TAXES AND TAX ADMINISTRATION IN UGANDA

A tax is a compulsory contribution to state revenue, levied by the government on the tax payer’s
income and business profits or value added to the cost of some goods, services and transactions.

According to Rochmat Soemitro, taxes are the transition of wealth from the people to the state
treasury to finance routine expenditure and its surplus is used for public saving which is used to
finance public investment.

Taxes in Uganda are centrally assessed and collected by the Uganda Revenue Authority (URA)
headed by the commissioner general. Within the organizational structure of URA. There are
mainly two operational departments that is to say the Domestic Taxes department and the
Customs department which are headed by the commissioners and are directly responsible for the
assessment and collection of revenues resulting from tax laws for example Customs Tariff Act
Cap 337, Income tax Act Cap 340, Finance Acts, Excise Tariff Act Cap 338 and so many more.

Taxes in Uganda can distinctly be categorized as below:

 Direct tax
 indirect tax.

These taxes and their different methods and rates of administration are discussed in detail as
below.

DIRECT TAXES

These are taxes that are imposed directly on a person’s income arising from businesses,
employment, property and the burden of the tax is borne by the individual or the business entity.
They include: Corporation tax, Presumptive tax, Individual income tax, Pay As You Earn
(PAYE), Capital gains tax and rental income tax.

A. Income tax

this is tax that is imposed on a person’s taxable income at specific rates and is charged for each
year of income. Taxable income is derived from different sources but are further categorized
into:
 Individual income tax: this is imposed on all individuals engaging in income generating
activities.
 Rental tax: it is imposed on the total amount of rent derived by a person for the year of
income from the lease of immovable property that is to say land and buildings in Uganda.
 Withholding tax: is the tax that is withheld at source. It is an advance tax and as such it
must be declared by the tax payer in the applicable tax return such that it reduces the tax
liability of the period it relates to
 Corporation tax: it is imposed on all corporate entities engaging in income generating
activities.
 Pay As You Earn (PAYE): It is charged on the employee’s monthly incomes that is to say
for those earning more than 235,000/= and then it is remitted to URA.

Income tax administration.

1) Administration for individuals in business
The income tax rate for individuals depends on the income bracket in which the
individual lies. Resident individuals(citizens) enjoy a tax-free annual income
threshold of 2.820,000 per annum. The balance is then taxed at 10%, 20% or 30%
depending on the income bracket. Individuals who earn above 120,000,000 per
annum are taxed an additional 10% on the income tax above 120 million as shown
in the table below:

Table 1: Tax rate for individuals in business

Chargeable income CI Tax rate

(UGX) per annum
Residents Non-Residents
0- 2,820,000 NIL CI *10%
2,820,001-4,020,000 (CI-2,820,000) * 10% CI *10%
4,020,000-4,920,000 (CI -4,020,000) *20% (CI – 4,020,000) * 20%
+(120,000) + 402,000
4,920,000-120,000,000 (CI -4,920,000) *30% (CI -4,920,000) *30% +
+(300,000) 582,000
 Above 120,000,000 (CI -4,920,000) *30% (CI -4,920,000) *30% +
+(300,000) +(CI - (582,000) +(CI -
120,000,000) *10% 120,000,000) *10%

2) Administration for individuals in Employment

Employers are required by law to deduct tax from an employee’s salary or else
they become personally liable for the tax that should have been deducted. The
monthly PAYE rates of administration are shown below:

Table 2: Taxable income levels and rates

Chargeable income CI Tax rate

(UGX) per annum
Residents Non-Residents
0- 235,000 NIL CI *10%
235,000- 335,000 (CI-235,000) * 10% CI *10%
335,000- 410,000 (CI -335,000) *20% (CI – 335,000) * 20% +
+(10,000) 33,500
410,000-10,000,000 (CI -410,000) *30% (CI -410,000) *30% +
+(25,000) 48,500
Above 10,000,000 (CI -410,000) *30% (CI -410,000) *30% +
+(25,000) +(CI - (48,500) +(CI -
10,000,000) *10% 10,000,000) *10%

3) Tax Administration for Companies.

