REVENUE AND TAXATION

LAW I
LLB 412
 TABLE OF CONTENTS
WEEK ONE Introduction to Revenue and Taxation Concepts
WEEK TWO The Canons/Principles of Taxation
WEEK THREE The Administration of and Administrative Structure for Tax
in Uganda
WEEK FOUR Interpretation of Tax Laws
WEEK FIVE Direct Tax and Indirect Tax
WEEK SIX Continuous Assessment Test One (CAT 1)
WEEK SEVEN Persons Assessable to Tax
WEEK EIGHT Income Tax
WEEK NINE Taxation of Small Business Taxpayers (Presumptive Tax)
WEEK TEN Taxation of Business Income
WEEK ELEVEN Continuous Assessment Test Two (CAT 2)
WEEK TWELVE Taxation of Employment Income
WEEK THIRTEEN Taxation of Property Income
WEEK FOURTEEN Exempt Income
WEEK FIFTEEN Revision Week
 WEEK ONE
INTRODUCTION TO REVENUE AND
TAXATION CONCEPTS
 INTRODUCTION TO TAX CONCEPTS

Definition of Tax
› Tax is a compulsory extraction of money by a public
authority for public purposes, enforceable by law, and
is not a payment for services rendered.
› In Matthews v. Chicory Marketing Board 1935 60 CLR,
263, it was held that: “tax is a compulsory exaction of
money by a public authority for public purpose or
raising money for the purpose of government by
means of contributions from individual persons”.
› The Oxford Advanced Learners’ Dictionary (2006)
defines tax as ‘money that you have to pay to the
government so that it can pay for public services.’
 TYPES OF TAXES

Direct Tax
 Direct taxes are taxes where the economic burden is
borne by the person who pays the tax, such as income
and capital gains tax.

Indirect Tax
 Indirect taxes are taxes where the person who pays the
tax is able to pass the economic burden of the tax to
third parties, such as GST, customs and excise duties.
 TYPES OF TAXES CONT’D

On the basis of degree of progression of tax, it may be

classified into:
 Proportional taxes - are imposed at the same rate on all
taxpayers (such as VAT which is levied at a flat rate of
18%);
 Progressive taxes - are imposed at rates which increase
with the tax base, such as income tax where the tax rate
increases with the amount of taxable income;
 Regressive taxes - are imposed at rates which decrease
with the tax base.
 PURPOSE AND EFFECT OF TAXATION

 Raising Revenue - major way for governments to raise

revenue.
 Regulation of Consumption and Production - Taxing
heavily some commodities such as cigarettes, alcohol.
 Encouraging Domestic Industries - by imposing more tax
on imported goods.
 Stimulating Investment - by providing tax holidays or
putting zero tax rates in targeted sectors
PURPOSE AND EFFECT OF TAXATION CONT’D

 Reducing income inequalities - by taxing people

with more income more than those with less.
 Promoting economic growth.
 Development of backward regions.
 Ensuring price stability.
 WEEK TWO
THE CANONS/PRINCIPLES OF
TAXATION
 CANONS/PRINCIPLES OF TAXATION
Meaning of Canons of Taxation:
Canons of taxation means the characteristics or
qualities which a good tax system should possess -
thus related to the administrative part of a tax.
Adam Smith’s Maxims: Four principles or canons of
taxation
In his famous 1776 Treatise, “The Wealth of Nations”,
Adam Smith wrote that:
1. Canon of equality or ability: the subject of every
state ought to contribute towards the support of the
government, as nearly as possible, in proportion to
their respective abilities;
 ADAM SMITH’S MAXIMS/CANONS CONT’D
2. Canon of certainty: the tax payable by each
individual must be certain and not arbitrary and the
time of payment, the manner of payment, and the
quantity to be paid ought to be clear and plain to the
contributor and to every other person;
3. Canon of convenience: every tax ought to be levied
at the time, or in the manner in which it is most likely
to be convenient for the contributor to pay it; and
4. Canon of Economy: every tax ought to be contrived
to take as little out of the pockets of people over and
above what it brings in to the public treasury.
 OTHER PRINCIPLES OF TAXATION

