Changes in Uganda's tax legislation for the year 2011/12

1. Changes in Uganda’s tax
legislation for the year 2011/12
Face to face with the future
July 2011

2. Contents
1 Introduction 3
2 Value Added Tax(Amendment) Bill, 2011 4
3 Value Added Tax (Amendment) Regulations, 2011 8
4 Income Tax (Amendment) Bill, 2011 10
5 Stamp (Amendment) Bill, 2011 15
6 The Excise Tariff ( Amendment) Bill, 2011 16
7 The Finance(Amendment) Bill, 2011 17
8 The East African Community Gazette No. 24 of 2011 18
Contacts 20

3. 1 Introduction
On 8th June 2011, the Minister of Finance, Planning and Economic Development, Honourable Maria
Kiwanuka delivered her budget speech to the Parliament of Uganda. She mentioned there would be various
changes to tax policy, the finer details of which were to be spelt out in tax bills and related regulations that
would be published by the Government of Uganda.
We are happy to announce that these bills and related regulations have been published. They comprise:
• The Finance (Amendment) Bill, 2011
• The Income Tax (Amendment) Bill, 2011
• The Value Added Tax (Amendment) Bill, 2011
• The Stamps (Amendment) Bill, 2011
• The Excise Tariff (Amendment) Bill, 2011
• The Income Tax (Transfer Pricing) Regulations, 2011
• The Value Added Tax (Amendment) regulations, 2011
• The East African Gazette No. 24 of 2011
Though the bills are yet to be discussed by the Parliament of Uganda, they have the force of law from 1st
July 2011 pursuant to the provisions of The Taxes and Duties (Provisional Collection) Order, statutory
instrument number 28 of 2011. This order confers the authority of law on these bills for a period of 4
months. This period allows Parliament ample time to carefully scrutinise the provisions of these bills and
where necessary propose changes before they are enacted into Acts of Parliament. If there are any
changes proposed before enactment by the Parliament of Uganda, we will let you know.
The regulations also have the force of law from 1st July 2011. They will not be subjected to any
parliamentary debate because the legislative authority of making these regulations is devolved to the
Minister of Finance, Planning and Economic Development.
This publication discusses the amendments to the tax laws affecting both direct and indirect taxes. It
excludes the transfer pricing regulations which we have addressed separately in an earlier tax alert. Please
contact us if you need a copy of our analysis of the transfer pricing regulations.

4. 2 Value Added Tax(Amendment) Bill,
2011
The Value Added Tax (Amendment) Bill, 2011 introduces wide ranging changes to the VAT regime in
Uganda. Whilst these changes seek to expand the VAT base and increase revenue collections, they also
bring about interpretational difficulties.
Definition of “goods” and “supply of goods” for VAT purposes
Sections 1 (h) and 10(d) of the VAT Act have been amended. The supply of thermal, electrical energy,
heating, gas, refrigeration, air-conditioning and water has been excluded from the definition of goods. The
provision of these items now falls under the definition of services for VAT purposes.
Comment
1. VAT will continue to apply as it has been previously. The reclassification of the above mentioned
items as services was done to enable diplomats and accredited personnel obtain relief from VAT in
respect of services received from utility service providers as envisaged by the law. If the above
mentioned items continued to be classified as goods for VAT purposes, diplomats and accredited
personnel would not access the relief because the law refers to relief from VAT in respect of services.
Charge to Value Added Tax on imported services
Sections 4(a), 4(c) and 18(1) of the VAT Act have been amended. The word in “Uganda” under section 4(a)
has been deleted and inserted in section 8 (1).A supply is taxable for VAT purposes if it is made in
“Uganda” by a taxable person for consideration as part of their business activities.
The amendment to section 4(c) now introduces the words other than exempt service. This section is
supplemented by a new provision in section 20A which states that an import of a service is an exempt
import for VAT purposes if the service would be exempt had it been supplied in Uganda.
Comment
1. The amendment to section 4 (a) and 18(1) does not change the current VAT treatment. VAT will be
chargeable on every taxable supply made by a taxable person in Uganda as it was previously.

