. For
other than a example, it’s indicated in the parliament’s committee on
person employed budget which scrutinized the Budget Framework Paper for
in civil capacity. the FY 2019/20, that Parliament is experiencing shortfalls in
the emoluments for current MPs to the tune of 10.042 billion.
Section 21(1) It’s in addition to the shortfalls in emoluments of Shs 8.532
(q) Exemption of billion and salaries of Shs 5.165 billion for expected new staff
the employment and MPs.
income of a
person employed Another challenge with this exemption is that it is
as a Member of misunderstood. Many in the armed forces mistake it to mean
Parliament. that even when they do business it is exempted.
Value Added Tax Act Cap 349
Exemption of VAT This exemption is on the supply of the services or goods Contractors engaging in the supply of
in accordance listed in the provision related to the sectors i.e. the supply machinery used by Small and Medium
with section 19 of specialised vehicles, plant and machinery, feasibility Enterprises should be exempt from
and paragraph studies, engineering designs, consultancy services and civil VAT
1(aa) of the works related to Hydro Electric Power, roads and bridges
second schedule construction, public water works, agriculture, education and
to the VAT Act health; and not to the contractors. However, majority of
small and Medium enterprises use contractors to supply
them with machinery used in their production
4Issue Observation Recommendation
Gaming and Lotteries Act 2016
Section 48. Currently the Act provides for a rate of 20% of the total Increase the tax on casinos, gaming
Tax on casinos, amount of money staked less the pay outs (winning) for or betting to 35% to make it difficult for
Gaming or the period of filing returns. gaming and betting companies to offset
Betting the withholding tax on the winnings
Despite the fact that in the Income Tax Act there is 15% within the Income Tax act.
withholding tax on the winnings of gaming or betting,
the moral benefit of discouraging this act has not been
realized. Many betting companies offset the 15% (Withholding
Tax) WHT by offering an equivalent bonus to their clients on
all the wins made as part of encouraging clients to continue
gaming/ betting.
The Age limit of people allowed to bet was set at 21years but
this is impractical and has been cumbersome to implement
due to various betting options including virtual games.
Excise Duty Act 2014
Item 4 (a) Wine There is a growing local wine industry in Uganda. Therefore, Reduce the tax rate from 20% to 15%.
made from locally there is need to protect and facilitate its growth and
produced raw competitiveness. Currently, the 20% rate is high
materials
Item 5 (b) Fruit The current provision provides for an excise duty of 13% or We propose that Fruit and vegetable
and vegetable shs. 240per litre, Whichever is higher per litre except juice, except for juice made out of
juice, except for for juice made from at least 30% pulp from fruit and at least 50% of pulp from fruit and
juice made out vegetables grown in Uganda. vegetables grown in Uganda
of at least 30%
of pulp from fruit We also propose that the rate is
and vegetables increased from 13% or shs. 240per litre
grown in Uganda whichever is higher to 15% or shs. 300
per litre whichever is higher.
Schedule II Currently all sugar confectionaries do not attract excise duty. Sugar confectionaries; chewing gum,
Item 16- Sugar Therefore, this stifles competition and does not in any sweets and chocolates except for
confectionaries; way protect those who produce the raw materials such as those made using at least 40% locally
Chewing Gum, sugar and cocoa produced raw materials should attract
Sweets and an excise duty of 20%.
chocolates
Item 17 (C) Other There is need to protect and facilitate growth and The rate should be increased to 25%
furniture competitiveness of the local furniture industry which is also a
key source of market.
Excise Duty on We have noted that the tax rates on cigarettes (locally We propose that the tax rates on all
Cigarettes manufactured and imported) differ which would make cigarettes and all tobacco products be
locally manufactured cigarettes still cheaper than imported the same and are increased by 100%
cigarettes. This is the subject of the recent court ruling from the current rate for both soft and
between Uganda Revenue Authority and BAT by the East hinge-lid to make it more expensive
African Court of Justice. to consume and in the end augment
tobacco control measures; reduce the
We recognize, in particular, that, as part of a comprehensive health-burden accruing from smoke on
strategy of prevention and control, price and tax measures government; prompt smokers to quit
on tobacco can be an effective and important means to and finally bring in more tax revenues.
reduce tobacco consumption and health-care costs and
represent a revenue stream for financing for development in
many countries.
