STUDY GUIDE FOR

ELEMENTS OF

TAXATION FOR

DBA/DPSM/CBA/CA

F YEAR TWO

SEMESTER ONE
 TAXATION AND TAX ADMINISTRATION
Taxation is a process of tax collection and tax administration, therefore a tax is a compulsory
non quid proquo payment by the public to the government whose returns are not known.
Alternatively, a tax refers to a compulsory levy imposed by the government upon assesses of
various categories.
EVOLUTION OF INCOME TAX IN UGANDA
 Initially tax was introduced in east Africa by colonialists through institutional system
of compulsory public works such as road construction, building, and forest clearance
among others.
 In 1900, hut tax was introduced in Uganda.
 The government introduced a poll tax that was imposed on all male adults.
 In 1919, the first tax legislation was introduced under the local authorities ordinance.
 Income tax was introduced in Uganda in 1940 by a protectorate ordinance; it was
mainly payable by Europeans and Asians and later extended to Africans.
 In 1953, there was an introduction of graduated personal tax to finance local
governments.
CANONS/DOCTRINES/PRINCIPLES OF TAXATION
1. Principle of equity. This means that the taxes charged should be fair to all tax payers.
This simply means the tax rate should change with the changes in people’s incomes.
Basically there are two types of equity and that is.
i) Vertical equity. Under this people who are earning more incomes should be
taxed more than the poor. That is the rich should pay more than the poor.
ii) Horizontal equity. Under this people who are in the same income bracket
should be tax similarly.
2. Principle flexibility. That it is the tax charged should change with the changes in
economic activities or tax payer’s income.
3. Principle of comprehensiveness or diversity. Taxes should cover a wider base in order
to raise much revenue by the government.
4. Principle of simplicity. The mode of collection, and the mode of payment should be
well understood by both the tax collectors and tax payers to avoid tax evasion and
avoidance.
5. Principle of productivity. Taxes should be able to yield maximum revenue so as to
finance government expenditure.
6. Principle of economy. The cost of collecting taxes should be very low compared to
the revenue realized. They should not exceed 5% of the total revenue realized.
7. Principle of convenience. The taxes should be collected at the period when the tax
payer is willing and able to pay, so as to avoid tax evasion and avoidance.
8. Principle of ability to pay. Taxes should be charged according to the ability of tax
payer to pay them.
9. Principle of neutrality/ impartiality. The taxes should not discriminate among the tax
payers, they should fair to all tax payers.
 10. Principle of no double taxation. That is a tax base should not be taxed twice so as to
leave people with enough incomes to live a reasonable standard of living.
11. Principle of certainty. The time of payment and method of payment should be certain
to the tax payers.
FEATURES/ CHARACTERISTICS OF A GOOD TAX SYSTEM
1. It should be certain. That a good tax its period of payment and the date of payment
should be known to the tax payers.
2. It should be convenient. A good tax should be collected at time when the tax payers
are a convenient to pay.
3. It should be economical. That is the cost of tax administration, assessment and the
collection should be low.
4. It should be equitable. The burden of payment should be fair to all tax payers
according to income brackets.
5. It should be neutral/ impartial. That is it should not discriminate among tax payers.
6. It should be simple. A good tax should be easily understood and easily calculated by
both the tax payers and tax collectors.
7. It should be elastic/ flexible. It should change with the changes in the economic
activities which are prevailing.
8. It should be productive. Should be able to encourage efforts and hard work and should
not discourage investment.
9. It should be comprehensive. In that it should have a wider base in order to raise much
revenue from it.
10. It should be consistent. In that it should be in line with the national objectives of
development.
REASONS FOR LEVYING TAXES
Reasons why the government levies taxes
The socio- economic reasons as why the government levies taxes on its citizens and may