5. 2. Including the words “other than exempt services” to section 4(c) removes the uncertainty that
surrounded imported services. Opinion has been diverse whether VAT was applicable or not. It is now
obvious that imported services listed in the exempt schedule are exempt from VAT at importation so
that reverse charge VAT will not apply.
Place of supply of goods
Section 15 of the VAT Act has also been amended. Previously goods have been deemed to be supplied in
Uganda for VAT purposes if they were delivered or made available in Uganda. An addition criterion has
been included. Goods are deemed to be supplied in Uganda if the goods are in Uganda when
transportation commences, if the delivery or making available of those goods, involves transportation. The
relevance of this provision stems from the fact that unless goods are deemed to be supplied in Uganda,
VAT obligations as spelt out in the Act do not apply.
Comment
1. It is possible that this provision is intended to cover situations where organisations set up facilities in
Uganda solely for purposes of storing inventory to be supplied to neighbouring countries. It was
previously possible to escape VAT obligations if the goods were not delivered or made available in
Uganda. With this amendment, if the delivery or making available of the goods involves transportation,
Uganda will be deemed the place of supply for VAT purposes even if the supplier is established
outside Uganda.
2. A second possibility would be that if goods are deemed to be supplied in Uganda, the zero rate for
VAT purposes would not apply even if the goods are exported outside Uganda. This does not appear
rd
to be correct on further consideration as the 3 schedule to the VAT Act continues to state that goods
are zero rated for VAT purposes if they are exported from Uganda. Goods are deemed to be exported
from Uganda if they are delivered to, or made available at, an address outside Uganda as evidenced
by documentary proof acceptable to the tax authorities.
Place of supply of services
Section 16 of the VAT Act has been replaced with a new provision. This sets out rules for establishing
when services are supplied in Uganda for VAT purposes. The significance of the new rules stems from the
fact that unless services are deemed to be supplied Uganda, VAT obligations as spelt out in the law do not
apply. The complexity of the new rules comes from their apparent intention to bring within the scope of
Ugandan VAT a range of services which are remotely provided, particularly via mobile phone or the
internet. Under the new rules services are deemed to be supplied in Uganda if:
1. The business of the supplier of the services is in Uganda
2. The recipient of the supply is not a taxable person and the services are physically performed in Uganda
by a person who is in Uganda at the time of the supply

6. 3. The recipient of the supply is not a taxable person and the services are in connection with immovable
property in Uganda
4. The recipient of the supply is not a taxable person and the services are radio or television broadcasting
services received at an address in Uganda
5. The recipient of the supply is not a taxable person and the services are electronic services delivered to
a person in Uganda at the time of supply.
6. The recipient of the supply is not a taxable person and the supply is a transfer or assignment of, or
grant of a right to use a copyright, patent, trademark or similar right in Uganda
7. The recipient of the supply is not a taxable person and the services are telecommunication services and
the supply is initiated by a person in Uganda at the time of the supply other than a supply initiated by a
telecommunication supplier or a person who is global roaming while temporarily in Uganda.
Comment
1. It appears the proposed amendment does not affect the application of the zero rate for VAT purposes.
Services will continue to be treated as zero rated for VAT purposes if they are supplied by a person
engaged exclusively in handling goods for exports at a port of exit or are supplied for use or
consumption outside Uganda as evidenced by documentary proof acceptable to the tax authorities.
2. Items 2-7 capture “retail” transactions received in Uganda by end-users from non resident businesses.
Such services are deemed to be supplied in Uganda if they are received by non registered/non
taxable persons in Uganda. The implication of this on non resident businesses is that they will be
obliged to register for VAT purposes in Uganda if they meet the VAT registration thresholds.
3. If the items in 2-7 are received by VAT registered/ taxable persons from non resident businesses, they
will retain the character of imported services and will therefore be accounted for under the normal
rules of accounting for imported services.
4. Revenue collection in respect of items 2-7 will depend on the ability of the URA to track and compel
the registration for VAT purposes of those service providers. The previous approach applicable to Pay
TV, radio, telephone and other communication services that compelled their representatives in
Uganda to account for the VAT on those services was quite efficient.
Registration for non resident persons
A new section (70A) has been introduced under which the URA can compel the registration for VAT
purposes of non resident businesses. If the non resident business does not have a fixed place of business
in Uganda, tax authorities may require the non resident taxpayer to appoint a VAT representative in Uganda
or, on failing appointment by the non-resident, appoint a VAT representative unilaterally.
Comment
1. This provision supplements the existent VAT law on the question of registration for VAT purposes.
Business making taxable supplies in Uganda and meeting the registration thresholds are obliged to
register for VAT purposes.
2. It remains to be seen how successful the tax authorities will be in tracking and compelling non resident