5C S O A L T E R N A T I V E T A X P R O P O S A L S F O R F Y 2 0 1 9 / 2 0 2 0
Issue Observation Recommendation
Excise duty Currently the excise duty on alcoholic beverages is only We propose that Excise duty on
on Alcoholic dependent on the type. However, alcoholic drinks contain alcoholic drinks is levied while putting
Beverages different alcoholic percentages and those with higher into the consideration the alcoholic
percentages are more harmful to the consumers’ health. content within other than being based
on place of production as the entire
essence of the tax is defeated when we
do not penalize binge drinking . This
will go a long way in increasing revenue
generation but will also limit consumption
of the strong alcoholic beverages.
Item 13 (f) Currently the excise duty tax imposes a tax of 0.5% on The 0.5% tax on all withdrawals should
Mobile Money the transaction value of withdrawals across mobile money be repealed. Alternatively, there is need
Transactions of platforms. to strata the withdrawals so that those
Withdrawals who withdraw smaller amount are not
As of 2017, the UCC report noted that mobile money impacted as heavily as those who
subscriptions stood at 23.6 Million Ugandans, with 61 withdraw higher amounts.
percent transactions below UGX 45,000.
Despite the fact that Mobile money tax collections in Uganda
generated a whooping Shs. 50 billion surplus in the first half
of the financial year 2018/19, the tax still limits financial
inclusion and limits the amount of disposable income
available for consumption.
The tax further creates unfairness in the financial system
by raising charges for telecom financial operations while
keeping those of established financial institutions at bay.
Item 13 (b) Over Currently the Excise Duty Act 2014 imposes shs. 200 per Government should consider lowering
the Top Services user per day of access of Over the Top Services. The tax the rate to about UGX 25 per day
is regressive in nature since it is a flat rate regardless of
income levels and violates the rights of citizens to access
information.
Additionally, URA has registered low collections amounting
to Shs. 21.12 billion in the period July-December 2018
against a target of Shs135.21 billion. The low collections
are attributed to the fact that most Ugandans have either
resorted to using Virtual Private Network (VPN) or abandoned
the use of social media altogether.
Tax Procedures Code Act 2014
Section 56: The current law provides a penalty of forty eight currency The penalty for those who knowingly
Failure to points in case a person conducting a business fails to or recklessly do not maintain records
Maintain Proper maintain proper books of accounts. Since each currency should be increased to at least one
Records point equals shs.20, 000, one would be required to pay hundred currency points (2,000,000).
shs. 960,000. The penalty is too low and does not compel This figure will encourage taxpayers to
business owners to maintain proper records. maintain proper record hence reducing
tax avoidance.
Section 24 (6) The current law allows the commissioner a period of 90 The section should be amended by
Period over days to serve notice of an objection decision within 90 reducing the time period to 30 days
which the days from the date of receipt of the objection. However,
commissioner given the recent improvements in URA systems the time
may serve notice provided is too long hence hindering effectiveness of the
of an objection tax system.
East African Community Customs Management Act
Tomato sauce Currently imported tomato sauce attracts a rate of 35%. The rate should be increased to 60%.
However, there is enough capacity within the region to
produce tomato sauce.
6Issue Observation Recommendation
Containers, All packaging materials currently attract rate of 35%. Despite We propose that bands are created for
boxes, tins, jars, the fact that the increment was aimed at protecting the different packaging materials; i.e.
and any ordinary the local packaging industry, the EAC doesn’t have the glass, plastic, paper.
trade packages, capacity to produce glass packaging.
pallets, pre-
packing slings,
export packing
materials and
input for their
manufacture
Furniture and There is enough capacity within the region to produce We propose that the rate is increased to
parts thereof furniture. The current rate of 35% is not sufficient to discourage 60%.
the importation of furniture from outside the region.