1) Canon of productivity: The canon of productivity

indicates that a tax when levied should produce
sufficient revenue to the government. If a few taxes
imposed yield a sufficient fund for the state, then
they should be preferred over a large number of
small taxes which produce less revenue and are
expensive in collection.
 OTHER PRINCIPLES OF TAXATION CONT’D

(2) Canon of elasticity: the tax system should be fairly

elastic so that if at any time the government is in need of
more funds, it should increase its financial resources
without incurring any additional cost of collection.
Income tax, railway fares, postal rates, etc., are very good
examples of elastic tax. The government by raising these
rates a little, can easily meet its rising demand for
revenue.
(3) Canon of simplicity: this canon implies that the tax
system should be fairly simple, plain and intelligible to the
tax payer. If it is complicated and difficult to understand,
then it wilt lead to oppression and corruption.
OTHER PRINCIPLES OF TAXATION CONT’D

(4) Canon of diversity: the Canon of diversity

says that the system of taxation should
include a large number of taxes which are
economical. The government should collect
revenue from its citizens by levying direct
and indirect taxes. Variety in taxation is
desirable from the point of view of equity,
yield and stability.
 WEEK THREE
THE ADMINISTRATION OF AND
ADMINISTRATIVE STRUCTURE FOR
TAX IN UGANDA
 HISTORY OF TAXATION IN UGANDA
Introduced in East Africa by the early British colonial
administrators through the system of compulsory public
works; the first formal tax -the hut tax–to finance local
governments; Common tariff arrangements between
Kenya and Uganda, and later on with German East
Africa involved imposition of an ad valorem import duty
at a rate of 5% on all goods through their ports destined
for Uganda; Income tax was introduced in 1940 by a
Protectorate Ordinance mainly payable by the
Europeans and Asians; In 1952, the East African Income
Tax Management Act was introduced and was repealed
by East African Income Tax Management Act 1958; The
administration of both income tax and customs duty.
was done by departments of the EA. Community.
 ADMINISTRATION OF TAXES IN UGANDA
Article 152 of the Constitution of Uganda, 1995 - “No tax
shall be imposed except under the authority of an Act of
Parliament”.
Laws for imposing taxes are enacted by Acts of
Parliament: The Uganda Revenue Authority Act Cap 196
provides the administrative framework in which taxes
are collected; The Uganda Revenue Authority
administers the tax laws on behalf of the Ministry of
Finance, Planning and Economic Development under -
Income Tax Act Cap. 340 (for Income Tax), East African
Community Customs Management Act 2004 (for
management of import duty).
 ADMINISTRATION OF TAXES IN UGANDA CONT’D
Value Added Tax Act, Cap 349 (for imposition and
enforcement of VAT); Stamp Duty Act, Cap 342
(imposing duty on various commercial and legal
paper); The Excise Duty Act, 2014 (for collection of
Excise Duty); Traffic and Road Safety Act 1998 (for
Motor vehicle licenses & fees); Other Taxes are
collected by Local Governments as per Article 191 (1)
of The Constitution and Section 80 of The Local
Government Act, Cap 243 such as the Local Service Tax
from all income earning individuals - those employed
or self employed (replaced the Graduated Tax).
 TAX ADMINISTRATION STRUCTURE
Executive - President approves Parliament’s Bills.
Parliament - Enacts laws that guide URA in its
operations & approves policy.
Ministry of Finance, Planning and Economic
Development - Represents the executive arm in the tax
administration: Oversees the operations of the URA;
Drafts government tax policies; Funds the operations
of URA; Ensures proper national budgeting, utilisation
and accountability.
URA Board Administration - Administers and gives
effect to the laws set out in the First Schedule of the
URA Act. The Board is divided into two: Customs; and
Domestic Taxes.
 TAX AVOIDANCE AND TAX EVASION
The key role of the tax administration bodies is to minimize
both tax avoidance and tax evasion
 Tax avoidance involves the reduction of tax liability by
using legal means (not a criminal act) e.g. creating a legal
entity like a trust, avoiding residence by migrating to tax
havens.
 Tax evasion involves the reduction of tax liability using
illegal ways(criminal acts) e.g. such as purposely refusing
to pay, smuggling goods, bribery, submitting false
returns, etc.
E-TAX IN UGANDA
 WEEK FOUR
INTERPRETATION OF TAX LAWS
 INTERPRETATION OF TAX LAW