include the following:
1. To raise revenue for recurrent and development expenditure. Taxation is undertaken
to raise government revenue to enable her meet her recurrent and development
expenditures such as payment of wage, provision of infrastructures and provision of
public utilities and goods.
2. For the purpose of reducing disparities/differences in the distribution of incomes,
taxation is carried out by the government in order to reduce the income gap between
the rich and the poor and this through progressive taxation system.
3. To discourage consumption of harmful products. This through taxing highly such
commodities which makes the prices of such commodities to increase and this makes
consumers not to buy such commodities.
4. To protect infant domestic industries. This is through imposing high tariffs on
imported goods and this reduces their importation, which gives room for demanding
locally produced commodities.
 5. To control demand pull inflation. This is through progressive taxation system in
which peoples incomes are taxed highly and this reduces the purchasing power of
consumers hence reducing aggregate demand.
6. To control dumping. This is through imposing high taxes on imported dumped
commodities so as to avoid their importation.
7. To improve on balance of payment position. This is through taxing highly imported
commodities in order to reduce import expenditures as well as charging low tariffs on
exports.
8. To control monopoly. This is through taxing highly the profits of monopolists, which
reduces profitability as well as forcing them to move out of production.
9. To encourage infrastructural development. The revenue realized from taxation is used
by the government to construct infrastructures such as roads, hospitals, schools which
are essential for economic development.
10. To regulate economic activities. This means during economic boom high taxes are
charged and during economic depression low taxes are charged.
THE ROLE OF TAXATION IN THE DEVELOPMENT OF AN ECONOMY
1. Raises revenue for recurrent and development expenditure. Taxation helps to raise
government revenue to enable her meet her recurrent and development expenditures
such as payment of wage, provision of infrastructures and provision of public utilities
and goods.
2. Reduces income disparities/differences in the distribution of incomes. This is through
progressive taxation where the rich pay more taxes than the poor.
3. Discourages the consumption of harmful products. This through taxing highly such
commodities which makes the prices of such commodities to increase and this makes
consumers not to buy such commodities.
4. Protects infant domestic industries. This is through imposing high tariffs on imported
goods and this reduces their importation, which gives room for demanding locally
produced commodities.
5. Controls demand pull inflation. This is through progressive taxation system in which
peoples incomes are taxed highly and this reduces the purchasing power of consumers
hence reducing aggregate demand.
6. Controls dumping. This is through imposing high taxes on imported dumped
commodities so as to avoid their importation.
7. Improves on balance of payment position. This is through taxing highly imported
commodities in order to reduce import expenditures as well as charging low tariffs on
exports.
8. Controls monopoly. This is through taxing highly the profits of monopolists, which
reduces profitability as well as forcing them to move out of production.
9. Encourages infrastructural development. The revenue realised from taxation is used
by the government to construct infrastructures such as roads, hospitals, schools which
are essential for economic development.
10. Regulates economic activities. This means during economic boom high taxes are
charged and during economic depression low taxes are charged.
CLASSIFICATION OF TAXES
Taxes may be classified according to
i) To proportion of one’s income
ii) According to incidence of tax
A. CLASSIFICATION ACCORDING TO INCOME.
i) PROGRESSIVE TAX
This is a tax whose rate increases as one’s income increases. In that as the
income increases also the tax rate increases. Like individual income taxes.
Under this the high income earners pay more taxes than the low income
earners.