Administrative Issues
Section 21 (ac) Despite the fact that the Bujagali Hydro Power project Revisit some of the attendant costs with
Exemption of received an exemption, there has been a tremendous a view of reduction to bring the tariff to
Bujagali Hydro increase in the cost of electricity during the last one year. at least 4US cents per kW from about
Power project up While this high cost of delivering electricity to the consumers 14US cents. This is important to promote
to 30th June 2022 may be attributed to the exchange rate to the dollar, inflation manufacturing / industrialization for job
and other natural factors, the cost of electricity is influenced creation as per the theme of the budget
by other attendant costs associated with the different entities FY 2019/20
involved in the electricity sector i.e. Umeme, Eskom, UEGCL,
UEDCL, UETCL, ERA and REA.
Also, the fact Bujagali’s output is 100MW against the
expected 255MW increases the cost per MW of electricity,
thus undermining the justification for the Bujagali exemption
Furthermore, about 50% of the overall installed hydropower
capacity is available for consumption.
Premised on the above, it may be asserted that the award
of the tax exemption has not translated into the intended
benefit for the citizens.
Ugandans Despite the fact that Ugandans employed in these There is need to enforce the practice
employed in organizations are mandated to pay tax on their employment of filing returns among Ugandans
Diplomatic income, many of them have failed to do so. Most of these employed in diplomatic missions and
Missions and institutions do not remit the money to URA. .This is usually international organizations which are
International under the demise that foreign institutions do not pay any tax exempt from Income Taxes. Uganda
Organisations Revenue Authority should institute a
which are dedicated team of technical staff to
exempted from monitor Ugandan employees in these
Income Tax exempt international agencies
High Net Worth Failure to tax the informal sector costs government an average Strengthen the capacity of URA officials
Individuals of UGX 1 Trillion (US$ 273 Million) per annum in revenue to develop a follow up framework with a
(HNWI) foregone from over 1.2 million unregistered businesses, 1.57 report of the HNWIs.
million households with unknown businesses, and estimated
897 High-Net worth Individuals (HNWI) Publish HNWI performance report
URA has established a unit that manages tax affairs of The government should allocate more
the High Net worth Individuals (HNWIs). The desk has resources to URA to enable it recruit
been established to a Liaison office to coordinate the tax more staff for efficient tax administration.
compliance of the wealthy citizens and VIPs, who also include This will enable URA staff to conduct
Parliamentarians, Politicians and high-profile government lifestyle audits on these HNWIs
officials.
However, URAs staffing levels have remained low with a
staff-to-taxpayer ratio of 1:672. This also makes it hard for
staff to follow up on the “might” HNWIs
7C S O A L T E R N A T I V E T A X P R O P O S A L S F O R F Y 2 0 1 9 / 2 0 2 0
Issue Observation Recommendation
Rental Income The 2017/18 income tax amendment required the minister to We propose that the minister develops
Tax gazette rental rates for properties within a given a location the statutory instrument to gazette rental
but has not yet been done. rates within the different locations to
reduce on under reporting of rental
There is a high rate of ignorance among the population income in the country.
on the payment of rental income tax. Citizens have often
failed to differentiate between rental income tax and the It would be ideal to have a joint
property tax which is collected by the local governments. assessment by URA and Local
As a result, property owners have failed to appreciate the Government that will allow collecting
payment of rental income tax, hence low collections being the tax as a consolidated amount to
registered by URA reduce the burden on the taxpayer. This
includes identifying, valuing, assessing,
collecting and enforcing compliance
on the property. The Local Authorities
s must find the property, value it and
update the property register. The URA
should assess the taxes. The Local
Authorities and the URA should jointly
collect and enforce the tax. Tax payers
deposit the tax to URA, which then
transfers the agreed revenue share to
the local authorities as per regulations in
place.
By merging all existing property taxes
into one tax head, government will do
away with the vertical tax competition
between local governments and URA
and stop the many merged tax heads
appearing as double taxation to the
taxpayers.
There is also need for government to
increase tax education and information
on rental income tax.