7. businesses to register for VAT purposes in Uganda.
Amendment of the exempt supplies schedules
Two items have been added to the list of exempt supplies:
• Ambulances, and
• The supply of power generated by solar
The supply of the following items is now subject to VAT at the standard rate of 18%:
• Biodegradable packaging materials;
• Motor vehicles or trailers of a carrying capacity of 3.5 tonnes or more designed for the transport of
goods.
• Residential property by way of sale.
Comments
1. A special rate of 5% was applicable to the sale of residential property under specified conditions until
2010. The sale of residential property is now subject to VAT at the standard rate of 18%. VAT however
does not apply on the letting or leasing of residential property. This change will give developers the
possibility to recover input VAT, but it will hit private individuals very hard as they will not be able to
recover the VAT charged.
2. The supply of power generated by solar is exempt from VAT. It remains to be seen whether
entrepreneurs will be moved by this exemption to start commercial generation of solar power.
3. Similarly, exempting solar power from VAT may not necessarily result in reduced prices. This is
because suppliers of these items will not be able to claim the input VAT they suffer in the course of their
business. Inevitably, the cost of this irrecoverable input VAT will be passed onto the buyer, so this will
not be as big a saving as it might at first sight have seemed.

8. 3 Value Added Tax (Amendment)
Regulations, 2011
Regulations are not subjected to Parliamentary debate and have the force of law as soon as they are
published by the relevant ministry. The provisions of these VAT regulations thus came into force with effect
from 1st July 2011.
Revocation of investment trader facility
The investment trader facility has been revoked. Under this facility, an investor who intended to make
taxable supplies in Uganda could apply to be registered as an investment trader for VAT purposes so that
they could be able to claim any input VAT suffered in the course of their set up operations.
Comment
This revocation has the potential to increase the cost of doing business in Uganda because business will
be unable to claim back input VAT suffered on their start up operations. This could have a major impact
on the economics of infrastructure projects with long lead times such as oil field development, railway
refinery and power station construction.
Relief for diplomats
Regulation 7 has been amended to bring it up to date. Diplomats and accredited personnel are entitled to
obtain VAT relief in case of services provided by utility services providers. The regulation previously
referred to defunct utility providers such as the Uganda Electricity Board and Uganda Posts and
Telecommunications Corporation. The regulation now refers to “persons providing utility services”.
Export of goods
Regulation 11 has been amended to give the URA the right to require the labelling of goods designated for
export.
Branch transactions
Regulation 13 has been amended to define the VAT treatment of branch and head office transactions.
Ugandan based branches will have to account for reverse charge VAT in respect of services provided by
the head office situated outside Uganda. The taxable value will be the arm’s length value of this transaction.

9. Comment
1. This amendment does not completely address the VAT treatment of transactions between a branch
and its head office. The position taken in the European Union is that a branch and its head office are
one entity. Therefore VAT does not apply on intra company transactions.
2. It is still not yet clear VAT would apply on transactions between a branch and head office both
situated in Uganda.
3. Nonetheless, in this regulation the URA affirms that services supplied by a head office outside
Uganda to a branch in Uganda are VATable.