ii) REGRESSIVE TAX

This is a tax whose rate reduces as one’ income increases and increases as
one’s income reduces. Like value added tax. In this system the low income
earners pay more taxes than the high income earners.

III) PROPORTIONAL TAX

This is a tax whose rate is constant irrespective of the level of income. Like
corporation tax. It means that the tax rate does not change with the level of
income.

IV) DIGRESSIVE TAX -This is a tax whose rate first increases as one’s income
increases and reaches a certain point and it becomes proportional with income.
Like advorelem tax.

CLASSIFICATION ACCORDING TO INCIDENCE OF TAX.

Incidence of a tax is the final resting position of a tax. It means who bears the tax burden last.
Impact of a tax. This is the first resting place of a tax. Who bears the tax burden first?
Taxes are classified according to incidence of a tax as either direct or indirect taxes
DIRECT TAXES
These are taxes levied on the incomes or wealth of an individual or a business and whose
burden cannot be shifted from one taxpaying entity to another.
FEATURES OF DIRECT TAXES
The burden of the tax is not shifted from one taxpaying entity to another
They are levied on either incomes or property.
They vary with financial status of the tax payer.

FORMS OF DIRECT TAXES

i) Income taxes. These are taxes levied on incomes of individuals or firms. Like
individual income taxes collected under the PAYE system.
ii) Capital gains tax. This is a tax levied on fixed assets whose value has increased
from the time of their purchase to the time of sale.
iii) Profit tax/ corporation tax. This is a tax levied on the profits of the business in a
given trading period. In Uganda corporation tax rate is 30% of the total profits
made.
iv) Death tax/ estates duty. This a tax levied on the property of the deceased person.
v) Gift tax, this is a tax levied on the gifts of an individual.
vi) Rent tax. It’s a tax levied on the rent incomes received by either an individual or a
company. For an individual the rent tax rate is 20% of the gross chargeable
income and for a company the rent tax rate is 30% of the gross chargeable income.
Advantages of direct taxes
1. They are elastic. They change with the changes in people’s incomes and this helps to
yield much revenue.
2. They are convenient. They are collected at appropriate time a tax payer has got
incomes. Like individual income tax is collected when they are paying employees.
3. They control income inequalities. This is because they are progressive in nature
meaning that the rich pay more than the poor.
4. They provide government revenue. This is through taxing people’s incomes as well as
property.
5. They are economical. The cost of collecting and administering direct taxes is very low
like individual income taxes are collected by employers on behalf the tax authority.
6. They help to control inflation. In that progressive taxes help to reduce the purchasing
power of individual which tend to reduce demand pull inflation.
Disadvantages of direct taxes
1. They are not comprehensive. This is because they cover a narrow base and that is
incomes of individuals and wealth and this reduces government revenue.
2. They discourage savings and investment. This is because high direct taxes leave
individuals with less income to be saved and invested thus limiting capital formation.
3. They reduce people’s standard of living. This is because much of incomes are paid as
taxes, which makes people not to access the required goods and services.
4. They discourage hard work. This is because much of people’ incomes are highly
taxed more especially through the progressive taxation system.
 5. They are unpopular to the masses. The public people hate direct taxes and this erodes
the image of the government in power.

INDIRECT TAXES/ CONSUMPTION TAXES/ OUTLAYS/EXPENDITURE TAXES

These are taxes levied on goods and services and their incidence can be shifted from one
taxpaying entity to another. Like a producer can shift tax to a consumer inform of price
increases for goods and services.
Features of indirect taxes
1. They are levied on goods and service
2. They are included in the prices of goods and service
3. Their incidence can be shifted from one person to another.
FORMS OF INDIRECT TAXES
1. Sales tax. This is a tax levied on sales of a business.
2. Excise duty. This is a tax levied on locally manufactured goods and services.
3. Customs duty. This is a tax levied either on imports or exports of a country. Customs
tariffs can either be import tariffs levied on imports of a country or export tariffs
levied on exports of a country.
4. Value added tax. This is a tax levied on value added on a commodity at different
stages of production. The VAT was introduced in Uganda in 1997 to replace sales tax
and commercial transaction levy. The VAT rate in Uganda is 18%.
5. Octori tax. This is a tax charged on goods and services of a country passing through
the boundaries of another country.
6. Advorelem tax. This is a tax levied as a percentage of value of a commodity.