VAT Despite the fact that VAT collection registered a 68.6% There is need to enforce the use
Administration increase between FY 2013/14 and FY 2017/18, an average of Electronic Fiscal Devices (EFDs)
deficit of UGX 122 Billion (US$ 29 Million) occurred during across VAT registered businesses. A
the same period. The main factors contributing to this are strategy that can be used is making
inefficiencies in collections and low VAT compliance. This is it a prerequisite for business owners
characterized by under-declaration of VAT, as businesses do to pay for an Electronic Fiscal Device
not remit what is due to URA. before obtaining trading licenses or its
renewal.
Despite the fact that government waived VAT on Electronic
Fiscal Devices in FY 2019/20, they have not yet been put This will go a long way in enforcing the
use to enable URA track business transactions across the E-receipting system and hence enable
country. This too has contributed to the low levels of VAT URA track different transactions’ thus
compliance increasing compliance to VAT.
Over 98% of the URA processes are automated thus Empower URA staff with data analytical
generating enormous amounts of data, such data however is skills to utilize data generated from
not put to full use due to limited analytical capabilities of the different electronic systems to uncover
URA staff. discrepancies and increase revenue
recoveries
Gender and Tax It is important to note that tax affects men and women There is need for government to take
differently. This is especially so given their different a step and disaggregate data on
gender roles. However, it has been difficult to ascertain taxpayers according to gender.
the impact of tax on women and men due to lack of
gender disaggregated data on taxpayers. Ascertaining the
gender impact of tax would go a long way in guiding policy
formulation on tax.
8Issue Observation Recommendation
Accountability Studies have revealed that the low levels of voluntary The government should have a
compliance are partly attributed to the fact that citizens are NATIONAL ACCOUNTABILITY WEEK
not aware of what the taxes they pay are used for. during which it specifically informs
citizens on how the taxes, which have
We commend URA efforts for hosting the annual taxpayer been collected, have been utilized. This
appreciation week and publication of “My Taxes Work” should also cut across to the different
Magazine regions within the country.
Such efforts should be reinforced
Tax and Small SMEs, despite forming a critical component of the tax base, Government should put in place tax laws
and Medium have not been engaged in tax policy processes. As a result, that are supportive of SMEs’ growth and
Enterprises the tax laws put in place have not taken into account their competitiveness
(SMEs) growth and competitiveness needs. The country continues
to import at duty free or at a much lower duty that is ideal, There is need to have a structured
commodities that are already being produced by domestic approach of engagement of SMEs when
enterprises such as SMEs. Similarly, for some products, the enacting tax policies where they can
excise duty charged on imports has remained equivalent to voice their concerns which currently is
the excise duty charged on locally produced items, hence inexistent.
making the local producers less competitive. Similarly, the
tax system is not systematic in provision of specific tax
incentives for domestic investors especially SMEs.
Citizens Citizens have not been fully engaged in policy formulation. Government should put in place
Engagement While citizens are given a chance to share their views on a structured government-citizens
in Tax Policy the tax bills every financial year during the public hearings engagement on tax policies and
Processes at parliament, the time accorded for this process is not practices. The process should provide
enough hence limiting their engagement. As a result, ample time for citizens to voice their
contentious taxes have been passed, causing public outcry opinions on different tax policy and
on unfair taxes such as the taxes on mobile money and practice proposals before they are
Over the Top Services. enacted.
Non-compliance The Office of the Auditor General (OAG) report for FY 2017/18 There is need to enhance compliance
with tax laws revealed that some government Ministries, Departments and through ensuring remittances and
Agencies failed to comply with the set tax laws in respect to strengthening laws and penalties
deductions and remittances amounting to UGX 27.4 billion. related to non-compliance even among
government entities.
Furthermore, some entities failed to comply with statutory
deductions which contravened the tax laws as these failed
to deduct withholding tax of UGX 22.48 million and PAYE of
UGX 526 million, non-remittance of PAYE of UGX.23.75 billion,
and VAT of UGX.3.96 billion. Among these entities included
Uganda Posts Limited, Kampala Capital City Authority, and
Joint Clinical Research Centre were the most non-compliant
entities.