10. 4 Income Tax (Amendment) Bill,
2011
There have been a number of changes proposed in the Income Tax (Amendment) Bill, 2011. These
changes aim to expand the tax base and clarify various provisions of the Act.
Definition of royalty
The definition of royalty in section 2 of the Income Tax Act has been expanded to include internet
broadcasting. The relevant definition now includes the use of, or right to use, or the receipt of, or right to
receive, any video or audio material transmitted by satellite, cable, optic fibre or similar technology for use in
connection with television, internet or radio broadcasting.
Comment
1. Payments made to non resident businesses providing internet broadcasting will be liable to
withholding tax at the rate of 15% or another rate stipulated by an applicable double tax agreement.
2. The internet is an important engine of economic growth. If this new tax on internet broadcasting
increases the cost of internet, this will have adverse impact on business.
Employee share acquisition schemes
The use of employee stock options has become an increasingly significant component of many employees’
compensation. Many companies use employee stock options to compensate, retain and attract employees.
The Income Tax Act introduces two amendments in section 19 and 6A regarding the taxation of employee
share acquisition schemes.
1. The value of a right or option to acquire shares granted to an employee under an employee share
acquisition scheme is now excluded from employment under section 19(2) (h).
Comment
1. A share option gives an employee a right to buy certain number of shares at a future date at a fixed
price. It would be absurd to tax an employee on mere receipt of a right to acquire shares. In several
other jurisdictions, the above does not crystallise a tax obligation especially where they are not regularly
traded.

11. 2. Section 6A guides taxpayers how to account for tax in respect of gains arising from the disposal of a
right or option to acquire shares. The interpretation and application of this amendment is likely to be
problematic unless the URA issues express guidance.
Employees whose employment income consists of gains from the disposal of a right or option to
acquire shares will not be subject to PAYE as provided by section4 (4). This section obliges an
employer deduct PAYE from the employee’s salary. There is no corresponding duty on the employees
to file tax returns unless they derived non employment income.
Comment
1. One may interpret this provision to mean that if the employment income of the employee includes
the above mentioned gains, section 4 (4) does not entirely apply. This would imply that the
employee would have to file own tax returns in respect of all the employment income as opposed to
the position under section 4(4) when PAYE is accounted for by the employer.
2. A second possibility would be that the employee would only have to file returns in respect of the
gains. Since this income inure
Income derived from agro processing exempt from tax
Section 21(z) of the Income Tax Act exempts income derived from agro-processing from tax and this has
been amended to make the conditions more stringent. It is interesting to note that since its introduction in
July 2008, this provision has been amended every year.
The amendment provides tougher conditions that taxpayers need to meet in order to enjoy this incentive.
The revised conditions are:
• the taxpayer or an associate of the person has not previously carried on agro-processing of a similar or
related agricultural product in Uganda;
• the taxpayer 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 taxpayer is issued with a certificate of exemption for that year of income by the Commissioner. This
certificate is valid for one year and but renewable annually.
Comment
1. This amendment contradicts the intention of the policy makers who proposed this incentive. The
category of taxpayers who will enjoy this incentive under the amended provision is very narrow.
2. It appears only new investments in agro processing are targeted. Existing investments do not
qualify.
3. A tax payer will similarly not enjoy this incentive regardless of investment in new plant and
machinery if any of their related parties has previously engaged in agro processing.

12. Definition of branch
The definition of the word branch under S.78 of the Income Tax Act has been amended. A branch now
includes a place where a person has or is using or installing substantial machinery or equipment for 90 days
or more. Previously no time limit was mentioned.
Comment
1. This is a useful clarification. Previously it was possible in theory to create a branch even if
equipment or machinery was used for only 1 day, which was not in line with international practice
and difficult to enforce. There remains uncertainty over what constitutes “substantial” however.
Royalty sourced from Uganda
Section 79(j) of the Income Tax relating to royalties being deemed to be sourced from Uganda has been
replaced. This amendment does not change the position of the law as it previously applied to royalties. The
new provision of the law when read together with section 2 (nnn) of the Income Tax Act provides an
unequivocal explanation of when income from royalties is deemed to be sourced from Uganda.
Comment
1. The previous provisions of S.79 (J) were repetitive when read together with section 2(nnn) of the
Income Tax Act. The amendment deletes those repetitive provisions.
Non resident persons providing communication services
Section 86(4) of the Income Tax Act has also been amended. Non resident persons who derive income in
respect of providing internet connectivity will be subject to 5% tax on the gross amount derived.
Previously, the rate of 5% applied only to non residents carrying on the business of transmitting messages
by cable, radio, optical fibre or satellite communication.
Anti treaty shopping provision
The amendment to S.88 (5) clarifies the circumstances under which tax payer may not benefit from the
provisions double tax agreements to which Uganda is party.
Comment
1. It is a generally acceptable principle of international law that treaties override domestic law. It is
questionable whether S.88 (5) in its current or proposed form can limit availability of treaty relief where
the requirements of the treaty itself are met. Please refer to our tax alert of 1/07/2011 for our in-depth
discussion on this.