Advantages of indirect taxes

1. They are more convenient to the government. This is because their collection and
administration is simple to the tax collectors on behalf of the government.
2. They are more flexible. This is because they can be easily varied to meet desired
objectives of the government.
3. They promote hard work. Indirect taxes promote hard work in an Endeavour for a
consumer to meet the high prices caused by taxes to meet the standard of living.
4. They assist in improving balance of payment position. Indirect taxes inform of import
tariffs discourages the importation of goods and services which help to improve on
the balance payment position.
 5. They are difficult to evade and avoid. This is because they are included in the final
prices of goods and services.
6. They safe guard the public from consumption of undesirable commodities. This
through imposing high indirect taxes on such commodities to discourage their
production and consumption.
7. They are politically popular to the public. This is because they are not easily felt by
the public since they are included in the final prices of goods and services.
8. They protect infant domestic industries. Indirect taxes inform of customs duties on
imports discourage importation of goods and services which help to prevent
competition of imported commodities with locally produced commodities.
Disadvantages of indirect taxes
1. They are inflationary in nature. High indirect taxes can easily spark off inflation since
they are included in the final prices of goods and services.
2. They may lead to trade malpractices. High indirect taxes may lead to malpractices in
trade like smuggling.
3. They tend to be regressive in nature. This means they are unfair to low income
earners, since they pay more taxes than the rich people.
4. They result into low standard of living. Since they make prices for essential goods and
services so high which affects people’s standard of living.
5. They increase the costs of production. This may force some firms to close since they
cannot afford some basic inputs of production like raw materials.
REASONS TO WHY THE GOVERNMENT PREFERS INDIRECT TAXES TO
DIRECT TAXES
1. Indirect taxes yield higher revenue since they cover a wider economic base than direct
taxes which target a few economic bases such as income and wealth of businesses and
individuals.
2. Indirect taxes are very difficult to avoid and evade since they are included in the final
price for goods and services unlike direct taxes which can be easily avoided and
evaded since they are levied on incomes and wealth of the business.
3. Indirect taxes are more economical in terms of collection and administration since
they are collected by agents on behalf of the government unlike direct taxes which
involve high costs of collection and administration.
4. Indirect taxes are neutral to all tax payers, implying that they do not discriminate
among tax payers unlike direct taxes which are discriminative in nature.
5. Indirect taxes are more convenient to tax payers since they are not paid in lumpsum
unlike direct taxes which are paid in lump sum.
6. Indirect taxes are more flexible since they can be easily adjusted with the prevailing
economic conditions unlike direct taxes which depend on the set tax rates.
7. Indirect taxes are politically popular to the public since theyare less feltand
areincluded in the final prices of goods and services unlike direct taxes which are
politically unpopular since they are levied directly on people’s property, income and
wealth.
INCOME TAX AMENDMENTS AS AT 1ST JULY 2019
A. The Income Tax (Amendment) Bill, 2019: Key reforms Definition of a beneficial owner
The bill seeks to define a "beneficial owner' as a natural person who owns or has a controlling
interest over a legal person other than an individual, and who exercises control over the
management and policies of a legal person or legal arrangement directly or indirectly whether
through ownership or voting securities, by contract or otherwise. The proposal seems
intended to limit the tax benefits (tax exemptions and reductions) under Uganda's tax treaties
to natural persons that are tax resident in the treaty countries.

Ring fencing of rental income

The bill proposes that a person who earns rental income from more than one rental property
accounts for the income, expenses and tax for each of the properties separately. The proposals
will work to ensure that a taxpayer with several rental properties does not offset tax losses in
one building from other buildings.

Income tax exemptions for investors

The bill has proposes to alter the exemptions that were made in 2018 by exempting, for 10
years, income from letting or leasing facilities derived by developers of free zones whose
investment capital is US$50 million as well as any other person carrying on business whose
investment capital is US$10 million for a foreigner and US$2 million in fora citizen.

Exclusion of financial institutions and insurance companies from interest capping

provisions
The bill proposes to exclude financial institutions and insurance companies from the interest
capping provisions on group companies. Currently, the interest deducted by a member of the
group of companies should not to exceed 30% of the tax EBITDA.1

Introduction of tax payable by a lossmaking person

Where a person has carried forward tax losses for a consecutive period of seven years, it is
proposed that said person pays tax at a rate of 0.5% on the gross turnover for every
subsequent year it continues to carry forward tax losses.
Withholding tax (WHT) on the purchase of a business or business asset by a resident person
The amendment proposes withholding tax of 6% on the purchase of a business or business
asset bya resident person.

TIN requirement for issuance of a license by Government

The bill proposes non-issuance of a license by any government body to a person without a
Taxpayer Identification Number (TIN).

Reduction of WHT tax rate for long-term government securities

The bill proposes a reduced tax rate of 10% on government securities whose maturity period
is at least 10 years.
B.Value Added Tax (Amendment) Bill, 2019 Reduction of withholding VAT rate to 6%
The bill proposes to reduce the advance withholding VAT rate from 18% to 6% of the taxable
value. The bill also proposes to exempt compliant taxable persons from withholding VAT.

Regulations for Islamic financial transactions

These Regulations are to be formulated and gazetted by the Minister of Finance.

Proposed supplies to be exempt from VAT

 Aircraft insurance services
 Rice mills and agricultural sprayers
 The supply of services to conduct a feasibility study and design
 The supply of certain services and locally produced to technical or vocational institute
operators whose investment capital is at least US$1 Om in the case of a foreigner or
US$2m in the case of a citizen
 The supply of drugs and medicines
 The supply of imported mathematical sets and geometrical sets used from technical
and vocational education
 The supply of wood working machines
 The supply of welding machines and sewing machines
Exclusion of drugs and medicines not manufactured in Uganda from the zero-rate
regime
The supply of drugs and medicines manufactured in Uganda is zero rated.

