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Budget should improve tax administration

By Vision Reporter

Added 31st May 2011 03:00 AM

A distinction for the administration of rental tax is made between individuals (charged under section 5 and non individuals (including limited liability companies) under section 4 and section 20 of the Income Tax Act Cap.340.

A distinction for the administration of rental tax is made between individuals (charged under section 5 and non individuals (including limited liability companies) under section 4 and section 20 of the Income Tax Act Cap.340.

Sarah Chelangat

A distinction for the administration of rental tax is made between individuals (charged under section 5 and non individuals (including limited liability companies) under section 4 and section 20 of the Income Tax Act Cap.340.

Rental Income includes rent received from letting property. Rent is any payment, including a premium or like amount, made as consideration for use or occupation of, or the right to use or occupy, land or buildings.

This article will attempt to demystify rental tax and bring to light the salient issues surrounding the administrative difficulties of enforcing it.
In view of the current economic trends in Uganda, the cost of housing is on the rise as the inflation bites hard. This also means that the number of eligible tax payers under the rental tax scheme is on the increase.

The monthly rent for a decent three bedroomed self contained house would cost around sh500, 000. This would put the annual gross rent at sh6m clearly above the annual threshold of sh1.5m.

Therefore, it is fair to say that most players in the real estate industry will be guilty of non-payment of tax since they will be above the threshold and thus eligible for tax. The reason rental tax remains in the unexplored world by the tax man is because many defaulters remain out of the tax net.

Notwithstanding the above, the tax body has noted the growth in the real estate sector and has earmarked it as an untapped area to beef up its revenue basket. To this end, they have started the sensitisation campaigns on rental income through their recent adverts in the media. This is not expected to yield a high response rate of voluntary compliance most especially to the informal inaccessible landlords who do not understand the entire concept.

With the increase in the real estate boom currently experienced in Uganda, the number is set to increase as many players ranging from multinational corporations to individuals are vesting their savings into this sector. Consequently, the URA is also drawing very keen interest on widening their tax base and has identified the housing sector as a potential harvesting ground.

However, it is amazing that many people in the real estate business still go tax free because of the lack of proper tracking mechanisms by the tax authorities. The tax man would not easily locate a taxpayer who does fishing on the shores of Lake Victoria and has rental houses in, say, Lugazi Town, as many such people do not have direct contacts.

Therefore, greater vigilance is required from all entities in the real estate sector especially if fairness and equity as one of the principles of taxation is still a guiding principle in ensuring a good tax system.

It is on this note that the Government’s focus in the upcoming budget should lean towards further improvements in tax administration. Rental tax should be enforced as a project, monitored closely and rolled out countrywide.

The writer is a senior tax adviser

Budget should improve tax administration

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