13. Definition of petroleum
A definition of petroleum has been provided in section 89A for purposes of the provisions applicable to the
taxation of petroleum activities in Uganda. “Petroleum” means any naturally occurring hydrocarbons
including crude oil or natural gas, or other hydrocarbons produced or capable of being produced from
reservoirs and other substances produced in association with such hydrocarbons.
Comment
1. The Income Tax Act contains special provisions that are exclusively applicable to the taxation of
petroleum operations. The Act did not define petroleum. The definition of petroleum was found in the
Petroleum (Exploration and Production) Act and it was not clear whether that definition could be applied
for income tax purposes.
Non resident services contract
Though the law previously under section 121 of the Income Tax Act required taxpayers who entered into
service agreements with non resident persons to notify the URA within 30 days of entering into such
agreement, there was no sanction for breach of this obligation.
Criminal and civil sanctions have now been introduced. A taxpayer who does not notify the URA of this
contract will be personally liable for the tax due on the income arising under the contract. The criminal
sanction in the event of breach of this obligation will be a fine not exceeding Ushs 500,000.
Comment
1. The requirement to notify URA of the existence of a service contract with non resident was meant to
seal potential loopholes of tax evasion. What this amendment does not clarify is whether the civil
sanction would still apply if the taxpayer withheld and remitted the tax in respect of the service contract
to the URA but does not notify the URA of this contract within the 30 day period.
2. The criminal sanction will be imposed after prosecution and judgment by the relevant criminal courts.
This is strict liability offence. Courts will not inquire into the intention of the taxpayer but rather the
omission to notify the URA. It is therefore a straight forward matter for which the URA will easily obtain
a favourable judgement.
Tax Identification Number
Under an amendment proposed in section 135, the URA shall issue Tax Identification Numbers (TINS) to all
taxpayers and may require that taxpayers use the TINS on any notices or other documents used for tax
purposes in accordance with the provisions of the tax laws.
Comment
1. The URA will prescribe the categories of taxpayers who will be required to register and obtain
TINS.TINS will enable the URA trace and ensure that all incomes received by the taxpayers are duly

14. taxed.
Criminal sanctions
Criminal sanctions for non compliance of taxpayers in respect of information requests by the tax authorities
are to be introduced in section 140. A taxpayer who will not respond to a request for information from the
URA will be committing an offence and liable to a fine not exceeding Ushs 500,000.
Comment
1. The criminal sanction will be imposed after prosecution and judgment by the relevant criminal courts.
This is strict liability offence. Courts will not inquire into the intention of the taxpayer but rather the
omission to provide information to the URA. It is therefore a straight forward matter for which the
URA will easily obtain a favourable judgement.

15. 5 Stamp duty (Amendment) Bill, 2011
Exemption from stamp duty
Loan instruments for amounts not exceeding Ushs 2,000,000 have been exempted from Stamp Duty. It is
not clear how the URA will deal with schemes designed to take advantage of this exemption from Stamp
Duty. Ingenious taxpayers may split loans exceeding Ushs 2,000, 000 into smaller loan denominations.
Unlike other tax laws that give the URA power to recharacterise transactions whose main purpose is the
avoidance of tax, the Stamps Act does not have this provision.

