Days after the Minister of Finance Matia Kasaija presented a Ush 29 trillion budget for the 2017/18 fiscal year to the country, tax body Uganda Revenue Authority (URA) has broken down the tax reforms in the new budget in a public engagement held on Monday.
The URA annual budget breakfast which is the second of its kind was aimed at discussing the new tax policy as well as educating tax payers on the implications of these adjustments.
Several tax exemptions and reinstatements have been introduced in the new budget both in domestic taxes and customs duty as well as at the East African Community (EAC) level.
The URA Commissioner General, Doris Akol said that the changes are largely aimed at promoting production of locally manufactured goods as a way of championing the Buy Uganda, Build Uganda (BUBU) policy.
To this effect, URA will in the fiscal year beginning July 1 2017 be tasked to collect Ush 15.1 trillion (including non-tax revenue) in taxes up from Ush 13 trillion in 2016/17.
In the key amendments in the Income Tax Act, Savings and Credit Cooperative Societies (SACCOs) have been exempted from tax for the next ten years until 2027. Government says this will entrench a savings culture among Ugandans and subsequently grow the economy.
However, Akol said SACCOs will continue to file their returns and duly account for Pay As You Earn (PAYE) for their employees.
Finance Minister Matia Kasaija who attended Monday’s discussion at Hotel Africana while explaining the rationale behind the exemption told over 1,000 participants; “SACCOs are the closest financial institutions to the ordinary Ugandan yet most of them (SACCOs) are struggling. I want every Ugandan to belong to a formal financial institution because money kept under the mattress can neither multiply nor increase production.”
“The exemption won’t last forever. It is only until these SACCOs gain stability and soon we shall taxing farmers too,” the Minister added.
Those seeking to make investments in the radius of 50 kilometres away from Kampla will also enjoy a 50% deduction from their initial capital investment.
This is expected to attract investments in the countryside and create employment opportunities for the young people.
In order to fast track the construction of Bujagali hydro power dam and bring down the hefty unit cost of electricity for manufacturers and industries, government will exempt Bujagali Energy Limited from income tax for the next 5 years.
Other amendments include; scrapping of accumulation of interest on tax arrears, designation of rental rates for tax purposes and an introduction of a 15% withholding tax on winnings from gaming and pool betting.
In the new tax regime, Value Added Tax (VAT) has been revised on several items among them; supply of animal feeds, crop extension services, supply of irrigation equipment, agriculture insurance, menstrual cups and deep cycle batteries.
The changes, which are largely in the agricultural sector intend to support farmers especially at the time when they are facing changes in climatic patterns.
A 10% import duty has also been reinstated on crude palm oil in order to stimulate growing of oil palm trees in Uganda, particularly in Kalangala district.
The Finance Minister underscored the need to link agriculture with investment since it is the only sector where Uganda is most endowed.
“Unlike other countries, we harvest twice every year and are surrounded by water bodies. We shouldn’t be crying about the drought which is why we are going to put money into irrigation so that those who can afford can irrigate their gardens,” Kasaija said.
In response to concerns about the isolated exemption on ‘crop extension services’ as opposed to agricultural extension services in general, Kasaija said this is likely to have been an error which will soon be revisited and streamlined by government.
Regarding excise duty, taxes on some selected items have also been raised, reduced and scrapped in the spirit of incentivizing locally made products.
Items affected by the changes include cigarettes, beer, spirits, nonalcoholic beverages and fruit juice and Ugandan made furniture. All specialized hospital furniture will no longer be taxed while the 10% excise duty has has previously been levied on furniture manufactured in Uganda has been removed.
While imported wheat grain has previously enjoyed exemption of VAT, an 18% tax has been reinstated. On the contrary, locally produced wheat grain will not be taxed. URA will also not tax animal feeds and premixes in order to reduce the cost on end users (farmers) that purchase these feeds.
Following an outcry from women activists, educationists and civil society, government has added menstrual cups on the list of menstrual items that are exempted from tax. Unlike the usual pads, menstrual cups are non-disposable which reduces the cost burden for the under privileged.
Import duty for Mama Kit, which is a critical requirement for pregnant mothers during maternity has also been revised from 25% to 0% to support the health sector.
For the manufacturing sector, especially those involved in assembling of motorcycles, they will be taxed 10% for importation of base cycle kits compared to 25% which is charged for imported motorcycles.
Dickson Kateshumba, the Commissioner for Customs at URA said; “Import duty for Pneumatic tyres for motorcycles has been raised from 10% to 25% to support local industries. This is to encourage those making these tyres in Namanve to produce more.”
Manufacturers of steel products will in financial year 2017/18 introduced new duty rate of USD 250 per metric tonne while the flat rolled iron products will now attract an import duty of USD 200 per metric tonne.
“We have a booming steel industry but we know that globally there’s a lot of cheap steel looking for market. Prices for steel particularly in China have gone down significantly and this will jeopardize our local. The new interventions are to protect our local steel manufacturers,” Kateshumba said.
Base oil which is used to make lubricants will also be duty free.