NEW TAX LAWS in UGANDA 2014/2015

NEW TAX LAWS in UGANDA 2014/2015

The 2015/2016 budget introduced several tax proposals several of which have been embodied in the law. The notable new tax laws are therefore as follows:

A. Income Tax Proposals

1.   Requirement of Tax Identification Numbers( TINs)

a.   Suppliers to be registered for tax

The Income Tax Act was amended to disallow expenditure incurred by tax payers who fail to provide TINS of their suppliers of goods and services.

Penalty: No deduction shall be allowed for any expenditure exceeding 5 (five) million Uganda shillings on goods and services from a supplier who has no tax identification number. S.22

b.   Requirement for a TIN to obtain licenses or any form of authorisation to conduct business in Uganda

There is now a further requirement making tax identification numbers (TINs) a mandatory requirement for issuance of licenses or permits generally. An amendment provides that every local community, Government Institution or regulatory body shall require a TIN from any person who applies for a license or any form of authorisation to conduct business in Uganda. S.24

2.   Reduce rate of withholding tax on reinsurance services

 Part XI of the Third schedule to the Income Tax Act was amended to reduce the    withholding tax rate of re-insurance premiums from 15% to 10%. A person who makes a payment of premium for reinsurance services to a non-resident person shall now be required to withhold tax on the gross amount of that payment at the rate of 10%.

3.   Increase presumptive tax annual gross turn over threshold from 50M to 150 M.

The 2^nd Schedule to the Income Tax Act has been amended to increase the threshold of annual gross turn over from UGX 50Million to UGX 150 Million for presumptive tax payers. The position is reflected below:

UGX>50<75million per annum--UGX 937,500 or 1.5% of gross turnover (whichever is lower)

UGX>75 <100 Million per annum---UGX 1,312,500 or 1.5% of gross turnover (whichever is lower)

UGX >100<125Million per annum---UGX 1,687,500 or 1.5% of gross turnover (whichever is lower)

UGX >125<150 Million per annum—UGX 2,062,500 or 1.5% of gross turnover (whichever is lower)

For tax payers whose businesses have a turnover of less than 50 Million Shillings, the tax treatment varies depending on the business being conducted by the tax payer. Some of the business listed are workshops, general trade, garages, drug shops,  in Kampala City and its Divisions ,in Municipalities and towns  according to the grades I, II & III. The rates vary from UGX 550,000/= to UGX 100,000/=.

4.         Thin capitalisation

a.         Increase of the debt to equity ratio

The debt to equity ratio in relation to borrowing by foreign controlled entities in Uganda has been increased.  The ratio has now been increased from 1:1 to 1: 1.5.

b.   Branch

The thin capitalisation rule also now extends to a branch of a non-resident company. This is a new development. (S.79). The debt to equity obligations is computed with reference to the debt obligations attributable to the branch together with the equity of the non-resident company conducted through the branch.

5.   Expanded scope of withholding tax (Reduction of exemptions)

The list of items exempt from withholding tax has been narrowed by excluding all but two of the items previously listed. The two remaining items that are still exempt for the tax are importations by exempt organisations listed in the Income tax Act and a supplier who is exempt from tax under the Act or who the Commissioner  is satisfied has regularly complied with the obligations  imposed on the supplier or importer.

6.   Advance tax by persons in the transport sector

A new amendment requires payment of income tax in respect of all goods motor vehicles with a load capacity of more than 2 (two) tonnes and passenger service vehicles before renewal of their annual operational licenses.

The rates are;

-for goods vehicles; UGX 50,000/= per ton per annum

-for passenger vehicles: UGX 20,000 per passenger per annum

13. Exempt Institutions (Listed Institutions)

The listed institutions that are exempt from tax under Section 21 of the Income tax Act has been updated by including “Global Fund to fight AIDS, Malaria and Tuberculosis” in the First Schedule to the Income Tax Act.

D. Excise Duty Amendments

1. Excise Duty in Respect of Excisable Goods and Services.

(i)        Cigarettes

Under the Excise Duty (Amendment) Act, 2015, there is an increase in the excise duty on cigarettes as shown below:

a)    Soft Cap; previous rate of excise duty is Ushs 35,000 per 1,000 sticks, the amended rate of excise duty is Ushs 45,000 per 1,000 sticks.

b)    Hinge lid; previous rate of excise duty is Ushs 69,000 per 1,000 sticks, the amended rate of excise duty is Ushs 75,000 per 1,000 sticks.

(ii)        Beer

a)    Whose local raw material content, excluding water is at least 75% by weight of its constituent, previous rate of excise duty was 20% and the amended rate of excise duty is 30%.

b)    Beer produced from barley grown and malted in Uganda- 30%

(iii)      Spirits

a)    Un-denatured spirits

·         Previous rate of excise duty was Ushs 4,000 per litre or 140% whichever is higher

·         Amended rate of excise duty is Ushs 2,500 per litre or 100% whichever is higher.

