As Uganda’s Budget has been numerically increasing over the years giving specific attention to unique needs per sector, it has however reduced from SHS 45 trillion in the FY 2020/21 to SHS 44.7 trillion in the FY 2021/22. The current FY’s budget is structured on programs as compared to the previous budget which was based on sectors.
There has been a growth in revenue collection for all tax heads over the years which wasn’t the case for prior years. However, the Country was hit by Covid-19 in March 2020 which unexpectedly led to total lockdown that affected the economic activities of many Ugandans. URA had estimated to collect tax revenues of over SHS 20 trillion in the FY 2020/21 but rather collected only SHS 16 trillion hence a deficit of SHS 4 trillion. With the onset of the second wave of the virus at infancy of the FY 2021/22 budget, the revenue collection targets are likely to be impaired which implies that the budget target is most likely not to be met in the current financial year and will actually not be surprising to most Ugandans.
Numerous tax reforms have been envisioned to intensify the growth in the domestic tax revenue collection including the launching of Domestic Revenue Mobilization Strategy (DRMS) by the Ministry of Finance, Planning and Economic Development with the aim of strengthening Uganda’s capacity to generate sufficient revenue to finance its expenditures and hence reduce dependency on donor aid as a key factor in supporting Uganda’s journey to self-reliance. A number of tax amendments have been introduced with the aim to boost tax collections. Some of these include changes in the rental tax regime for individuals which are to be coupled with the expected rollout of the rental tax compliance system in the near future, mandatory Tax Identification Number for licensing, removal of requirements for intent with respect to declarations and statements made to URA for VAT purposes and the introduction of a twelve percent (12%) excise duty on internet data.
The insight on how some of the new tax measures will affect the taxpayers.
Rental Income tax: Part VI of the third schedule has been amended such that the tax rates charged on rental income of a resident individual for the year of income has been increased from 20% to 30%. The change in the rate and how tax is computed creates a burden on the landlords who are not earning significant rental revenues.
Penal tax: Section 65 of the principal Act is amended in subsection (6) by repealing the words “knowingly or recklessly”. This implies that whether or not a tax payer commits the offence knowingly or recklessly, either way the tax payer is liable to pay the penalties for committing the offence.
Exempt organization re-defined: The definition of an exempt organization which was “a religious, charitable or educational institution of a public charter” has been revised to “a religious, charitable or educational institution whose objective is not for profit”. This implies that any institution of religious, charitable or educational institution is an exempt organization only if its objective is not to make a profit. However, this is likely to create confusion especially in respect of religious and charitable institutions which in their nature are not intended to be profit generating even though they may involve themselves in activities meant to generate income to be used for the objective they were created for.
Refund of tax for use of electronic receipt or invoice: “A person other than a taxable person who purchases goods or services from a taxable person and issued with an electronic receipt or invoice or several electronic receipts or invoices worth five million shillings within a period of thirty consecutive days, shall be entitled to a refund of five percent of the tax paid.” This amendment a very positive move to compliance as it encourages non-taxable persons to transact with VAT registered persons who are complaint with the EFRIS system and will discourage dealing with businesses that does not issue e-receipts/invoices.
Tax agent: Section 9 of the principal Act amended by (a) inserting, “5 (a) A person who is not registered as a tax agent under this section shall not act as a tax agent and (b) substituting section 6 with the following- “(6) This section does not apply to an advocate acting as an advocate to a tax payer under section 8 (3) (b) and (c).” The purpose of this change is to reinforce the requirement for tax agents to register.
Conclusively, there has been a reduction in the resource envelope due to reduction in the external project support financing. This will likely translate in a greater focus on domestic revenue mobilization. The Domestic Revenue Mobilization for Development (DRM4D) has been one the critical underpinning factors that has seen the Uganda Revenue Authority (URA) place emphasis on compliance and the need to widen the tax base.
By Nantongo Shamim