Use of a Single There is various identification documents held by Ugandans There is need to merge personal bio-
Identification with varying identification details which distorts tracking data to avoid duplicity in Identification
Number personal information of potential tax payers, but also limits numbers, preferably based on the NIN
timely access to information by tax entities. for individuals and Business registration
numbers (BRN) for non-individuals to
Government has instituted a National Identification Number have one complete understanding of a
(NIN). taxpayer at a national level i.e. link the
NSSF, TIN and Passport to the NIN.
9C S O A L T E R N A T I V E T A X P R O P O S A L S F O R F Y 2 0 1 9 / 2 0 2 0
Issue Observation Recommendation
Emergence of the Digital economy has become the new buzz word in Uganda needs to benchmark India by
digital economy international trade and finance. However, this has ushered investing in technology, and putting in
in new challenges especially for African countries. These place policies aimed at digital taxation.
include inter- alia; This also requires building the capacity
of the URA staff to understand the
Limited capacity to tax digital transactions; a number of dynamics of digital taxation.
digital platforms in Uganda currently include Jumia, OLX,
Amazon. There is also a growing transport sector with For the transport sector, efforts should
companies such as Safe Boda, Taxify, Uber, operating in be made to register the operators under
Uganda. However, operators in these sectors have not this sector and have the companies
been subject to tax due to the complexities of taxing the under which they operate file returns
digital sector. and withhold a certain percentage of
their income as tax payable to URA.
Emergence of data havens; there is a shift from the use of tax
havens to data havens by the corporates to hide their wealth.
Current rules governing the digital economy prohibit the
requirement of local presence of a firm. This will make it hard
for a country like Uganda to regulate digital transactions
within her territory thus risking to facilitate data havens.
Furthermore, the raw material of the digital economy is data
for countries for instance Uganda which have challenges
with data banks, tapping into this critical raw material is a
challenge. Big corporations are now using data to manipulate
sales, pricing, declaration of turnover and wealth.
Consumer welfare; big data firms for instance Google,
Apple, Facebook, Amazon and Ali-Baba are using data
to manipulate consumer tastes and preferences through
tailored advertising while clouding out smaller firms. This
is an anti-competitive practice and unfavourable for building
competitive domestic digital players.
Lack of an enabling digital infrastructure; Internet is a big
component of the digital economy. For this to be feasible,
internet in countries like Uganda should be accessible,
available and affordable to all citizens. This is not currently the
case in Uganda.
TAX EXEMPTIONS TO POTENTIAL INVESTORS
(a) During FY 2018/19, government of Uganda awarded a series of tax exemptions to potential investors which
included; a developer of an industrial park or free zone whose investment capital is at least two hundred
million over a period of ten years from date of commencement of construction; and
(b) an operator within the industrial park, free zone or an operator of a single factory or other business outside
the park who meets the following requirements –
minimum investment capital is thirty million dollars in the case of the foreigner or ten million dollars in case a
citizen of partner state in the East African Community;
carries on business in agro processing, food processing, medical appliances, building materials, light
industry, automobile manufacturing and assembly, house hold appliances, furniture, logistics and ware
housing, information technology or commercial farming;
uses seventy percent of the raw materials are sourced locally subject to their availability;
directly employs a minimum of one hundred citizens; and
Provides for substitution of thirty percent of the value of imported product.
10Observation: We noted with concern that this group of investors received a series of exemptions. These
included;
An exemption from income tax for a period of An exemption from VAT on the supply of services to
10 years for the developers of the industrial conduct a feasibility study, design and construction;
or free zone from the “commencement of including the supply of construction materials of
construction” and 5 years for an operator within the industrial park well as for the construction of
or outside the industrial park or free zone from the a factory or a warehouse and the supply of locally
“commencement of business”. produced raw materials and inputs or machinery
and equipment to an operator within or outside the
An exemption from Excise duty on construction industrial park or free zone.
materials for the development of industrial parks or
free zones while the operators will receive a similar An exemption from VAT for the supply of earth
exemption for construction materials of factory or moving equipment and machinery for development
warehouse exclusive of those materials which are of an industrial park or free zone
available on the local market or locally produced
Despite the fact that these exemptions were intended
raw materials and inputs.