(iv)      Wine

b)    Other wines, previous rate of excise duty was 70% and amended rate of excise duty is 80%.

(v)       Fuel

a)    Motor spirits (gasoline) previous rate of excise duty was Ushs 950 per litre and amended rate of excise duty is Ushs 1,000 per litre

b)    Gas oil (automotive, light, amber for high speed), rate of excise duty was Ushs 630 per litre and the amended rate of excise duty is Ushs 680 per litre.

(vi)      Telecommunications Services

Excise duty has been removed from incoming calls from Kenya, Rwanda and South Sudan. The rest of the other incoming calls from other countries shall be charged duty at a rate of USD0.09 per minute.

(vii)      Motor vehicle lubricants

The rate of excise duty introduced is 5%.

(viii)   Chewing gum, sweets and chocolates

The rate of excise duty introduced is 10%.

(ix)      Furniture

The excise duty rate introduced is 10%.

E. Environmental Levy for motor vehicles

Environmental levy has been enhanced and the age of a car subject to the levy has been lowered.

The motor vehicles (excluding goods vehicles) which are between 5- 10 years old and above are subject to environmental levy at 25% to 35% of the CIF value.

Further, motor vehicles (excluding goods vehicles) which are 10 years old or more shall be subject to environmental levy at 50% of the CIF value.

These new laws will make importation of the abovementioned vehicles of 5 years old and above more costly.

    F. Travel Documents

a.   Revised application fees for passports

Increased passport fees by Ushs 30,000/=

          Type                                                         New              

Diplomatic                                                             Ushs 150,000

Official                                                                  Ushs 150,000

Ordinary                                                                Ushs 150,000

East African                                                            Ushs 80,000

Conventional Travel Documents (CTDs)                   Ushs 120,000

Passports processed within 48 hours (introduced)       Ushs 300,000

Single entry visa                                                       USD 80.

b.   Prepayment fee on applications for work permits of USD 1500

This is by virtue of the Finance Act, 2015. This fee applies only to the Work permit application of certain classes.

G. Annual Operator License Fees

·         Annual operator license fees in respect of vehicles have been imposed.

The following vehicles are be affected:

Country taxis                                          Ushs 200,000

Rental vehicles                                       Ushs 200,000 to Ushs 500,000

Town taxicabs                                        Ushs 200,000 to Ushs 500,000

Tourist vehicles                                       Ushs 200,000 to Ushs 500,000

Goods operator vehicles                         Ushs 300,000 to Ushs 700,000

Motor cycles used for boda boda                      Ushs 30,000

·         Operator licenses for cargo vessels (inland water vessels) and Research and Leisure have also been amended.

H. Value Added Tax Laws

These are the following changes;

(i)  Annual registration threshold

The annual registration threshold has been increased to UGX 150 million shillings from  UGX 50 million shillings)

(ii)  Qualification for cash accounting basis

The annual turnover of taxable person who qualifies for cash basis accounting has been increased to 500 million shillings from UGX 200 million shillings] – Section 26(1) VAT Act.

(iii)  New Zero rated goods & services

·         the supply of cereals grown and milled in Uganda [ this reverses the 2014 amendment which made them standard rated]

·         the supply of handling services provided by the National Medical Stores in respect of medicines and other medical supplies, funded by donors.

(iv)  Public International Organisations;

The following were added to the list of Public international organisations.

§  Global fund to fight AIDS, Malaria and Tuberculosis

§  Uganda Red Cross Society

(v) Special provision for taxation of mining and petroleum operations

Credit for input tax

Section 28(1) (b) to the VAT Act was amended so that a credit is allowed to the licensee conducting petroleum operations of all imports of goods made by that person or import of services made by a licensee during the tax period.

(vi) Refund of Overpaid Tax.

Section 42(2) (a) of the VAT Act was amended with regards to input tax credits that can be claimed by a Licensee tax payer. The effect is to replace “investment trader” with “licensee”. A definition for a “licensee” has been inserted as being a person granted a mining right or a person with whom the Government has entered into a petroleum agreement.

H.     EAC Customs Laws

·         Varying of import duty for goods  and passenger vehicles & road tractors for semi-trailers

The import duty on certain items has been greatly reduced by Uganda, Rwanda and Burundi by staying the EAC CET application as shown below;

                   Item                                          Previous duty                     New duty

a)    Road tractors  for semitrailers from  10% to 0%

b)Motor vehicles for transportation of goods with gross vehicle weight

exceeding 5 tonnes but not exceeding 20 tonnes from 25% to 10%

c)Motor vehicles  for transport of goods with gross weight exceeding 20 tonnes   from  25% to 0%

d)Buses for the transportation of more than 25 persons  from 25% to  10%

NOTE: The benefits will only be valid for one year. Other variations of duty also exist e.g. on razor blades, maternity (mama) kit razors among others.

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