Under Article 152 (1) of the Constitution of the Republic

of Uganda 1995, no tax shall be imposed except under
the authority of an Act of Parliament
Taxation is a creature of Statute and the approach to the
interpretation of tax Statutes is required to be fully
consistent and based on certain guidelines.
Read Farrar's Estate v. CIR 1926 TPD 501. at page 504, on
ascertaining the intention of the law-maker. The norm is
that a taxing Act must be construed with perfect
strictness whether or not such construction is against
the State or against the person sought to be taxed.
 INTERPRETATION OF TAX LAW CONT’D
Judge Rowlett in Cape Brandy Syndicate v. Inland
Revenue Commissioners held that:
“In a taxing Act one has to look at what is clearly said.
There is no room for any intendment. There is no equity
about a tax. There is no presumption as to a tax. Nothing
is to be read in, nothing is to be implied. One can only look
fairly at the language used”.
If however there is any real ambiguity in a taxing Act,
such ambiguity may be resolved in favor of the taxpayer.
To uphold that strict principle courts had developed,
applied and adopted some rules when interpreting tax
statutes. These rules include:
 INTERPRETATION OF TAX LAW CONT’D

1) The tax must be expressly imposed upon the subject

by the clear words of the Statute. In Scott v. Russell
(Inspector of Taxes), [1948] UKHL TC_30_394 it was
stated that: the subject is not to be taxed unless the
words of the taxing statute unambiguously impose the
tax upon him.
2) The words in the tax Statute must be given their
natural meaning: In Rennel v. Internal Revenue
Commissioner (1963) 1 ALL ER 803 - one has to look at
the words of the Statute and construe them fairly and
reasonably and the results in the particular case must
be accepted whether it is the tax authority or tax
payer who is thereby advantaged/disadvantaged.
 INTERPRETATION OF TAX LAW

3) Where the meaning of the Tax Statute is ambiguous

the tax payer must be given the benefit of doubt: In
Doukole VS. URA HCCS NO.11/1997, it was held that, it’s
a well-known principle of law that a taxing legislation
must be strictly constructed, any ambiguity or doubt
must be dissolved in favor of the tax payer.
4) There is no equity in taxation: in Attorney General v.
Bugisu Coffee Marketing Association [1963] EA 39, it was
held that in the construction of a taxing statutes, the
court looks at what is said without any presumption,
equity, nothing is to be read in and nothing is to be
implied, and one can only look fairly at the language
used.
 INTERPRETATION OF TAX LAW CONT’D
Ultimately, tax statutes just like any statute are
interpreted using the general rule of statutory
construction with the necessary modification as
discussed above.
The general rules applicable to statutes are:
• Golden rule – giving the words a loose meaning
to arrive at the intention of the legislature.
• Literal rule – if the statute is clear and
unambiguous, the words are to be given their natural
or technical meaning.
• Mischief rule – statute to be interpreted in
accordance with what parliament intended to remedy.
 WEEK FIVE
DIRECT TAX AND INDIRECT TAX
 DIRECT TAX AND INDIRECT TAX

Taxes are classified based on the objectives as either

direct or indirect.
Direct Taxes
Taxes which are imposed on income arising from
business, employment, property and the burden of
the tax is borne by the individual or business entity.
Examples of direct taxes include Corporation tax,
Individual Income Tax, e.g. Pay As You Earn, Capital
Gains Tax and Rental Tax.
 ADVANTAGES OF DIRECT TAX
(i) It is easy to determine the incidence of the tax – a
person or institution who actually pays and suffers the
burden of tax.
(ii) Direct taxes tend to be progressive – people in the
higher income group pay a greater percentage than poorer
people, e.g., income tax.
(iii) Direct taxes are easy to collect e.g. the PAYE system
which is used to collect income tax from most wage and
salary earners.
(iv) Direct taxes are important to the government’s
economic policy.
 DISADVANTAGES OF DIRECT TAX
(i) There is no element of choice about paying the tax – it is
unavoidable.
(ii) Direct taxation may be a disincentive to hard work. High
rates of income tax, for example, may discourage people
from working over­time or trying to gain promotion at work.
(iii) Direct taxation discourage savings because, after paying
tax, indi­viduals and companies have less income available to
save.
(iv) This type of taxation encourages tax evasion – to avoid
paying so much tax.
(v) There is no element of choice about paying the tax – it is
unavoidable.
 INDIRECT TAX