16. 6 The Excise Tariff ( Amendment)
Bill, 2011
Illuminating kerosene
Excise duty on illuminating kerosene has been removed. Excise duty of Ushs 200 per litre of kerosene was
previously applicable.
Sugar
Excise duty per kilo of sugar has been reduced from Ushs 50 to Ushs 25.
Cigarettes
The rates of excise duty on cigarettes are determined mainly by reference to how the cigarettes are
packaged. Cigarettes are packaged as soft cup, hinge lid and other packaging that is neither soft cup nor
hinge lid. The soft cup is also referred to as the soft pack. It is essentially a pack of light paper construction
which offers less protection to cigarettes and is also less costly to produce. The hinge lid offers much
protection compared to the soft cup. It is usually a cardboard pack. Cigarettes not packed as soft cup or
hinge lid are classified as others.
• Excise duty on soft cup cigarettes which have 70% of its constituents being local content has been
increased from UGX 19,000 to UGX 22,000 per 1000 sticks.
• Excise duty on other soft cup cigarettes has been increased from UGX 21,000 to UGX 25,000 per 1000
sticks.
• Excise duty on hinge lid cigarettes has been increased from UGX 48,000 to UGX 55,000 per 1000
sticks.
• Excise duty on other cigarettes has been increased from 150% to 160%.

17. 7 The Finance(Amendment) Bill,
2011
Export of raw hides and skins
The levy on the export of raw hides and skins of animals has been increased from USD 0.4 to US 0.8 per
kilo. This is aimed at encouraging the industrial processing and utilisation of skins and hides within Uganda.
Publication of Practice Notes
The law now imposes an obligation on the URA to publish Practice Notes it issues in the Uganda Gazette.
Practice Notes ordinarily bind the URA. What this amendment does not clarify is whether the legality of
these Notes will be affected by non publication in the Gazette.
.

18. 8 The East African Community
Gazette No. 24 of 2011
Exemptions from import duty
The list of items exempt from import duty under the fifth schedule of the East African Community Customs
Management Act has been expanded to include;
• All goods, including materials, supplies, equipment, machinery and motor vehicles for the official use of
Partner States Armed Forces and police,
• Apron buses which are essentially used in Airports,
• Tsetse fly traps,
• Security equipment including hand held metal detectors, walk through metal detectors, CCTV cameras,
bomb detectors and under carriage mirrors,
• Battery operated vehicles for use in hotels, hospitals and airports.
By implication, the above items are also exempt from VAT at importation. The VAT Act exempts VAT at
importation of all those items that are exempt from import duty.
Duty remission schemes
Duty remission schemes provide a temporary reprieve from import duty of goods imported by
manufacturers in the East African Community for the manufacture of either goods for export or specified
goods for home consumption.

19. Items destined for Uganda which will benefit from a temporary reprieve from import duty are;
Road Tractors for semi trailers 0% rate of import duty for 1 year
Motor Vehicles for transport of goods with gross 0% rate of import duty for 1 year
vehicle weight exceeding 5 tones but not exceeding
20 tones
Motor Vehicles for transport of goods with gross 0% rate of import duty for 1 year
vehicle weight exceeding 20 tones
Hard Wheat (Wheat grain) 0% rate of import duty for 1 year
Hoes 0% rate of import duty for 1 year
Premixes used in the manufacture of animal and 0% rate of import duty
poultry feeds
Motorcycles ambulances with reciprocating internal 0% rate of import duty
combustion piston engine of a cylinder capacity not
exceeding 50 cc
Cathodes and selection of cathodes 0% rate of import duty for 1 year
Duplex boards 0% rate of import duty for 1 year
Inputs for the manufacture of solar panels 0% rate of import duty for 1 year
Component parts and inputs for assemblers of 0% rate of import duty for 1 year
refrigerators and freezers
Food supplements 0% rate of import duty for 1 year

20. Contacts
If you have any comment or query in respect of this publication, kindly contact;
Bill Page Denis Kakembo
Tel : + (256-414) 343850 Tel : + (256-414) 343850
Direct: + (256-417) 701000 Direct: + (256-417) 701000
Email : bpage@deloitte.com Email :dkakembo@deloitte.com
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