UGANDA, Kampala | Real Muloodi News | There have been calls on the Ugandan government for Covid tax relief and incentives for businesses to stay afloat.
Pressure is also mounting to review the new tax measures that were implemented on 1st July 2021, in response to the post lockdown impact on businesses and individuals.
Traders under their umbrella body, Kampala City Traders Association (KACITA), have appealed for a six-month tax waiver to support economic growth and recovery in the post-lockdown period.
“The taxes they did not increase should be left as they were, but for those which were increased [on 1st July 2021], the government should stop implementing them for the next six months so that a half year is given for business to recover,” Mr Isa Ssekitto, KACITA spokesperson, said.
Key Highlights from the New Tax Regime:
- 35% taxes on imported textiles and garments, or 3 US Dollars / 3.5 US Dollars per kilogram respectively
- 30% rental income tax
- 12% duty on airtime and internet data
- Shs100 tax per litre of petrol and diesel
- 30% on each litre of beer and other locally produced alcoholic drinks
- 7% tax on the value of fish maw
- 5% tax on processed gold and minerals
Taxes on Textiles and Garments
Starting July 1, 2021, the government increased the customs tax on imported textile materials and finished garments that could otherwise be sourced locally. The import duty rate has been maintained at 35 per cent, however they may be subject to a tax of $3 (for textile materials) or $3.5 US Dollars (for finished garments) per kilogram, whichever is higher.
The new measures are designed to support local manufacturing and discourage the importation of clothes. Government is aiming to protect the local textile manufacturing industry, which is increasingly building production capacity. Uganda spends more than 500 million US Dollars on importing clothes annually.
However the implementation of the tax increases have drawn an outcry from traders.
Thadeus Musoke Nagenda, acting KACITA Chairperson, says that these taxes have impacted traders at the worst possible time, given this pandemic period. He told reporters two weeks ago, “As a result, the implied taxation of imports has multiplied by very high factor as demonstrated. A 20ft container which was being cleared at about Shs80m to shs100m now clears at an oscillating tax between Shs280m and Shs300.”
Musoke noted that as a result of the tax increase, several vendors have been forced to abandon their merchandise which are pending clearance from URA.
Opposition party, Forum for Democratic Change-FDC, has called for the revision of the tax as soon as possible. “This means a pair of jeans which has been paying 7,769 Shillings in tax will now be paying 27,114 shillings,” the party said. “This tax must be revised,” they argued.
The leadership of traders in Kampala, the Kampala Capital Traders Association (KACITA) has rallied traders starting September 1, next week, to remain at home as a peaceful demonstration in protest to government’s increment of taxes on textiles and garments.
Waiving of Rent Arrears
During the lockdown, many traders were not able to pay the rent arrears. This resulted in landlords confiscating their goods, arguing that they have bank loans and taxes to pay.
The Minister of Trade, Mr Bahati, explained that government had appealed to landlords to waive July rent, which many obliged. However, some landlords have demanded rental payment arrears from their tenants.
In support of the government’s directive to waive rent, Landlords have beseeched the government to allow them to declare rent arrears as losses when filing tax returns.
“Government is considering the landlords’ proposal of declaring rent arrears as loss when filing tax returns to be considered during assessment of rental income obligations,” Mr Bahati said.
Changes to the Income Tax Act – Rental Income
One of the tax changes implemented on 1st July 2021, was an increase of taxes on rental income from 20 per cent to 30 per cent for individual landlords. This matches the rate corporate landlords pay.
What many individual landlords don’t realise, is that government also introduced a clause allowing 75 per cent deductible/allowable expenses and losses (up from only 20% prior to the change).
After factoring in the deductions, individual landlords are left with an effective tax rate of only 7.5%. This is a significant drop from the 16.5% effective tax rate they were paying prior to the introduction of the new tax law.
Other Challenges
Both traders and landlords alike are facing challenges in the repayment of bank loans. Over 90 per cent of both fixed and working capital is borrowed capital.
Lending institutions have dropped interest rates on loans as low as 17 per cent. However, this is this is not as low as would be expected because of the cost of business for the banking industry, also affected by Covid-19 impacts.
Government, through Bank of Uganda, has guided the banks to reschedule the loan and interest repayments.
Different Views on the New Tax Regime:
Makerere Professor, Ogenga Latigo, proposes that the government consider suspending the payment of taxes and provide tax reimbursements for businesses that have been compliant. In addition, the government should put a moratorium on ground rent, business rent payments and document rent agreements.
However, the government has not clearly stated whether they will review the tax policies. Mr Henry Musasizi, the State Minister for Finance (General Duties), claimed that the review would have to wait for June 2022.
He said: “The current tax regime became effective on 1st July this year. You can’t start proposing reviews on it at this stage. Let’s allow it [to] first work so that we have enough basis for proposing reviews if any in June next year.”
Mr Mathia Mpuunga, the opposition leader in parliament, explained, “As a mature debtor nation, you can’t afford piece-meal planning and budgeting. A financing framework must, as of necessity, be able to affect the growth poles of the economy, because protection of the fragile jobs is very key.”
As the country battles with debt, the need for revenue increase is urgent. However, whether the government will review the 2021/2022 tax policies is yet to be seen.
Editor’s note 29th August, 2021: This article has been updated to reflect clarifications provided in a press alert issued by URA to clarify the rates of tax on imported textile materials and finished garments.
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