Indirect Taxes are taxes levied on consumption of goods and

services collected by an Agent (Taxpayer). Notable indirect
taxes include Value Added Taxes include Value Added Taxes
(VAT), excise duty, import duty.
Advantages
i) Indirect tax is fairly easy to collect; (ii) It is easy to
determine the incidence of an indirect tax.
(iii) The government can use it to discourage certain types of
consump­tion; (iv) Indirect taxation is a good way of raising
revenue when levied on goods with an inelastic demand,
such as necessities; (vi) Indirect taxes do not have a
dissentive effect on work.
 DISADVANTAGES OF INDIRECT TAX
(i) Indirect taxes are regressive. A regressive tax is one
which causes a poor person to pay a higher percentage
of his or her income as tax than a rich person.
(ii)These taxes are not impartial. In recent years, certain
groups of consumers have complained that they are
being heavily penalized by taxation, e.g., drinkers,
smokers and drivers.
(iii)Indirect taxes may contribute to inflation. The
imposition of an indirect tax on an item like petrol will
increase its price. Since petrol is an essential input in a
large number of industries, this may set off an
inflationary spiral. Moreover, trade unions demand
higher wages to maintain the real incomes of workers.
 WEEK SIX
CONTINUOUS ASSESSMENT TEST ONE
(CAT 1)
 WEEK SEVEN
PERSONS ASSESSABLE TO TAX
 PERSONS ASSESSABLE TO TAX
 The assessable person in relation to tax is the person
whether artificial or real who resides in any part of the
country in a particular year of assessment with express
exemption of religious, charitable, trade union, labor
organizations and government boards, states and
corporation.
 In Uganda, persons for purposes of taxation according to
Section 2(yy) of the Income Tax Act Cap 340 (ITA) include:
• An individual; a partnership -S.2(ww) IT; a trust -S. 2.
(vvv) ITA; a company -S.2 (n) ITA; a retirement fund -S.
2 (lll) ITA; a governmental political subdivision of
government; and a listed institution -S. 2(mm) ITA
 SOURCES ON WHICH TAX IS LEVIED

Tax is levied on:

1) Income from many sources: Wages (selling labor),
Interest, dividends, and gains from investment (selling
capital), operating a business (Self-
employment),Property rental, Royalties (rental of
intellectual property) and “Other” income such as
alimony, gambling winnings, or prizes)
2) Consumption of discretionary and nondiscretionary
goods and services.
3) Wealth from property.
 RESIDENCE AS A BASIS FOR TAXATION
 The issue of Residence is very germane to the proper
administration of tax.
 Generally, residence means living in a particular locality
and it may be possible that a person has two places of
residence.
 Residence connotes the idea of remaining and settling
in a place for a fairly long period. It is for this reason
that residence is used to determine liability to personal
income tax.
 In Uganda, Residence for tax purposes is defined under
the Income Tax Act in relation to assessable persons.
 RESIDENCE AS A BASIS FOR TAXATION CONT’D

