What you need to know about the budget bills for FY2018/19
The Income Tax (Amendment) Act, 2018: The key Income Tax reforms proposed include: Exemption from tax on income derived by operators and investors of an industrial park or free zone. It specifically exempts:
(i) The income of a new developer of an industrial park or free zone whose investment capital is at least US$200m for a period of 10 years from the date of commencement of construction.
(ii) The income of an operator in an industrial park or free zone or other business outside the industrial park or free zone whose investment capital is at least US$30m in the case of a nonresident or US$10m in the case of a Ugandan citizen, for five years from the date of commencement of business.
Repeal of exemption with respect to income of Savings and Cooperative Societies Currently, under paragraph (ad) of Section 21 of the Income Tax Act (ITA) Cap 340, the income of a savings and cooperative society is exempt through 30 June 2027.
The Act proposes to repeal the thin capitalization provisions under Section 89 of the ITA while prescribing new interest deductibility limitations under Section 25 as follows:
(i) For all debts owed by a taxpayer who is a member of a group, the amount of deductible interest in respect of all debts shall not exceed 30% of the tax earnings before interest, tax, depreciation and amortization (EBITDA).
(ii) (ii) Any taxpayer whose interest exceeds 30% of the tax EBITDA may carry forward the excess interest for not more than three years, and the excess interest shall be treated as incurred during the next year of income.
This proposal effectively caps deductible interest expense during the year of income and any excess interest expense is deferred for future deduction within the following three years of income after which the interest expense loses would its deductibility for income tax purposes.
Tax accounting for Islamic financial transactions It has been proposed that the Minister shall make regulations for tax accounting of Islamic financial transactions.
The Act introduces an additional provision regarding the meaning of an international agreement as per Section 88 of the ITA Cap 340. The Act proposes to expand the definition of an international agreement to include the Inter-Governmental Agreement on the East African Crude Oil Pipe Line.
The Ac repeals the definition of “petroleum exploration right” that is currently defined as “a reconnaissance permit or petroleum exploration license.”
The amendment of the definition of “mining exploration right” in Section 89A is proposed to mean “a prospecting, exploration or retention license granted under the Mining Act” from “a prospecting, exploration, or retention license.”
Introduction of WHT on payments for winnings of betting/gaming, for agricultural supplies, commission paid by telecom service providers on airtime distribution and mobile money Withholding of tax on payments for winnings of betting/ gaming. It has been proposed to replace Section 118C which provided for 15% WHT on payments for winnings of sports betting or pool betting with the following:
Value Added Tax (Amendment) Act, 2018: The key Value Added Tax (VAT) reforms proposed include:
Specifying of operations under which VAT is not deemed to have been paid in respect of some supplies made to a government ministry, department or agency Despite the fact that VAT on supplies to a government ministry, department or agency is deemed to have been paid, specifically, taxable supplies such as passenger automobile, the repair and maintenance of that automobile; or entertainment shall not be deemed as paid by the ministry, department or agency
Amending the definition of “electronic services” Electronic services shall be defined to include websites, web-hosting or remote maintenance of programs and equipment, software, images, texts and information, access to databases, self-education packages, music, films, games of chances, political, cultural, artistic, sporting, scientific and other broadcasts.
Filing of a return A taxable person shall file a tax return with the Commissioner General for each tax period within 15 days after the end of the tax period. In addition to this filing requirement, the Commissioner-General may require any person, whether that person is a taxable person or not, to file further or additional returns in the prescribed form, on that person’s own behalf or as agent or trustee of another person.
Payment of tax Where an objection against an assessment has been filed, tax payable under the assessment remains due and payable and may be recovered, notwithstanding that objection or appeal. However, the date of payment of the tax may be extended with the discretion of the Commissioner General.
Amending definition of “educational materials” Education materials shall be defined to mean locally produced materials which are suitable for use in public libraries or for educational services prescribed by the Minister by regulations.
