Beyond new tax measures, govt has also proposed some exemptions

For at least three weeks now,  there is no doubt, tax has been the hottest item, and by extension Electronic Fiscal Receipting System (EFRIS) and Uganda Revenue Authority (URA).

For a minute, every news flash has had, and continues to have, something related to tax, EFRIS, or URA.

Never mind the content of the conversation, but it has been a headache for government, both at the lowest and highest level.

From whichever angle you view it, there are valid concerns. A large tax burden placed on a few citizens, while the largest share of the population roams free and seems disinterested in how the proceeds of taxpayers are governed, creates some discomfort.

While on the other hand, URA and government’s insistence to widen the tax base, with the target to achieve a tax-to-gross domestic product ratio of 16 percent from 14 percent, has scratched some people and businesses the wrong way.

Thus, if there is anything that has trended more than tax, EFRIS and URA, then it has been for the wrong reasons or just passing wind.

When the Minister of Finance Matia Kasaija tabled new tax bills before Parliament at the end of last month,  there were three proposals; increments on existing tax heads such as fuel, introduction of new tax heads such as disposal of land and proceeds from auctions, and exemptions on some goods and services.

The bills were gazetted on March 27, and as always, generated debate, but this time it was louder than before.

Yes, whereas, there has been so much talk around new tax proposals and increments, little or nothing at all, has been heard in the direction of exemptions.

Yet they will be key to small business financing, the push for clean energy, achieving commercial agriculture, and improving the health sector.

Incomes from private equity

For instance, under the Income Tax (Amendment) Bill, 2024 government has proposed to exempt incomes derived from or by private equity or venture capital funds.

Venture capital or equity funds, by any means, are a key push factor in the startup and small business space because they create a form of financing for small businesses with long-term growth potential.

Billions of shillings have been extended to startups in financial technology, ICT, clean energy, and to some extent agriculture, among others in venture capital because such businesses, by their nature, require patient capital to build a solid foundation.

Mr Trevor Lukanga Bwanika, a senior manager in charge of tax at PwC explains that the proposed exemptions mean that equity and venture capital funds will not pay tax on their income derived from Uganda, but rather the tax will be paid by the actual investors in equity and venture capital funds.

Currently, he says, when private equity and venture capital funds invest in Uganda, they pay stamp duty on authorised share capital, withholding tax at 15 percent subject to tax treaty relief and when they exit, they are required to pay capital gains tax at a rate of 30 percent subject to any tax treaty relief.

However,  Mr Bwanika says: “With the proposed exemptions of their income derived in Uganda based on stamp duty and income tax amendments, all the above tax will not apply.”

Manufacture of electric vehicles 

Beyond equity and venture capital funds, government has also proposed exemptions on the manufacture of electric vehicles and electric vehicle charging equipment, which, if passed, makers of electric vehicles, electric batteries and electric vehicle charging equipment, in addition to fabricators of frames and bodies of electric vehicles, will be exempted.

Uganda has adopted the race to achieve clean energy and a shift from fossil fuels.

For instance, government has since 2007 enhanced Uganda’s capacity to manufacture electric vehicles under Kiira Motors with a target of achieving mass production.

For now, Kiira has been instrumental in supporting the establishment of an efficient, integrated, sustainable, and inclusive mass transit system in Uganda, under a partnership with Tondeka Metro and RentCo Africa, through which buses offer modernised public transport within Kampala and suburbs.

Thus, Ms Juliet Najjinda, a senior manager tax services at PwC, believes that exemptions such as income tax, excise duty, value-added tax and stamp duty, will enhance the capacity of investors like Kiira Motors and also encourage investment in the electric vehicle manufacturing sector.

Away from electric vehicles, government has also been active in the e-bike space, pushing to have at least 140,000 e-bikes by 2027.

With this target, together with other development partners, government has already invested in the infrastructure, establishing 28 e-mobility charging stations along the Kampala-Masaka e-mobility corridor.

Last year, while speaking at a consultative meeting to discuss the possibility of setting up a scalable electric vehicle charging ecosystem in Uganda, Eng David Birimumaso, the Ministry of Energy assistant commissioner of energy efficiency and conservation, indicated that by 2030, at least 25 percent of government’s fleet will be composed of electric vehicles.

Thus, the exemptions could be key in supporting this agenda as well as achieve the 2030 timeline for the global push for the attainment of clean energy.

Cooking stoves

In the same push, government, under the Value Added Tax (Amendment) Bill, 2024, has proposed tax exemptions on cooking stoves and the supply of cooking stoves that use fuel ethanol, assembled in Uganda.

The exemptions will last for a period of up to four years from July 2024 to June 30, 2028, and Ms Najjinda says that will enhance the buy Uganda build Uganda agenda and reduce the use of wood and related fuels, which has driven a surge in deforestation and environmental degradation.

Operation of specialised hospitals 

Additionally, government, under section 21 of the Income Tax (Amendment) Bill, 2024, is proposing exemption of income tax on the operation of a specialised hospital facility, which effectively replaces the reference to a branch with the permanent establishment.

Data from the Ministry of Health indicates that Uganda has five specialised hospitals, including Mulago Super Specialised Hospital, Mulago Women and Neonatal Specialised Hospital, Regional Pediatric Surgical Hospital, Entebbe, Uganda Heart Institute and Uganda Cancer Institute. However, Lubowa International Specialised Hospital, currently under construction, has been mapped as a possible addition.

Ms Najjinda says that whereas there were already existing exemptions at the level of national referrals hosting at least 100 beds, the requirement has been removed, which will encourage investment in the health sector.

Exemptions on agricultural products 

Other exemptions under the Income Tax (Amendment) Bill, 2024 have been proposed on supplies of products that seek to reform the value-added tax exemption regime and related matters, while the Value Added Tax (Amendment) Bill, 2024, proposes more exemptions on pesticides, hoes, fertilizers, seeds and seedlings.

According to Ms Juliet Najjinda, pesticides, fertilizers, seeds, and hoes, were previously zero-rated, but since most agricultural inputs are exempted from value-added tax, the proposal is seeking to align with the general value-added tax exemption for agricultural inputs.

Furthermore, she says exemptions on seedlings have been standard rated – attracting value-added tax of 18 percent – which means that farmers would incur value-added tax to purchase seedlings, which they would not be able to claim since agricultural supplies are generally value-added tax-exempt, which has been common with coffee and forest farmers.