C.Excise Duty (Amendment) Bill, 2019

Excise Duty Regulations for Islamic financial transactions
These are to be made in the course of Islamic financial transactions.

Registration of importers and providers of excisable supplies

The bill proposes registration of importers, manufacturers and providers of excisable goods
and services and their corresponding premises, failure of which will attract a fine of
UGX400,000 (US$110) for each day of default.

Reduced excise duty rates for certain items

 Non-alcoholic beverages, not including fruit or vegetable juice, from the current 12% or
UGX200 per liter whichever is higher to 11 % or UGX185 per liter whichever is higher.
 NIL excise duty on materials for technical or vocational institute operators whose
investment capital is at least US$10 million fora foreigner or US$2 million for a
foreigner.
D.The Stamp Duty (Amendment) Bill, 2019
Schedule 2 to the Principal Act, is amended as follows:
 To impose stamp duty of UGX100,000 on bank guarantees, insurance performance
bonds, indemnity bonds and similar debt instruments
 To repeal stamp duty on insurance performance bonds
 To exempt from stamp duty various instruments by a technical or vocational institute
operator whose investment capital is at least US$10 million in the case of a foreigner or
US$2 million in the case of a citizen
E. The Tax Procedures Code (Amendment) Bill, 2019
Ministry of Finance to pay taxes due and payable by Government
 The Minister shall pay any tax due and payable by the Government arising from any
commitment made by the Government to pay tax on behalf of a person or owing from the
Government as counterpart funding for aid-funded projects.
 All taxes due and unpaid by the Government as at 30 June 2019 shall be waived.

Waiver of penalty for a taxpayer who voluntarily discloses the commission of an offence
The bill proposes removal of any interest or fine due from a person who has committed an
offense under a tax law and voluntarily discloses the commission of the offense to the
Commissioner, and agrees to pay the outstanding taxes.

Payment of informers
The bill proposes payment of 5% of the principal tax or duty recovered to a person who
provides information leading to the recovery of a tax or duty of 5%. This is a reduction from
the current 10%.

Specifying tax returns to be filed

For clarity, the bill stipulates the tax returns to be filed with the Commissioner General.
These are: Valued Added Tax; Income Tax; Withholding tax; Excise Duty; Tax returns under
section 50 ofthe Lotteries and Gaming Act, 2016; and Stamp duty.

TIN required for any government license

A proposed amendment to section 135 states that a local authority, government institution or
regulatory body shall not issue a licence or any form of authorisation necessary for purposes
of conducting any business in Uganda, to any person without a Taxpayer Identification
Number (TIN).
This is aimed at widening the tax net as all persons carrying on any trade would be expected
to be tax registered
TAX ADMINISTRATION
BACKGROUND OF TAX ADMINISTRATION
Until 1990/ 91 financial year the tax administration of taxes was under 3 departments i.e the
income tax department, consumer’s department and in land revenue department. These
departments were under the ministry of finance whose final authority resided in the high
court for purpose of modification and enforcement of law.
Later in 1991 government passed a bill where URA a semi-autonomous body was formed to
administer taxes in Uganda. However, tax policies i.e. the tax laws are the responsibility of
the Ministry of finance.
URA administers taxes through for operative departments and some service departments and
these include;
 a) Internal revenue
b) Custom and excise
c) Value added tax department
d) Large tax payer’s unit
e) Expansion and collection tax department.

Tax administration is an approach established by a country to manage its taxes. It is a

component of the tax system that ensures that tax laws are effectively enforced. It involves
basically five major tasks that include: -
1. Identification of Taxpayers
This is one of the major aspects of the tax administration, it usually happens at the beginning
of the whole process of tax administration with preparation of tax registers.
2. Tax Assessment
This is another key aspect of tax administration which involves ascertaining or estimating a
person’s tax liability.
3. Collection of Taxes
This involves collecting taxes from the taxpayers. This task is the commonest among, in-fact
some people think that it’s the only one that is done by the tax administrators.
4. Sensitization of Taxpayers
• This involves educating tax payers as a means of shaping their attitude towards tax. It is
basically to inform them Why taxes are paid, how they are paid, when they are paid, who
pays them, and what is paid.
5. Monitoring Systems
• There are systems in place to ensure that the process of tax administration is carried out
effectively, these systems need to be monitored.