Introduction of withholding VAT, the Minister shall, by notice in the Gazette, designate persons who shall withhold VAT of 50% before making a payment for a taxable supply and the persons designated shall remit the VAT invoiced to the Uganda Revenue Authority (URA). African Trade Insurance Agency shall be included on the list of Public International Organizations. The following supplies are proposed to be exempt from VAT: Bibles and Qur’ans,
Excise Duty (Amendment) Act, 2018: Key Excise Duty reforms proposed include:
Defining “over the top services” The bill seeks to insert the definition of “over the top services” as follows: “‘over the top services’ means the transmission or receipt of voice or messages over the internet protocol network and includes access to virtual private networks but does not include educational or research sites prescribed by the Minister by notice in the Gazette.” Tax point on excisable services and imposition of excise duty on “over the top services”
A person providing an excisable service becomes liable to pay excise duty on that service on the earlier of the date on which the performance of the service is completed; the date on which payment for the service is made; or the date on which an invoice is issued.
A telecommunications service operator providing data used for accessing over the top services is liable to account for and pay excise duty on the access to the over the top services. Remission of excise duty on manufactured goods that have been exported. The Commissioner may, if satisfied that excisable goods have been exported, remit the excise duty chargeable on those goods.
The Tax Procedures Code (Amendment) Act, 2018: Key reforms, the key Tax Procedures Code reforms proposed include:
Provisions in respect of due dates to furnish returns under the Lotteries and Gaming Act, 2016 A licensed person shall be required to furnish a weekly in addition to a monthly return with the Commissioner. This amendment shall require a licensed person to furnish returns with the Commissioner as follows: −A weekly return, by Wednesday of the following week −A monthly return, by the 15th day of the following month This was a proposal within the 2017 Tax Procedures Code (Amendment) Bill, however, it met resistance and was never passed into law. The 2018 amendment bill reintroduced it.
The Minister to pay taxes on behalf of a person; to waive all taxes due and unpaid by Government as at 30 June 201. All taxes due and unpaid by the Government except tax withheld by Government under subsection (1) as at 30 June 2018 shall be waived.
The amendments introduce new sections dealing with electronic receipting and invoicing. An electronic receipting and invoicing linked to the tax authority’s system is a new concept in Uganda.
The Tax Appeals Tribunal (Amendment) Act, 2018: Key reforms the key Tax Appeals Tribunal (TAT) reforms proposed:
Prior to hearing any filed application, the TAT may refer the matter for mediation to a Registrar or to a mediator in accordance with Judicature (Mediation) Rules, 2013.
The TAT may make an order as to damages, interest or any other remedy against any party, and the order shall be enforceable in the same manner as an order of the High Court of Uganda.
It seeks to give Power to the registrar to handle interlocutory applications, taxation of Bills of Costs and mediation A registrar shall have the power to Hear and determine interlocutory applications arising from an application filed with the TAT.
The Stamp Duty (Amendment) Act, 2018: The key Stamp Duty reforms proposed include:
Imposition of stamp duty on instruments used in Islamic financial transactions Any instruments used to execute Islamic financial transactions shall be chargeable with a stamp duty prescribed by the Minister by statutory instrument, with the approval of Parliament.
The bill seeks to define, “Islamic financial transactions” to mean “Shariah compliant financial services including Murabahah, Mudarabah, Musharakah, Ijara, Wakalah, Jualah, Sukuk and Takaful.”
Amendments to Schedule 2 of the Stamp Duty Act, 2014 Schedule 2 to the Principal Act, is amended as follows: by substituting for the stamp duty of UGX10,000 (approx. US$3) wherever it appears, UGX15,000 (approx. US$4). By inserting immediately after item 60 selected instruments that have been exempted from stamp duty. These instruments relate to investments in free zones, industrial parks whose investment capital is US$10 million, US$30 million or US$200 million depending on if the investors are Ugandan citizens or operators or developers respectively.
The Traffic and Road Safety Act, 2018: The key Traffic and Road Safety reforms proposed include:
Imposition of the ban on the importation of motor vehicles which are eight years old or more A person shall not import a motor vehicle which is eight years old or more from the date of manufacture. Currently, there is no limit on the age of a motor vehicle imported into Uganda.
Imposition of environmental levy on motor vehicles A person who imports a motor vehicle which is five years old or more from the date of manufacture shall pay an environmental levy on that vehicle