to attract investors to develop industrial parks and
An exemption from stamp duty on debentures, further set up industries, we have noted a few concerns
further charges, lease of land, increase of share as shown below;
capital and transfer of land for both the developer
of the industrial or free zone and an operator within
or outside the free zone;
Observation Recommendation
The criterion shown above for an operator in or outside We propose that this criterion is also stated in the
the industrial park to benefit from the exemptions has Income Tax Act.
been stated in the Excise Duty (Amendment) Act
2018, VAT (Amendment) Act 2018 and the Stamp
Duty (Amendment) Act 2018 but not in the Income
Tax (Amendment) Act 2018.
We further observe that the clause in the Income The Clause should, for avoidance of doubt
Tax (Amendment) Act 2018 does not define what provide a definition for the terms ‘commencement
amounts to ‘commencement of construction’ and of construction’ and ‘commencement of business’
‘commencement of business’ for developers and for developers and operators respectively to avoid
operators respectively which leaves room for abuse abuse or exploitation of the law.
or exploitation.
Additionally, we note that the proposed period of The period for the exemption should be reduced
10 years for which to exempt income of developers to 5 years and should be subject to a review and
under clause 21(ae) is too long and will ultimately approval by Parliament before renewal.
lead to revenue loss.
The exemption on Excise Duty and VAT for The exemption should only apply for construction
construction materials used for the development of materials exclusive of those materials which are
an industrial park or free zone accrues regardless available on the local market or locally produced
of whether or not the construction materials are raw materials and inputs.
available on the local market or are locally produced
raw materials and inputs.
11C S O A L T E R N A T I V E T A X P R O P O S A L S F O R F Y 2 0 1 9 / 2 0 2 0
Observation Recommendation
Despite the fact that the criteria laid out in the Excise We propose that at least 50% of all the employees
Duty (Amendment) Act 2018, VAT (Amendment) Act are Ugandan and that at least 50% of the
2018 and the Stamp Duty (Amendment) Act 2018 supervisory team should be Ugandan with a plan
requires at least one hundred employees to be to reduce the foreign supervisory team further as
Ugandan citizens, experience has shown that most provided for in the oil companies.
of the foreign owned companies employ the locals
This should be subject to the provisions in Clause
to solely do the petty jobs which do not necessarily
27 of the Local Content Bill 2017.
improve their quality of life given the low quality of the
jobs and worse still do not build their capacity to take
on supervisory roles.
In the Financial Year 2017/18, provision was included We recommend that the operators outside the
in the Income Tax Act under section 27A to allow a industrial or free zone stated in the 2018/19 tax
person who places an item of eligible property into amendment Acts only benefit from the exemption,
service for the first time outside a radius of 50km from if they are setting up the business beyond a radius
Kampala, during a year of income a deduction for of at least 50 kilometres from Kampala.
that year for an amount equal to 50 percent of the
Operators in an industrial park or free zone should
cost base of the property at the time it was placed
not benefit from the distance exemption.
into service. This was aimed at redirecting investment
outside Kampala promoting forward and backward
linkages, and decongesting the city. This benefit
would also apply to businesses in an industrial park
or free zone that is 50km outside of Kampala that
already have many exemptions, further reducing the
taxable income. We also noted that the exemptions
proposed for the operators outside the industrial
park or free zone have not specified the radius of the
business
Conclusion
The government needs to improve tax policy and practice to boost revenue collections in order to
finance the country’s development priorities. However, this should be in a progressive manner that
limits the rise of inequality across the country. We also hope that government will adopt the above
proposed measures which will contribute to realising the theme of the budget for FY 201/20 which aims
at promoting industrialisation for increased job creation and shared prosperity.
For more information, please contact With support from DGF
Secretariat: Tax Justice Alliance
SEATINI-Uganda
P.O.BOX 3138 Kampala,
Tel: +256-41-4-540856
Email: seatini@infocom.co.ug
Web: www.seatiniuganda.org
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