The income tax rate for a company for example a body of persons, corporate or
unincorporated created and recognized under the law in Uganda or elsewhere is
30% of the entity’s chargeable income that is to say the gross income less tax
allowable deductions.
4) Tax administration for small businesses.
Resident persons with a turnover of less than 50 million shillings are taxable at
presumptive rates as shown in the table below:

Table 3: Tax rates for small businesses

Gross Turn over per annum Tax

Not exceeding 5 million NIL
Exceeding 5m but not exceeding 20m 100,000
Exceeding 20m but not exceeding 30m The lower of 250,000 or 1% of gross
turnover
Exceeding 30m but not exceeding 40m The lower of 350,000 or 1% of gross
turnover
Exceeding 40m but not exceeding 50m The lower of 450,000 or 1% of gross
turnover

5) Administration on rental income derived by individuals

This is separately assessed from the individual other business incomes or
employment income. The tax is 20% of the rental income amount upon deduction
of the following:
 20% allowable expenses
 2,820,000 as a tax-free threshold

6) Withholding tax on payments to residents and non- residents

The obligation to withhold tax lies in the hands of the withholding agent who is
defined under the Act to describe any person required to withhold tax upon
making any payment to a payee. A payee is hence a person who receives a
payment from which the tax is required to be withheld. The tax rates are then
subjected to double taxation agreements and the tax withheld may be final or
creditable and as shown in the table below:
 Table 4: Withholding tax rates

Payment type Resident (%) Nonresident (%)

Management, technical and 6 15
professional fees
dividends 10 or 15 15
interest 15 or 20 15
rent Rental income 15
royalties Property income 15
Natural resource payments Property income 15
annuities Property income 15
Charterers (ship operators) Business income 2
Charterers (air transport) Business income 2
Road transport(cargo) Business income 2
Internet services Business income 5
imports 6 6
Supplies to government 6 6or 15

7) Administration to those reporting obligations

 Withholding tax returns including PAYE returns are files by the 15 th of the
month following the withholding.
 Final annual returns by individuals, companies, partnerships and trusts are
files within 6-month after the year end.
 Provisional annual returns by companies are filed within 6 months after
the accounting year, while individuals file the same within 3 months after
the accounting year.
B. Gaming Tax

Gaming means playing of a game of chance for winnings in money or money’s worth and for the
avoidance of doubt, includes gambling. Pool betting means any competition organized for gain
to the gambler, in a monetary or other material.
All gaming and pool betting business owners in Uganda are required to be registered with;

 Uganda Registration Services Bureau (URSB) for Company registration

 Uganda Revenue Authority (URA) for taxes
 Local council authority e.g., KCCA, municipal council, for a trading license

Upon registration, gaming and pool betting business owners are required to comply with the
requirements of statutory bodies like National Lotteries and Gaming Regulatory Board.

Gaming tax is imposed on every licensed promoter of gaming and pool betting within Uganda
and on every principal agent of every promoter of gaming and pool betting outside Uganda. It is
governed by the Lotteries and Gaming (Amendment) Act, 2023 and administered by Uganda
Revenue Authority (URA).

All tax payers that are registered under Gaming and Pool Betting are required to submit weekly
returns by Wednesday of the following week. After filing a return, one is required to pay the
resultant taxes using available payment platforms e.g., banks, mobile money, Master card, VISA,
EFT, RTGS, USSD Code (*285#) etc.

It is important to note that;

 The due date for payment of tax is the same as that of return filing.
 Any person who does not pay tax due on the due date shall, in addition to the outstanding
tax, pay interest equal to 2% of the outstanding amount for each week or part of the week
that the tax remains unpaid.

Administration of tax on Games.

i. Computation of Gaming Tax.

Total amount staked. Less: Payouts (winnings)

Chargeable Income *30%= Tax Payable by the Promoter.

 ii. Computation of Betting Tax.

Total amount staked. Less: Payouts (winnings)

Chargeable Income *20% = Tax Payable by the Promoter.

But Payouts (Winnings) attract 15% withholding as final tax. This is withheld by the promoter
before paying the respective winners.

iii. Pay As You Earn (PAYE)

Any gaming and pool betting business owner with workers/employees earning a monthly salary
in excess of 235,000 per month is required to register for Pay as You Earn (PAYE).

Withhold from the employees’ that earn a gross pay in excess of 235,000/= and then remit it to
URA, followed by its payment.

iv. Withholding tax.

This is a form of Income tax that is collected at the source. The Licensed Promoter of the betting
house is required to register for WHT, and also withhold from the winnings, before making any
payouts. It is regarded as a final tax to the winners. Withholding tax on Games were removed
effective 1st July, 2023.

INDIRECT TAXES
These are taxes levied on consumption of goods and services. They are not directly levied on the
income of a person. Instead, he/she has to pay the taxes along with the price of goods or services
bought by the seller. They are collected by an agent and they may include Value Added Tax,
excise duty, import duty among others.
They are discussed in detail as below:

1. Value Added Tax (VAT)

A tax on consumer expenditure and business transactions, collected on goods and services, and
imports.
VAT is a consumption tax charged at a rate of 18% on all supplies made by taxable persons that
is to say persons registered or required to register for VAT purposes. The threshold for VAT
registration is an annual turnover of UGX 50m or UGX 12.5m within 3 months of trading. Some
transactions are beyond the scope of VAT and these are classified as Exempt supplies that is to
say supplies on which VAT is charged at 0% are classified as zero-rated supplies.