 A resident individual - S.9 ITA

 A resident company is one which according to - S. 10 ITA
 A resident trust - S.11 of the ITA
 A resident partnership - S.12 ITA
 A resident Retirement Fund - S.13 ITA
Scope of Liability
 The scope of liability to tax depends on a person’s
residence status. For a resident person, income tax is
charged on gross income from all over the world. The tax
for a non-resident person is only charged on income
derived from sources within Uganda.
 YEAR OF INCOME AND SCOPE OF LIABILITY
 Year of Income means the period of twelve months
ending on June 30, and includes a substituted year of
income and a transitional year of income.
 A substituted year of income is a period of 12 months
ending on a date other than June 30.
 A transitional year of income is a period of less than 12
months that falls between the person’s previous
accounting date and a new accounting date. This results
from a change in a person’s accounting date.
WEEK EIGHT
INCOME TAX
 INCOME TAX
 Income tax is charged on every person who has
chargeable income for each year of income.
 Chargeable income is derived from three main types of
income, namely; business, employment and property.
Meaning of income
 In Eisner v Macomber 252 U.S. 189 (1920), income was
defined as “a gain from labour, capital or both. It also
includes profits from the sale of capital”.
 The economic definition of income measures income as
an increase in a taxpayer’s economic power during a
period of time (measures consumption and increase in
wealth of taxpayer)
 GENERAL CHARACTERISTICS
 Capital receipts are not income (income as a flow)
 Generally exhibits periodicity, recurrence and
regularity
 Some ‘sufficient’ nexus with an earning activity
 ‘Comes in’ to the recipient beneficially
 Money or money’s worth (though note statutory
provisions)
 Income is characterized in the hands of the recipient
when received
 Generally measured on a gross basis
 INCOME TAX IN UGANDA
 Income tax is administered under the Income Tax Act Cap
340. According to S.4(1) ITA, Income tax is charged on every
person who has chargeable income for each year of
income.
 According to S. 15 ITA, the chargeable income of a person
for a year of income is the gross income of the person for
the year less total deductions allowed under the Act for the
year.
 Gross income of a person for a year of income according to
Section 17 (1) of the ITA, is the total amount of –
 (a) business income; (b) employment income; and (c)
property income, derived during the year by a person,
other than income exempt from tax.
 PROVISIONS OF THE INCOME TAX ACT

1. Definition Provision -This provision under the Act is

section 2. It is important because it puts the words
to be used in the Act in context.
2. Charging Provisions -These in the ITA are sections 4
and 5. These are provisions imposing tax on a
person’s income. The provisions identify the person
(or base) liable to tax and a period after which the
tax accrues.
 PROVISIONS OF THE INCOME TAX ACT CONT’D

3. Rate of Tax Provisions -This in the ITA is contained in

sections 6, 7 and 8. It sets out the tax treatment of
different people with respect to chargeable income.
4. Administration provisions- these provisions confer
upon the respective government departments the
power to enforce the legal provisions.
5. Penalty provisions -These are contained in part XV of
the Act and are to ensure that people comply with the
tax law.
 WEEK NINE
TAXATION OF SMALL BUSINESS
TAXPAYERS (PRESUMPTIVE TAX)
 TAXATION OF SMALL BUSINESS
TAXPAYERS (PRESUMPTIVE TAX)

Who is a Small Business Taxpayer?

 S. 4(5) of the ITA provides that a small business taxpayer
is a resident taxpayer whose gross turnover from all
businesses owned by such a person in a year of income
does not exceed One Hundred & Fifty Million Shillings.
Rationale for presumptive Tax
 Concept was developed to accommodate low income
taxpayers who ordinarily find it difficult to prepare formal
accounts - engagement of a professional accountant
which is costly. In order to address this challenge, the
Income Tax Act provides for an arrangement of taxing
small businesses based on gross turnover or total sales.
 WHO IS EXCLUDED FROM PRESUMPTIVE
TAX?
 According to S. 4(7) ITA, persons in the following business
activities are excluded from presumptive tax:
•Medical practice
• Dental practice
•Architectural service
• Engineering service •Accounting and audit practices
•Legal practice
•Any other professional services
•Public entertainment services
•Public utility service; and Construction service
 PREREQUISITES FOR ELIGIBILITY

 To benefit from the presumptive tax regime, a taxpayer

MUST keep records of his or her daily sales which is
the basis for determining the tax bracket under which
he or she falls.
 In order to determine the tax payable, the
presumptive payer is required to file a provisional
return of gross turnover within three months and a
final return of the gross turnover of the previous year
of income.
KEY FEATURES OF THE PRESUMPTIVE TAX REGIME

