A foreign investor with $10m (about Shs37b) and a local investor holding $1b (about Shs3.7 trillion) in an industrial park who uses at least 50 per cent of local raw materials and employs at least 100 citizens, will enjoy tax exemption for 10 years for both income tax and VAT, Daily Monitor has learnt.
Similar benefits will be enjoyed by investors who process agricultural goods and those manufacturing or assembling medical appliances, medical sundries or pharmaceuticals, building materials, automobile and household appliances.
An investor will also be exempted from VAT and income tax if they "manufacture furniture, pulp, paper, printing and publishing of instructional materials; establishes or operates vocational or technical institutes.
An investor who runs logistics business and warehousing, information technology or commercial farming or those who invest in the manufacture of tyres, footwear, mattress or toothpaste will also enjoy the tax relief.
The government under the Value Added Tax (Amendment Bill) 2020 seeks to restrict a taxable person from claiming input tax credit in respect of specific construction of commercial building and to require an owner of a commercial building to account for tax for each building separately.
The proposals are contained in new tax measures for 2020/21 presented before Parliament for debate.
The VAT also removes taxes on "trailers for agricultural purposes" as well as combine harvesters in a bid to support mechanised agriculture.
The Bill further proposes to amend the First Schedule to include the Islamic Development Bank on the list of Public International Organisations.
The bank joins organisations such as the United Nations, African Development Bank, African Trade Insurance Agency as well as the Aga Khan Development Networks in Uganda, among others.
Under the new measures, the new VAT will require an owner of a commercial building to account for tax for each building separately and the same applies under income tax.
The measures, if adopted by Parliament, will take effect on July 1.
Under income tax, government seeks to introduce a minimum tax rate to apply to taxpayers whose declared tax liability for five consecutive years is less than 0.5 per cent of the gross income.
Government also seeks to revise the tax rate applicable to individuals and companies for purposes of rental income from 20 per cent to 30 per cent.
The new ceiling of allowable deductible expenses on rental income has been revised to 50 per cent, up from 20 per cent contained in the current law.
Clause 3 of the Bill reads: "A person who earns rental income from more than one building shall account for the income and expenses of the buildings and shall pay tax for each of the buildings separately."
Landlords shall, however, be allowed to deduct "fifty per cent of the rental income as expenditures and losses incurred by a person in the production of such income."
The provision for landlords to deduct interest on a mortgage from a financial institution as expenditure incurred by an individual to acquire or construct premises that generate rental income has been repealed.
This implies that all the income collected by landlords shall be taxable, except with the 50 per cent deducted as operational costs.
Other measures include incentives to existing investors, impose withholding tax on sale of land, other than a business asset, to introduce a new tax regime for small businesses, and to exempt Income of Islamic Development Bank from tax.
Others are to exempt Income of Deposit Protection Fund from income tax, to impose withholding tax on commissions paid to insurance and advertising agents.
The income tax Bill also proposes that a taxpayer who provides a passenger transport service or a freight transport service where the goods used have a loading capacity of at least two tonnes, shall be required to obtain a tax clearance certificate from the commissioner before renewal of operational licences.
Introduced under income tax
The Bill is proposing that a taxpayer whose declared tax liability for five consecutive years of income is an arithmetic average of less than 0.5 per cent of gross income shall pay a minimum tax at a rate of 0.5 per cent of the gross turnover after the sixth year.