Accounting for VAT

VAT becomes due depending on the time of supply. Under the VAT Act, a supply of goods or
services takes place when any of the following take place first;
1) A tax invoice is issued for the supply.
2) The goods are delivered.
3) The services are rendered.
4) The goods are made available.
5) The goods or services are paid for in whole or in part.
When any of the above takes place, the difference between VAT incurred by the person (input
tax) and the VAT charged by the person (output tax) is paid to, or claimed as an offset or cash
refund from the tax authority.

VAT reporting obligations

All taxable persons are required to file a return for every tax period (i.e., month) within 15 days
after the end of the month.

A transaction is within the scope of Uganda VAT if it subscribes to any of the below:
 a taxable supply made by a taxable person in Uganda.
 an import of goods other than an exempt import.
 an import of service other than exempt service.

2. Excise Duty
Excise duty is a tax on consumption of specified goods and services. It is collected to generate
revenue as well as regulate consumption of certain goods and services by making them slightly
expensive. It is also collected on imported items some of which can be manufactured in Uganda.
In this way, Government protects domestic industry from stiff competition of cheap commodities
imported into Uganda. Exported locally manufactured goods are exempt from excise duty.

Administration of Excise duty

It is administered under the Excise Act, 2014 while the changes in the rates of duty are listed in
the 2nd schedule of the Excise Duty Act 2014 of the Laws of Uganda as amended. This spell out
the excise duty rates chargeable on excisable goods and services. Excise duty rates can be ad
valorem or specific. Ad valorem rates are a fixed percentage assessed on the value of goods at
ex-factory price while specific rates are fixed amounts for each unit of a good or service sold,
such as cents per kilogram.

Excise duty is paid by the manufacturers of the specified locally manufactured goods when such
goods exit the manufacturer’s premises, by service providers on the date of provision of the
service or by importers at the time of import of an excisable good. Local Excise duty is payable
on the ex-factory price which includes raw material costs, direct labor costs, overhead costs, non-
production costs plus profit plus all selling and administrative charges; on the sales value of
airtime and talk time, internet data, money transfer, mobile money transaction and bank related
fees.

Under the following conditions, Excise duty may not be charged;

 Where the goods in question were destroyed accidentally by fire or other avoidable cause
while in the business premise.
 Expired or decants, spoilt which have been destroyed with the permission of the
Commissioner General.
 Exported goods with proper documents.

3. Customs Duty
This is a tax levied on goods imported (import duty) or exported (export duty) from Uganda at
specific or ad valorem rates. The East African Community Customs Management Act 2004
(EACCMA) is the legal framework for customs operations in Uganda and the region as a whole.
 A customs union exists between the East African Community States of Uganda, Kenya,
Tanzania, Rwanda and Burundi for the main purpose of promoting international trade between
the partner states. The union operates as a single customs territory and trading bloc with a view
to harness economic growth through a wider market for goods and services.

In order to achieve this, the partner states have agreed to;

1) Eliminate internal tariffs and non-tariff barriers that could hinder trade between the
partner states and thus facilitate formation of a single market and investment area. In this
regard, movement of goods produced within the constituent customs territories is duty
and quota free.
2) Harmonize policies relating to trade between the partner states and other countries. A
common set of import duty rates are applied to goods from non-partner states under a
Common External Tariff framework.

The main features of a Customs Union include the following:

 A common set of import duty rates applied on goods from non-partner states under the
Common External Tariff, (CET).
 Duty-free and quota-free movement of tradable goods among its constituent customs
territories. Common safety measures for regulating the importation of goods from third
parties such as Phyto-sanitary requirements and food standards.
 A common set of customs rules and procedures including documentation.
 A common coding and description of tradable goods (Common Tariff Nomenclature
(CTN)).
 A common valuation method for tradable goods for tax (duty) purposes (common
valuation system).
 A structure for collective administration of the Customs Union.
 A common trade policy that guides the trading relationships with third countries/trading
blocs outside the Customs Union i.e., guidelines for entering into preferential trading
arrangements such as Free Trade Area’s (FTA), with third parties.
Administration of Customs duty

Customs duty in Uganda is administered by the Uganda Revenue Authority (URA). Most
finished products are subject to a 25% duty, while intermediate products face a 10% levy. Raw
materials (excluding foodstuffs) and capital goods may still enter duty-free. Imported goods are
charged a value-added tax (VAT) of 18% and a 15% withholding tax, which is not reclaimable.
Combined, these taxes effectively charge a 33% tax on all foreign goods and services. Imports
are also charged a 1.5% infrastructure tax to finance railway infrastructure development. Uganda
has also recently passed a 5% Digital Services Tax (DST) on non-resident foreign businesses,
effective retroactively from July 1, 2023

Documents for importation of goods

The following import documents may be required for purposes of making a declaration to
customs:

 A Bill of lading or airway bill.

