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By Samuel Elong and Dr. Moses Batanda Mubiru (PhD)

The proposal to amend section 5(A) of the Income Tax Act, to introduce a 5% tax on the sale of land in cities and municipalities has stirred considerable debate and controversy.

While proponents argue that it could generate additional revenue for government and curb speculative land transactions, challenging views have been all over the place, meaning that either the proposal was poorly packaged or inadequately researched.

For starters, there are several taxes/levies on land and developments currently administered in countries, including Uganda. These include; recurring land value tax, building value tax, betterment levies, developer charges, land value increment tax, sale of development rights, sale of public land, premiums and ground rents, transfer taxes and stamp duties, property rates, and rental income tax, among others.

Throughout history, the secret of administrative success of any of these initiatives/instruments is in taking cognizance of the socioeconomic and cultural differing dynamics of the population in the targeted areas. Then, adequate packaging ensued, directly pursued by the central or local governments to ensure its smooth implementation. It is no wonder that the large compliance successes recorded for such instruments have been for those that are administered locally rather than at the centre.

There are key reservations observable from this proposed amendment that we need to take note of as follows:

Firstly, implementing a tax on land sales would burden property owners with an additional financial obligation. Whether selling land for personal reasons or as part of a business transaction, individuals and businesses alike would be subject to this tax, potentially reducing their profits and discouraging investment in real estate.

Further, enforcing a tax on land sales would require significant bureaucratic resources and administrative efforts. Whereas an opportunity to enroll human resources may be fronted, Government would need to establish systems to track land transactions, verify tax payments, and enforce compliance. This would strain already stretched government resources.

Secondly, the tax is intended to be charged on gains upon disposal of urban land. Here questions and reservations linger as to the methodology to be followed in valuing or assessing this ‘gain’; from which property value/price is the gain based? From when can we track the previous value and thus weigh it against the current value/price?

How authentic or genuine was any of the two values/prices? The amendment would thus help much if a detailed guide on the methodology was explained therein to guide whoever is concerned. 

It is obvious that, with the current urbanisation trends, land-based taxes are increasingly becoming a “necessary evil”. However, introducing new tax instruments like a tax on land sales without adequate packaging, could lead to unintended consequences, such as driving transactions underground or encouraging tax evasion strategies.

Property owners may seek alternative methods to transfer land without triggering the tax, potentially distorting the real estate market and undermining the intended goals of the amendment.

This proposal would be perceived to manifest with a lot of biases and unfairness in its geographical scoping. What then happens to transactions in urbanising Town Councils like Kasangati and others which have very vibrant property markets? Why should a city and a municipality fellow bear this burden exclusively and yet the service is delivered for all?

As our policymakers rethink amendments to “pluck the goose”, let them target spots with the thickest ‘feathers’, but maintain a minimal ‘squawking’. This current proposal if adopted will cause maximum squawking to those transacting within the cities and municipalities.

Finally, note, that the proposed amendment threatens to undermine the struggle toward full formalization of land rights in Uganda. With only about 20% of Uganda’s land registered- especially in the urban areas, this move is noxious and in no way promotes the efforts initiated by the Government through decentralization of land administration in Uganda. Transactions on unregistered land shall remain “invisible” and untaxed, and this may be the shift for most land transactions. 

As we conclude, the proposed amendment to introduce a 5% tax on land sales exclusively within cities and municipalities but yet directly administered by the central government is largely paradoxical and will battle huge misunderstandings and thus lack economic viability.  

We thus aver that for such a land-based tax/levy initiative to be implementable, its full administration should be largely by the local governments, where it can directly be hinged on the urbanization benefits that the landowners benefit.

But even though, the existing regime of land and housing taxes and levies needs to be maximized before navigating the new waters.  

1. Samuel Elong is a Land Use and Regional Development Specialist, and a Registered Valuation Surveyor of Uganda. Email: samuelelong1988@gmail.com

2. Dr. Mubiru Moses Batanda is an Urban Land Management Specialist, a Registered Valuation Surveyor, and a Lecturer of Housing at Kyambogo University. Email: mormoses06@gmail.com