UGANDA, Kampala | Real Muloodi News | Ms Sarah Muzungyo Chelangat is Associate Director, Tax at Ernst and Young Uganda. Ms Muzungyo recently appeared as a guest writer for the Daily Monitor. The focus of her piece was rental income tax.
According to Ms Muzungyo, investment in real estate is extremely popular among many gainfully employed Ugandans and Ugandan businesses. Rental income is passive income that requires little effort to earn and maintain, unlike direct employment.
And unlike direct employment, persons earning rental income have been able to evade tax authorities for a long time. Employees subject to Pay As You Earn (PAYE) tax and Withholding Tax have their tax obligations deducted before they receive their paychecks. Whereas persons earning rental income are responsible to declare and pay taxes themselves. Few do, leaving the employed to carry Uganda’s tax burden.
This may be about to change. In FY 2019, government announced the engagement of American technology company RippleNami Inc. to assist with identifying rental income earners in Greater Kampala. Six months later, affiliate company RippleNami Uganda announced the project had kicked off. RippleNami Uganda, a company incorporated under Ugandan law, is an implementation partner of RippleNami Inc. and is responsible for the delivery of the project.
According to RippleNami Uganda’s website, the technology solution is called the Rental Tax Compliance System (rTCS).
“rTCS integrates various types of data from selected Ministries, Departments and Agencies, matching properties in the Greater Kampala Metropolitan Area to their beneficial individual or corporate owners within the Uganda Revenue Authority tax register.” the website states.
Ms Muzungyo asserts that rental income taxation is clearly a key focus area for government to increase revenue. On top of the government’s latest technology innovation, it has proposed amendments to rental income taxation legislation for three consecutive years.
Among the proposed amendments in the 2021 Income Tax Amendment Bill, is a bid to increase the rental tax rate for individuals to 30 per cent. It currently stands at 20 per cent.
The Bill also includes a proposal to increase allowable deductions for individual landlords to 60 per cent of their gross rental income, up from 20%. “This appears to create a better deal for individuals as it is likely to reduce the effective rate” says Ms Muzungyo.
Similarly, the government has proposed to fix the allowable deduction of gross rental income for companies at 60 per cent. The current position of the law is that companies may deduct all expenditures and loss incurred in the production of rental income.
The Bill further proposes separate accounting for rental tax for each property for corporate landlords. “The proposal, if passed into law, will work to ensure that a taxpayer with several rental properties does not offset tax losses and credits in one building against other buildings’ liabilities, but file tax returns equal to the number of properties,” said Ms Muzungyo.
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