UGANDA, Kampala | Real Muloodi News | Ramathan Ggoobi, the permanent secretary of the Ministry of Finance, has revealed that the government envisages earning at least UGX 145 billion from Rental Income Tax from the Kampala Metropolitan Area within the financial year, 2022/2023.
This is due to the implementation of number of improvements to tax legislation that came into effect July 1st, 2022, as well as the deployment of Uganda Revenue Authority’s (URA) Rental Tax Compliance System (rTCS).
Rental tax has always been a major source of revenue for the government. Although John Rujoki Musinguzi, URA’s commissioner general, estimates that only eight per cent of landlords are actually complying with their rental tax obligations.
Musinguzi says that whereas many Ugandan landlords are earning bigger incomes, many still do not pay taxes, yet they all demand better services from the few taxes paid by faithful citizens.
Improvements to Tax Legislation
Robert Lumanyika, the URA acting public and corporate affairs manager explains that as of July 1, 2022, individual taxpayers who earn income from rentals above the threshold of UGX 2.82 million shall be taxed at the rate of 12% of their annual rental income.
However, Individuals can to claim up to 75% of allowable deductions for expenses and losses incurred in generating rental income, thereby reducing the rental income earned liability. After considering the allowable deductions, the effective tax rate for individuals can be as low as 3%.
Whereas the rental income tax rate for companies is 30% of rental income earned. Likewise, companies can to claim up to 50% of allowable deductions for expenses and losses incurred in generating rental income, thus after considering the allowable deductions, the effective tax rate for companies can be as low as 15%.
Rental Tax Compliance System (rTCS)
In April of this year, URA deployed a new intelligence tool aimed at identifying the many non-compliant landlords in Uganda and improving rental income tax collection.
The big data platform known as the Rental Tax Compliance System (rTCS) ingests various government data sets, then organises the data into a coherent visual display that can be readily interpreted and understood by URA’s tax investigators. The data is scored and sorted by likelihood of tax deficiency, with link graphs to show the relationships between people and properties, and a geospatial display of a landlord’s rental properties on a map.
Eight Ministries, Departments, and Agencies (MDAs) contributed data for the collaboration to identify landlords not declaring income, including Ministry of Lands, Housing and Urban Development (MLHUD), National Identification and Registration Authority (NIRA), Kampala Capital City Authority (KCCA), Ministry of Local Governments (LG), National Water and Sewage Corporation (NWSC), Uganda Communications Commission (UCC), and URA.
The Rental Tax Compliance System is part of a larger digital component under the Domestic Revenue Mobilization Strategy (DRMS), meant to run from 2019 to 2024.
The DRMS is a five-year medium-term strategy by government to strengthen Uganda’s internal revenue generation capacity to sufficiently meet budgetary expenditures and hence reduce on foreign debt and donor dependency.
The DRMS core objective is to improve tax collection and ultimately increase tax to GDP ratio from under 11% to between 16-18% by 2025.
The government acknowledges the urgent need to widen the tax base of every tax-paying individual in order to contribute to national development and to reduce Uganda’s dependency on debt.
URA projects by the end of the strategy implementation 2025, the figure of registered taxpayers will have grown from approximately two million to five million.
“URA is determined to improve its efficiency in the management and administration of the tax system and to collect every penny of taxes due, with the support of every stakeholder,” said Musinguzi.
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