 The tax is computed on the basis of a GROSS TURNOVER;

and is a final tax.
 No deductions are allowed in respect of any expenditure
or losses.
 No tax credit is allowed to be offset against the final tax
except in the following cases: (a) A tax credit arising out
of withholding on receipt included in the gross turnover
of the taxpayer; (b) Any provisional tax paid against the
taxpayer’s gross turnover during the year of Income.
 WHAT ARE THE RATES AND IS THERE AN ALTERNATIVE?
 The rates are provided for in the 2nd Schedule to the ITA
and the rates are dependent of the location and the type
of business being carried on. The first part deals with the
amount which is above 50 Million but not more than 150
M where location and type of business does not matter.
 Part II deals with rates where the turnover is below 50M
where we consider the type of business and the location.
NB: Section 4(5) gives the small business tax payer an
option to elect not to be taxed as a small business but as
under the provision of S.4(2). This has to be done in
writing to the Commissioner and must be lodged with the
Commissioner by the due date for the taxpayer’s return
for the year of income to which it relates in accordance
with S.4(6)
 WEEK TEN
TAXATION OF BUSINESS INCOME
 TAXATION OF BUSINESS INCOME
Meaning of Business
 The term “business” in it is ordinary meaning is a
commercial or industrial activity of an independent nature
undertaken for profit.
 Section 2 (g) of the ITA - “business” includes any trade,
profession, vocation, or adventure in the nature of trade,
but does not include employment.
What is trade? - Smith v Anderson (1880) 15 Ch.D. 247 - held
trade to be anything which occupies the time, attention and
labour of a man for purposes of profit in business.
What is a profession? - Profession is a form of economic
activities, wherein special skills, knowledge and expertise is
required to be applied by the person, in his occupation.
 BUSINESS INCOME
 Adventure in the Nature of Trade -This refers to
transactions where profits arise from activities such as
gambling, speculative dealings in commodities, single or
one off transactions or unconventional transaction e.g.
smuggling.
 Vocation is an occupation or the employment of an
individual that is pursued more for its benefits to others
or the society at large rather than for its monetary
benefits. In modern times, a vocation refers to an
occupation for which a person has special abilities or is
trained to do that job.
 WHAT AMOUNTS TO BUSINESS INCOME IN UGANDA?

Under section 18(1) of the ITA, business income is income

derived by a person in carrying on business and includes
amounts whether of revenue or a capital nature and
includes:
 The amount of gains or losses from the disposal of
business assets such as land and buildings.
 Any amount derived by a person as consideration for
accepting a restriction on the person’s capacity to carry
on business.
 The gross proceeds derived by a person from the
disposal of trading stock, i.e. sales.
 WHAT AMOUNTS TO BUSINESS INCOME IN
UGANDA CONT’D

 The value of any gifts derived by a person in the

course of, or by virtue of, a past, present, or
prospective business relationship.
 Interest derived by a person in respect of trade
receivables or by a person engaged in the business
of banking or money lending.
 Rent derived by a person whose business is wholly
or mainly the holding or letting of property.
 HOW IS BUSINESS INCOME TAXED?

 According to S. 18 and S.6 of the ITA - The

income is added to other incomes for an
individual and taxed in accordance with the
rates provided in the Third Schedule of the
ITA depending on whether the person is a
resident or non- resident.
 WEEK ELEVEN
CONTINUOUS ASSESSMENT TEST
TWO (CAT 2)
 WEEK TWELVE
TAXATION OF EMPLOYMENT
INCOME
 TAXATION OF EMPLOYMENT INCOME

