The Uganda Revenue Authority (URA) has expressed dissatisfaction with the low collection of rental income tax despite the booming real estate industry.
During a recent meeting with large taxpayers, John Rujoki Musinguzi, the commissioner general of the Uganda Revenue Authority (URA), described the Shs 120 billion collected each year from taxes on rental income as "unbelievable", given the rapid expansion of the real estate industry.
The sheer volume of property development in Kampala over the last five years indicates that a lot of revenue is going uncollected. Around the same time the meeting was taking place, the URA deployed the fully live Rental Tax Compliance System (rTCS), which easily identifies taxpayers.
Last year, URA deployed an initial pilot based on the rTCS analytics. The pilot consisted of two sets of analytics; the first was delivered on September 26, 2021, focusing on 88 high-income, non-compliant landlords in greater Kampala and their 285 associated properties. The second set of analytics, delivered on November 29, 2021, contained 2,000 non-compliant property owners and their 9,521 properties.
The sample of landlords included those with no tax identification numbers (TINs), those who claimed no rental income, and those who had not filed tax returns in the last five years. Following the successful pilot, the full rTCS software application came online on April 18, with training of the URA rental team commencing the following day.
rTCS is a complex software application used to determine the highest priority individuals or corporations likely to be underpaying their rental income taxes. The deployment of the software follows directives by the minister of Finance to URA to expand the tax base to ease the burden on the few compliant taxpayers.
According to URA, the rTCS application has so far identified just over 70,000 unregistered landlords (those without TINs) and their associated properties, and a further 80,000 landlords who are not submitting tax returns, those not declaring or under-declaring their rental income. This is compared to the roughly 4,000 who the system has identified as compliant.
Sarah Muzungyo Chelengat, the commissioner of Domestic Taxes at URA, says widening the tax base is essential as tax revenue from the few compliant landlords was severely impacted by Covid-19, impacting URA's ability to achieve its rental targets.
"Collections from rental income in the last nine months from July to March 2022 were largely affected by Covid and many of the commercial properties were closed down. This implies that landlords didn't have rental income, and even those that could pay did not pay on time, relying on promises from the tenants to pay," Chelengat says.
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"Because of this, we had a number of taxpayers asking for payment in instalments, and then those in employment had lost jobs yet had to pay rental income to their landlords. It's a ripple effect on the entire supply chain," she explains.
However, since the deployment of rTCS, URA's focus has been on easing the burden on the few who are paying, by widening the tax base to include unregistered landlords. Chelengat explains that rTCS identifies a significant portion of the population that was never identified before.
"Largely, what we can say is that landlords have not been in the tax net, but we are doing registrations to have them on board and many of them are actually registering," she says.
Rental tax will be a significant focus of the URA in the coming months.
"We are hopeful that as we close this financial year, we will be in a better position to surpass the target," Chelengat adds.
The private sector has also been calling on the government to focus on unregistered landlords to broaden the tax base and reverse the losses being experienced in the economy.
This is exactly how rTCS works. The application integrates various types of data from selected ministries, departments, and agencies to match properties in the Greater Kampala metropolitan area to their beneficial individual or corporate owners, enabling URA to bring these informal landlords into the formal economy.
