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KAMPALA - Trade associations representing various sectors have come forward with a list of demands in response to recently introduced tax bills, especially the new tax on the disposal of non-business assets, particularly land.

These new measures aimed at increasing government revenue have sparked concerns among traders who fear a negative impact on their businesses and customers.

The chairman of Kampala City Traders Association (KACITA), Dr Musoke Thadeus Nagenda, presented a petition to Parliament's committee on finance, planning, and economic development on Friday petitioning government to reconsider some of its positions on the tax Bills.

The proposed Income Tax (Amendment) Bill, 2024, which includes provisions for a new tax on the disposal of non-business assets, particularly land, has sparked significant debate and concern within the business community.

The Bill outlines the introduction of a tax on the disposal of non-business assets, with a specific focus on land and shares of private companies.

The government proposes a tax rate of 5% on the profit or gain made from such disposals. The affected non-business assets include shares of a private company, urban land excluding principal residences, and rental properties subject to rental tax under section 5 of the Act.

KACITA’s Musoke agreed that tax on the disposal of non-business assets could serve as a significant source of revenue for the government, potentially aiding in funding essential public services and infrastructure development, contribute to a more equitable distribution of wealth within society, helping to address economic disparities, encouraging productive investments.

He said that by exempting principal residences from the tax, the legislation may incentivize individuals to invest in housing and other productive assets, thereby stimulating economic growth.

However, Musoke also noted several negative bearings on businesses and individuals, adding that the law will have an impact on property owners.

The introduction of a tax on land disposal could impose additional financial burdens on property owners, particularly those who rely on real estate investments for their livelihood. 

Musoke said that compliance with the new tax regulations may pose administrative challenges for taxpayers and government agencies alike, potentially leading to increased bureaucracy and compliance costs.

Additionally, he noted that the Bill, if passed, is likely to cause potential market distortions since the tax may distort market dynamics by discouraging property transactions and investments in non-business assets, leading to stagnation in the real estate sector and broader economic ramifications.

Recommended exemptions and thresholds

“As business leaders, we recommend the following exemptions and thresholds: Consideration should be given to establishing exemptions or thresholds for small-scale property transactions to mitigate the impact on individual property owners and promote economic activity,” said Musoke.

He said there is need for clear guidelines and transparent reporting mechanisms to be established to facilitate compliance and reduce ambiguity surrounding the implementation of the tax.

In addition, he said conducting a comprehensive impact assessment prior to the implementation of the tax can help identify potential risks and benefits, enabling policymakers to make informed decisions and address any unintended consequences.

“In conclusion, while the proposed Income Tax (Amendment) Bill, 2024 introduces a commendable effort to enhance revenue generation and promote wealth redistribution, careful consideration must be given to its potential impact on property owners and market dynamics."

The traders who included those on the Kampala Arcade owner’s forum said that by adopting a balanced approach that incorporates exemptions, promotes transparency, and conducts thorough impact assessments, policymakers can ensure that the implementation of the tax aligns with broader economic objectives while minimizing adverse effects on stakeholders.

PSFU, UMA weigh in

Reacting to the amendments, Shirley Kongai, the chairperson of the Policy Advocacy Committee of Private Sector Foundation Uganda's board, said the tax amendment Bills should be able to get the optimal tax revenue while at the same time promoting business formalization and growth.

She said the tax regimes, therefore, should exhibit several characteristics, including ensuring a predictable (stable) tax regime to enable proper planning and implementation of investment plans by enterprises.

Deo JB Kayemba, the chairman of Uganda Manufacturers Association (UMA), said the government should consider refining this amendment by extending the 5% capital gains tax to non-individuals such as companies. 

UMA also proposed adjusting the time of paying the capital gains tax to 60 days after receipt of disposal proceeds.

Compared to regional peers, he said Uganda’s current capital gains tax rates are prohibitive, and this discourages building of capital and investment in the country according to the business community.

Agreeably, Kongai said aligning the capital gains tax rate of 5% for both companies and individuals will help to address the challenge of high capital gains tax rates in the country and expand the tax base.

“The payment timeline of 15 days is too short and does not consider the fact that disposal proceeds may be paid in instalments."

Background

On Tuesday, April 9, 2024, the finance ministry presented five tax Bills before Parliament's finance committee for consideration for the amendment.

The finance state minister in charge of general duties, Henry Musasizi, told MPs of the committee that the strategy aims to strike a balance between generating additional revenue and minimizing the impact on consumers and businesses.

Next week, the House is set to discuss the tax bills, which include amendments to income tax, stamp duty, excise duty, tax procedures, and value-added tax (VAT).