Meaning of employment income

 S. 19(1) ITA - Employment income means any income
derived by an employee from any employment.
According Section 2(Z) “employment” means:
the position of an individual in the employment of
another person;
a directorship of a company;
 a position entitling the holder to a fixed or
ascertainable remuneration; or
 the holding or acting in any public office.
 WHAT CONSTITUTES EMPLOYMENT INCOME?
 According to Section 19(1), Employment income includes:
Amount of private/personal expenditure discharged or
reimbursed by the employer; The value of any benefits
in kind provided by/on behalf of the employer; Any
amount in compensation of termination of employment
or contract; Insurance premiums paid by a tax-exempt
employer for life insurance of an employee and/or his
dependents; Payments in respect of change of
employment/contract terms or payment for
agreement to any restrictive conditions of employment;
Wages, salary, leave pay, payment in lieu of leave,
overtime pay, fees, commission, gratuity, bonus,
allowance; Discounts in shares allotted to an employee
and profit/gain on disposal of such shares.
 RELIEFS IN EMPLOYMENT INCOME
 Employment gains not included in chargeable income:
 Pension; Medical Expenses; Life Insurance; Official
Employment Expenditure; Meals and Refreshments;
Employer’s contribution to a retirement fund for the
benefit of the employee; Local Service Tax; Any benefit
whose value is less than Ushs 10,000 during the month;
Threshold: The first Ush.235,000 per month is tax free for
all resident employees; Terminal Benefits: 25% of terminal
benefits (for employees who have served the employer for
at least 10 years).
HOW IS EMPLOYMENT INCOME TAXED?
- The PAYE model
- Obligations of the employer.
 PAYE RATES FOR RESIDENTS
Monthly Chargeable Income Rate of tax
Not exceeding Ushs235,000 Nil

Exceeding Ushs235,000 not exceeding 10% of the amount by which chargeable

Ushs335,000 income exceeds Ushs. 235,000

Exceeding Ushs.335,000 but not Ushs. 10,000 plus 20% of the Amount by
exceeding Ushs. 410,000 which chargeable income exceeds Ushs.
335,000.

Exceeding Ushs.410,000 (a) Ushs 25,000plus 30% of the amount by

which chargeable income exceeds Ushs.
410,000 and
(b) where the chargeable income of an
individual exceeds shs.10,000,000 an
additional 10% charged on the amount by
which chargeable income exceeds Ushs.
10,000,000.
 PAYE RATES FOR NON- RESIDENTS
Monthly Chargeable Income Rate of tax

Not exceeding Ushs. 335,000 10%

Exceeding Ushs.335,000 but not Ushs. 33,500 plus 20% of the Amount by
exceeding Ushs. 410,000 which chargeable income exceeds Ushs.
335,000.

Exceeding Ushs.410,000 (a) Ushs 48,500 plus 30% of the amount by

which chargeable income exceeds Ushs.
410,000 and (b) where the chargeable
income of an individual exceeds
shs.10,000,000 an additional 10% charged on
the amount by which chargeable income
exceeds Ushs. 10,000,000.
 WEEK THIRTEEN
TAXATION OF PROPERTY INCOME
 PROPERTY INCOME

 Property Income is provided for under Section 20 of the

Income Tax Act as: any dividends, interest, natural
resource payments, rents, royalties and any other
payments derived by a person from the provision, use or
exploitation of property; The value of any gifts derived by
a person in connection with the provision, use or
exploitation of property; The total amount of any
contribution made to a retirement fund during a year of
income by a tax exempt employer; Any other income
derived by a person but does not include an amount
which is business, employment, or exempt income; Any
amount included in business income of the person under
any other section of the Income Tax Act.
 RENTAL INCOME
 According to Section 2(ddd) ITA, “rental income”, in
relation to a person for a year of income, means the total
amount of rent derived by the person for the year of
income from the lease of immovable property in with the
deduction of any expenditures and losses incurred in
respect of the property.
 The law provides that rental income is segregated and
taxed separately as though it were the only source of
income for the taxpayer.
 For income tax purposes, it does not matter whether the
building is let out as a residence or for commercial use
(unlike VAT-for commercial is 18% and for residential is
5%)
 TAX RATES FOR RENTAL INCOME
 According to Section 5 ITA, a tax shall be charged for each
year of income and is imposed on every person who has
rental income for the year of income.
For Individuals; Refer to Section 5(2)(a), 5(3)(b), 6(2), 22(1)(C)
and Part VI of the Third Schedule ITA.
 Step I: Determine the total annual gross rents from all
sources of the individual; say R.
 Step II: Deduct 20 percent allowance for costs i.e. R –
20%,therefore R = 80%R
 Step III: Deduct threshold (Shs.2, 820,000) i.e. 80%R –
2,820,000 and Step IV: Determine income tax at 20% i.e.
20% (80%R – 2,820,000).
 TAX RATES FOR RENTAL INCOME
For Partnerships; Refer to S.5(2)(d), 5(3)(d), 6(2), 22(1)(C)
and Part VI of the Third Schedule ITA.
 Step I: Determine the total annual gross rents of
individual(Assessed on individual partners according to
their respective sharing rates) partners; say R;
 Step II: Deduct 20 percent allowance for costs i.e. R –
20%,therefore R = 80%R
 Step III: Deduct threshold (Shs.2, 820,000) i.e. 80%R –
2,820,000) and Step IV: Determine income tax at 20% i.e.
20% (80%R – 2,820,000).
 Tax payable - each partner in proportion to their
partnership stake in the company.
 TAX RATES FOR RENTAL INCOME CONT’D

