Civil Society Organisations under the Tax Justice Alliance have warned that if passed in their current form, the new tax bills proposed by will become a recipe for disaster for Ugandans.
The State Minister for Finance, Henry Musasizi presented five tax bills to parliament among them the Excise Duty Amendment Bill 2024, the Stamp Duty Amendment Bill 2024, the Income Tax Bill 2024, the Value Added Tax Bill 2024, and the Tax Procedures Amendments Bill 2024.
Addressing journalists on Sunday, Mark Mutumba, a tax policy analyst from SEATINI said introduction of a 5% tax charge on proceeds of the disposal of non- business assets including land creates ambiguity in its implementation and interpretation of the law.
"The selective nature of the application of the proposed amendment undermines the principle of horizontal equity as land outside of the prescribed places remains exempted from the said capital gains regime. The bill could deter and have a negative impact on land acquisition which could further constrain production and investments by individuals and further impose additional burdens on citizens especially the marginalized groups like women," Mutumba said.
He noted that the proposed treatment of rental property as a non-business asset undermines the current taxation regime as rental property generates rental income which is subject to tax under Section 5 of the Income Tax Act.
"The proposed 15-day timeline is unrealistic and neglects the market dynamics including the installment payments in land acquisition creating additional tax burdens for taxpayers. This bill should be rejected as it could discourage investment in land due to the perceived additional cost of acquisition and affecting key sector of production."
The CSOs said the extension of the tax exemptions to private equity and venture capital funds under section 21 of the income tax bill, and Schedule 2 of the stamp duty bill has several loopholes.
"We observe that this intends to facilitate ease to access of capital for the startups and high-risk ventures. However, currently there are no regulations under the CMA Act to guide the registration process of Private equity and venture capital funds, yet the provision applies to registered entities. This will create redundancy in the law, undermining the intended objective and could potentially facilitate revenue leakages given that most of these entities are non-resident."
Oscord Mark Otile, a research officer for ACODE said the whereas the introduction of tax exemptions on income earned from disposal of government security on secondary market under section 21of the Income Tax Bill intends to ease trade in government securities on the secondary market encouraging investors to purchase securities as concerns about lock-in effects of Capital Gains Tax are eliminated, it has several flaws.
"This is likely to increase the appetite for government borrowing on the domestic scale crowding out the private sector and creating a diversion for capital for investment in key sectors that could drive economic growth by the citizens. There is also likely to be loss of tax revenue on interest earned from the secondary market investors," Otile said.
He said that the need to revise the proposed exemption on investments on specialized hospitals under section 21 of the income tax bills 2024 is important to foster investment in the domestic health sector reduce on the out-of-pocket expenditure attribute to the search of health care from abroad but noted it may not achieve its objectives.
"The absence of the definition of specialized hospital for tax purposes which will create ambiguities in the treatment of such investments. There is potential for discriminatory treatment on local investors as the thresholds remain high, disadvantaging investments in specialized health care below the set threshold. This could further facilitate privatization of the health sector which could exacerbate the issues of affordability as evidenced during the COVID -19 pandemic causing an increase in the out-of-pocket expense," ACDOE's Otile said.
Civil society also warned that the increment of specific tax on essential commodities including fuel, and mineral water under schedule 2 of the Excise duty bill is likely to increase the tax burden on the final consumers of these products.
"For instance, the shs100 increment on fuel is likely cause inflationary pressures on other commodities, and the cost of production. This could affect transport fares for users of public transport causing an increment on the cost of living. The introduction of the specific rate of shs75 per liter on mineral water is likely to cause a rise in prices for drinking mineral water negatively impacting the access to clean bottled mineral water," said Steren Aloran economist from CSBAG.
Call
The CSOs urged government to put in place measures to curb illicit financial flows through measures to address smuggling, unorthodox trade practices, and corruption where the coutnry loses huge sums of money every year.
"Government should expedite the implementation of the Tax Expenditure Governance Framework and tax expenditure rationalization plan while at the same time take into action the recommendations of the auditor general to mitigate the unnecessary tax expenditure non commiserate to the economic benefits."
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Civil society also called for enhancing and deepening of the URA tax education strategy by investing in innovative ways to engage the business community, helping them understand the value of taxation.
"Providing citizens with information about the tax system, their rights, and obligations, and how they can influence tax development is crucial for building trust and raising tax morale, ultimately encouraging voluntary compliance," SEATINI's Mark Mutumba said.
"While tax proposals are introduced annually, there's a need for robust impact assessments before implementation. This allows the government to gauge effectiveness, efficiency, and potential taxpayer reactions. Such assessments could help develop strategies to mitigate negative impacts on the economy."
Civil society also warned against heavy reliance on a small formal tax base burdens few taxpayers, asking government to aim at distributing the tax burden more evenly across a larger portion of the population or economy for fairer taxation.