Class Activity: -
Question:
a) What Problems Are Faced in Tax Collection and Administration.
b) How can the above mentioned challenges in (a) be addressed?
Problems Faced in Tax Collection and Administration.
• Rampart smuggling
• Poor culture of tax compliance and a high level of tax evasion
• There is a high level of government expectations.
• Large subsistence and informal sector.
• Delays in tax clearances.
• Very poor standard of business management and record keeping amongst the business
community.

What URA is doing to increase tax collection

 Massive taxpayer sensitization and education on tax policy changes.
 Strengthen international taxation (multinationals) function.
 Expand taxpayer registration and expansion programme outside greater Kampala.
 Expand rental registration outside Kampala.
 Automated information exchange and enforcement collaboration between Ministries,
departments and agencies within greater Kampala.
 Implement joint compliance campaign for fast-growing priority sectors with high revenue
contribution.
 Fully implement the single customs clearance.
TAXATION CONCEPTS
1. Tax evasion; this is the deliberate refusal by the tax pay to be levied. Thisis illegal and
criminal.
2. Tax avoidance; this is where a tax payer utilizes the loopholes within the tax system to
escape a tax or pay less. This is not illegal.
3. Tax Burden/ real burden; this refers to the actual effect of a tax on an economic agent.
4. Tax incidence; this refers to the final resting effect on a tax i.e determining who bears the
real burden of taxation or tax effects on the distribution of income.
5. Tax base; this refers to the economic activity upon which a tax is imposed.
6. Taxable capacity; this refers to the ability of the tax payer to pay the tax imposed and
remain in the same economic condition is accustomed to.
7. year of income: this is a period of 12 months ending 30th June
8. Substituted year of income: is a period of 12 month ending on the date other than
30thJune.
9. Transitional year of income: is a period of less than 12 months that falls between the
person’s previous accounting and the new accounting date.
10. Person. This may mean an individual, body of corporate, a company, a partnership, a firm
upon which taxes are levied.

INCOME TAX
Income
Income constitutes benefits, rewards, gains, profits, favors, compensations, emoluments etc
that arise out of a transaction(s), a set of activities or out of a relationship. There are three
main recognized sources of income for income to tax purposes, which include the following;
i) Employment income,
ii) Business income,
iii) Property relationship.

Income Tax
Income tax is a compulsory levy on a person’s income. Income tax is a portion of a person’s
income that is paid to government or a central authority as tax upon generation of income It is
a directly, levied on individuals and entities, usually imposed on their benefit ,gains, rewards,
compensations, emoluments etc.

PERSONS LIABLE FOR TAX

The income tax act 1997 section 9 to 14 defines the persons to include an individual,
partnership, a trust, a company and a retirement fund.
Resident individual (section 9)
An individual is a resident individual in the year of income if that individual
a) Has a permanent home in Uganda. A permanent home does not mean a permanent
house. It can even be under a tree as long as there is physical evidence that someone
resides there.
b) Is present in Uganda of or periods amounting in aggregate to 183 days or more in any
twelve –months period that commences or ends during the year of income.
c) Is present in Uganda during the year of income and in each of the two preceding
years income for periods averaging more than 122 days in year of income.
d) Is an employee or official of the government of Uganda posted abroad during the year
of income.

Resident company (section 10)

A company is a resident company for the year of income if it;
a) Is incorporated or formed under the laws of Uganda.
b)Has its management and control exercised in Uganda at any time during the year of
income.
c) Undertakes the majority of its operations in Uganda during the year of income.

Resident trust (section 11)

A resident trust means that;
a)The trust is established in Uganda.
b)The trustee of the trust is a resident person during the year of income.
c)The management and control of the trust is carried out in Uganda at any time during the
year of income.
Resident partnership (section 12)
In relation to a partnership a resident means that at any one time during the year, a partner in
the partnership was a resident person.
Resident retirement fund (section 13)
A retirement fund is a resident retirement fund if it
a)Is organized under the laws of Uganda.
b)Is operated for the principal purpose of providing retirement benefit to resident individuals.
c) Has its management and control exercised in Uganda at any time during the year of
income.

Non –resident persons (section 14)

A person is a non –resident if that person is not a resident person.