For Companies, Trustees and retirement funds; Refer to

Section 5(2)(b & c), 5(3)(c), 7(2), 8(5 & 8), 22(1)(a) and Part
II & III of the Third Schedule ITA.
 Step I: Determine the total annual gross rents from all
sources of the company; say R.
 Step II: Deduct all expenses incurred in the production of
the rental income i.e. R – total expenses call them E,
therefore R = (R-E)
 Step III: Determine income tax at 30% i.e. 30% (R – E).
WEEK FOURTEEN
EXEMPT INCOME
 EXEMPT INCOME

Exempt income refers to certain types or amounts of income

not subject to tax. Tax exemption is the reduction or removal
of a liability to make a compulsory payment that would
otherwise be imposed by a ruling power upon persons,
property, income, or transactions.
 Tax-exempt status may provide complete relief from taxes,
reduced rates, or tax on only a portion of items. In Uganda,
Exempt income is listed in section 21 of the Income Tax
Act.
Specific Monetary Exemptions
E.g. for Rental income is Shs.2, 820,000
 EXEMPT ORGANIZATIONS
Provided for under Section 2 (bb): These are companies,
institutions or irrevocable trusts whose incomes, assets do
not confer a private benefit on any person but function as:
 Amateur sporting associations: sole or main object is to
foster or control any athletic sport or game; Religious
Organizations: Organizations whose sole purpose is the
advancement of religion; Charitable Organisations:
considered charitable if all their overall goals (or purposes)
are charitable and must provide a public benefit;
Educational Institutions of a public character; sole purpose
is the advancement of education and not operated or
conducted for profit; Trade unions. These are combinations
whether temporary or permanent, of a thousand or more
persons other than an employees association.
 EXEMPT ORGANISATIONS CONT’D
 Employees’ associations - thirty persons or more; An
association of employers registered under any law of
Uganda; Association formed to promote farming, mining,
tourism, manufacturing or commerce and industry in
Uganda.
EXEMPT INDIVIDUALS
Certain classes of persons may be granted a full or partial tax
exemption within a system and the exemption granted may
depend on multiple criteria, including criteria otherwise
unrelated to the particular tax. This includes;
1. Section 21 (1)(n) ITA
 EXEMPT INDIVIDUALS CONT’D
Employees in the public service of the government of a
foreign country who are not residents or are residents only
for purposes of doing their work in respect of employment
income- Section 21(1)(c) ITA, etc.
2. Section 21 (1) (y) ITA; Exporters
Any person who derives income from exporting at least 80%
of his finished consumer and capital goods where;
a) If it is a new investment, the taxpayer applies in writing to
the Commissioner to be issued with the certificate of
exemption at the beginning of his investment
b) For an existing investment, the taxpayer applies to the
Commissioner for a certificate which is effective from 1st
July, 2007.
 EXEMPT INDIVIDUALS CONT’D
3. Section 21 (1) (z) ITA; Agro processors
Any person who derives income from agro – processing
where: The taxpayer processes agricultural products grown
or produced in Uganda; The taxpayer or her associate must
not have previously carried out agro processing of a similar or
related product in Uganda; Upon commencement of agro –
processing in Uganda, the person applies in writing to the
Commissioner for a certificate of exemption which the
Commissioner may issue within Sixty days of receiving the
application; invests in plant and machinery that has not
previously been used in Uganda by any person in agro -
processing to process agricultural products for final
consumption; The person regularly files returns as required
under the Income Tax Act.
WEEK FIFTEEN
REVISION WEEK