UGANDA, Kampala | Real Muloodi News | Author and lawyer, Allan Atwiine, recently wrote a comprehensive article about rental income tax. This is a topic that has been a source of much media debate in recent weeks.
Some media outlets have been calling the tax a ‘new tax’, even though the Ugandan Parliament has legislated regulations related to rental income since 1997. It is clear most landlords are not aware of the tax obligations related to rental income, nor are they aware of the implications of their non-compliance.
Mr Atwiine explains in simple terms that anybody who earns rental income from land or buildings in Uganda must pay tax to Uganda Revenue Authority (URA). The tax rate is 30 per cent of chargeable income. Chargeable income means income earned after allowable deductions. Landlords can deduct expenditures and losses incurred regarding that property, capped at 75 per cent of gross rental income. This leaves landlords with an effective tax rate of 7.5%.
To illustrate the above, Mr Atwiine uses an example:
“If the annual rental income is 100 million, one can deduct up to 75 million as expenses, and pay 30 per cent of 25 million (7.5 million) as tax.”
Mr Atwiine warns landlords that URA has a well equipped, well-trained and efficient legal team to tackle non-compliant taxpayers. He tells of just two of the penalties that may affect a non-compliant landlord:
- If a landlord or entity cannot maintain proper records, they may incur a fine of USh 2 million, or imprisonment for up to 6 months. Landlords are required to maintain records for five years after the relevant tax period.
- Making a false statement to URA could lead to a fine of USh 4 million, or imprisonment of 10 years or more.
Note, these fines do not include the original payment owed, or interest accrued.
For example, if the URA performs a rental income tax audit on a taxpayer about income earned three years ago, and a tax liability of Shs10million is discovered, URA would require the defaulter to pay more than Shs22million as principal and fines, in addition to the penalties listed above.
Given these risks, Mr Atwiine urges landlords who are not yet paying rental income tax to be proactive and put their tax affairs in order.
Currently, URA’s is undertaking tremendous efforts to identify and link rental properties to their owners, estimate the income they earn and assess the payable tax. Some of their measures include:
- Identifying landlords through utility invoices. Such utilities include Umeme’s Yaka metres and National Water and Sewerage Corporation (NWSC) usage.
- The Rental Tax Compliance System (rTCS). rTCS integrates various types of data from selected Ministries, Departments, and Agencies (MDAs) to match properties in the Greater Kampala Metropolitan Area to their individual or corporate owners.
- Integrating data with the Tax Identification Number (TIN) database to trace and control non-compliance.
- Strengthening the capacity of URA to pursue non-compliant landlords
Therefore, this is the right time for property owners to be proactive and ensure that their business is in order, as non-compliance will cost you.
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