 An insurance certificate.
 Pro-forma invoices.
 Commercial invoices.
 A Certificate of Origin.
 Permits for restricted goods.
 Purchase order.
 Parking list
 Sales contract
 Any other supporting documents.

Valuation of imported Goods

Goods imported into the country from without the EAC must be valued for taxation purposes i.e.
a customs value must be determined. The customs value forms the basis for computation of
customs duties which include import duty, Value Added Tax, Withholding tax, Excise duty and
other duties e.g., environmental levy. Applicable tax rates are defined in the Customs External
Tariff.

Goods are valued using the following methods adopted by GATT (General Agreement on Tariff
and Trade) and applied chronologically

 Transaction value.
 Transaction value of identical goods.
 Transaction value of similar goods.
 Deductive value.
 Computed value.
 Fall back value.

4. Local Service Tax

A tax levied on individuals in employment, paid to the Town Council where one resides. This is
a tax levied on wealth and incomes of all persons in gainful employment, self – employed and
practicing professionals, self-employed artisans, business men/women and commercial farmers.

Administration of local service tax

Local Service Tax (LST) in Uganda is administered by the Local Governments (Amendment)
(No.2) Act of 2008, which allows local governments to levy, collect, and charge additional taxes
to provide new sources of revenue for local governments. The LST is levied on the wealth and
income of the following categories of people:

 Persons in gainful employment

 Self-employed and practicing professionals
 Self-employed artisans
 Businessmen and businesswomen
 Commercial farmers
The LST is collected by the employer and remitted to the respective local governments and
municipalities where the employee resides during the period of employment. The tax is paid in
four equal installments during the financial year, with the financial year running from July 1st to
June 30th. The LST is assessed and paid on the basis of an assessment, and each taxpayer is
required to keep evidence of their LST payment and are as shown in the table below:

Table 5: Tax rates for persons in Gainful employment and earning a take-home salary.

Amount of monthly income earned (in shs) Rate of LST (in shs) per year
Exceeding 100,000/= but not exceeding 200,000/= 5,000
Exceeding 200,000/= but not exceeding 300,000/= 10,000
Exceeding 300,000/= but not exceeding 400,000/= 20,000
Exceeding 400,000/= but not exceeding 500,000/= 30,000
Exceeding 500,000/= but not exceeding 600,000/= 40,000
Exceeding 600,000/= but not exceeding 700,000/= 60,000
Exceeding 700,000/= but not exceeding 800,000/= 70,000
Exceeding 800,000/= but not exceeding 900,000/= 80,000
Exceeding 900,000/= but not exceeding 1,000,000/= 90,000
Exceeding 1,000,000/= 100,000

5. Social Security Contributions:

These refer to the mandatory payments made by employees and employers to the National Social
Security Fund (NSSF). An individual in employment is obligated to make a contribution of 5%
of one's gross earnings to the national social security fund, and an individual who is an employer
is also obligated to make contributions to the national social security fund for each employee,
amounting to 10% of their gross pay.

Administration of the social security contribution.

Social security contributions in Uganda are administered by the National Social Security Fund
(NSSF) and are mandatory for all employees in the private sector, regardless of the size of the
enterprise or the number of employees. Employees contribute 5% of their gross monthly cash
emoluments, and employers add 10%. The NSSF also receives voluntary contributions from self-
employed persons and top-ups on mandatory contributions
The contributions are invested and provide annual returns in the form of interest to its members,
and they also process prescribed benefits for qualifying members. The contributions are used to
provide benefits such as retirement benefits, disability benefits, and survivor benefits.

6. Lump sum tax

When a lump sum is paid to an employee, the normal monthly income should still be taxed
according to the monthly tax tables, and a separate annual tax calculation should be done. The
tax on the lump sum payment should be computed based on the employee's annualized
employment income. For example, if an employee receives a severance payment, only 75% of
the gross lump sum amount is subject to tax. All other types of lump sums or irregular payments
are fully taxable.

7. Deadweight tax

The deadweight tax is a tax that results in a loss of economic efficiency. It is essentially the loss
of economic well-being that occurs when the equilibrium quantity of a good or service is not
maximized due to the imposition of a tax. The deadweight loss from taxation is typically
represented by the area of the triangle between the supply and demand curves that are no longer
traded due to the tax.