By Trevor Lukanga Bwanika

The tax amendments for FY2021/22 took effect on 1 July 2021. For the monthly tax return filing, we expect to start seeing the impact of these changes at the time of filing the July 2021 monthly returns which are due on 15 August 2021.

Below, I list some of the critical monthly and annual changes, how they impact your business, and the action you need to take to comply with the amended tax laws.

Monthly tax return filing

Taxpayers who are providing exempt supplies such as life and health insurance, some banks, etc will no longer be required to account for VAT on imported services charged at a rate of 18%. Considering that VAT on imported services is an irrecoverable cost for several business, the businesses providing exempt supplies will have a cost saving of 18% on their imported services. As you may appreciate, any cost-saving during these difficult times is much appreciated.

If you have been filing VAT returns, you may have noticed that from 1 January 2021, the URA VAT return only accepts input VAT relating to the tax period for which the return is being filed. For example, input VAT incurred for July 2021 can only be claimed in the VAT return for July 2021. In addition to this administrative limitation, input VAT credits will now only be claimed within six months from the invoice date. Accordingly, you will need to properly track your input VAT to ensure it’s claimed in the correct month as well as within the statutory limitation period.

The Schedule for exempt supplies was also amended by adding more exempt supplies, one of which is Liquified Petroleum Gas (LPG). Accordingly, the supply of LPG is now exempt from VAT. It’s common to find LPG suppliers also providing other supplies which are taxable. Companies such as Vivo Energy, Total Uganda, Stabex, Rubis Energy Uganda Ltd etc supply fuel, fuel lubricants and LPG. Fuel and lubricants continue to be standard rated supplies and are subject to VAT at a rate of 18%. On the other hand, the supply of LPG is exempt from VAT.

This means that such companies will be making mixed supplies, i.e. supplying both taxable and exempt supplies. Such companies will therefore consider whether they may need to apportion their claim for input VAT credits effective 1 July 2021. Where the entities supplying LPG are independent of other group entities then this amendment may not impact the LPG entity, but due consideration may need to be given to the impact of imported services earlier discussed.

Some of the excise duty changes to be aware of include the introductions and increments that have been made to excise duty rates for businesses manufacturing alcoholic and non-alcoholic beverages, fuel importers where excise duty on petrol and diesel was increased to UGX 1,450 and UGX 1,130 per litre respectively, changes to plastic products as well as excise duty on telecommunication services where excise duty of UGX 200 per user on over the top services was scrapped and replaced with a 12% excise duty rate on internet data (with a few exemptions).

If you are an exporter using plastic packaging for your exported products, there is an avenue for you to get a refund or remission of excise duty paid on the plastics used.

Annual tax filing

One of the amendments that has an annual impact is the rental tax amendment. It seeks to achieve the taxation principle of equity, efficiency, certainty and convenience by aligning allowable deductions for both individuals and entities to 75% of their gross rental income (subject to URA approval) and taxing what is left (25%) at an income tax rate of 30%. This means the effective tax rate for all rental taxpayers is now 7.5% (30%*25%).

Accordingly, adjustments need to be made to any provisional and final income tax returns that are being prepared to accommodate this change. The question however, is when should one start adopting the new rental change? It will depend on your year of income and you may need to speak to your tax advisor for proper implementation of the amendment.

The other amendment relates to assets that qualify for initial/investment allowance, tax depreciation will have to be claimed starting in the subsequent year of income.

The practice has been for taxpayers to claim both tax depreciation and initial allowance in the same year of income when the asset is placed into use. This will no longer be the case which means taxable income will likely increase in the initial year of investment.

Additionally, there have been some changes to the tax depreciation rates that will apply to different types of assets. There are some practicalities that need to be considered regarding how these new rates will apply to assets that were being depreciated under the previous regime.

Unlike the VAT and excise duty changes that take effect this month, the rental and tax depreciation changes bear an annual impact.

It’s therefore advisable that as an entity/individual, you study the tax amendments in more detail to know which changes impact you/your business and identify those that require your immediate attention.

Do not forget to involve the rest of your team such as procurement, sales and marketing, and IT specialists since the changes may require a review of your product pricing and an update of your accounting and information systems where need be.

The writer is a Senior Manager in Tax at PwC