EXEMPT INCOME
This is income not subject to tax. It is covered under section 21(1) of the income tax act and it
includes;
1. The income of listed institutions. Listed institutions are mentioned in the first schedule
and they include , African Development Bank, East African Development Bank, Aga
Khan Foundation, Civil Aviation Organization, IMF, United Nations related agencies,
etc.
2. The income of nay organization or person entitled to privileges under the diplomatic
privileges act to the extent provided in the regulations and orders made under the act.
3. The official employment income derived by a person in the public service of the
government of a foreign country provided that (a) The person is either a non –resident
person or is a resident individual solely for reason of performing such services. (b) The
income is payable from the public funds of that country. (c )The income is subject to tax
in that country.
4. The income of an exempt organization other than (a)Property income, except rent
received by an exempt organization in respect of immovable property which is used by
the lessee exclusively for the activities of the organization. E.g rent collected by National
Council of Sports from Lugogo indoor stadium is not categorized as property income for
income tax purposes. On the other hand if Makerere University rents out its hall or some
of its lecture theatres to those organizing wedding receptions, music festivals, disco
performances etc then such rent will be taxed.
5. Any education grant which the commissioner is satisfied with had been made beneficial
to enable or assist the recipient to study at a recognized educational or research
institution. The direction to decide on which institution is recognized is vested in the
commissioner general of URA.
6. Any amount derived by way of alimony or allowance under any judicial order or written
agreement tax act.
7. Interest payable on treasury bills or bank of Uganda bills is now taxable following
amendments in the income tax act.
8. The value of any property acquired by gift, bequest, devise or inheritance that is not
included in business, employment or property income .Bequest means anything that one
leaves to somebody else when he dies.
9. Any capital gain that is not included in business employment or property income.
10. A lump sum payment made by a resident retirement fund to a member of the fund or a
dependent of a member of the fund.
11. The proceeds of a life insurance policy paid by a person carrying on a life insurance
business.
12. The official employment income of a person employed in the armed forces of Uganda,
the Uganda police force or the Uganda Prisons Service.
13. A pension.

INCOME FROM EMPLOYMENT

Employment
Employment can be defined as a legal relationship between a master and -a servant whereby
servant is rewarded for the services rendered to his/her master.

Employment Income:
Emp1oyent income refers to any income derived by an employee from employment.
Employment income therefore includes cash, any benefit, advantage or gain accruing to an
employee incidental to his employment.

Sources of Employment Income

 Employment income for income tax purposes include the following items whether
revenue or capital nature:
 Any wages, salary leave pay, payment in lieu of leave, overtime pay, fees, commission,
gratuity, bonus or the amount of any traveling, entertainment, titles, Cost of
living,housing, medical or any other allowances constitute employment income.
 The value of any benefit provided in kind under section 20(1)(b)) OF THE Income Tax
Act 1997 constitute employment income.
 Any amount derived as compensation on termination of any contract of employment
constitutes employment income in respect of the terminated employee.

EMPLOYMENT INCOME
• Employment income - Defined
(Sec.19(1))
Sub Sec 1, is subordinate to the entire section(19) and defines employment income generally
to mean any income derived by an employee from any employment and includes amounts as
detailed in that sub sec, whether of a revenue or capital nature.
Question.
1. Who is an employee?
&
2. What is employment?
Answer.
1. An employee is defined under S.2(x) to mean an individual engaged in employment.
&
2. Employment is defined under S.2(z) to mean
i. The position of an individual in the employment of another person.
E.g. the holder of the position of Manager Collections in the finance department of URA is
deemed an arrangement of employment under this paragraph.
Case law substitutes the word employment with office as in the case of GWR v. Barter
(1920) &Tc 231 where Justice Rowlatt said , “ a permanent substantive position which has an
existence independent of the person who filled it , which went on and was filled in succession
by successive holders...”.
Answer.
2. Employment is defined under S.2(z) to mean…
ii) The directorship of a company. Note the difference between directors and subscribers.
While a subscriber may be a director, not all directors are subscribers and the reverse is also
true for subscribers.
iii) A position entitling the holder to a fixed or ascertainable remuneration. E.g. all staff in the
rank of officer in URA are entitled to a fixed/ascertainable(1.9m) remuneration, or
iv) The holding or acting in any public office. E.g. councillors under any local government
will fall under this umbrella.
• Employee vs. Independent Contractor/ Self employed.
Qn.
What are the tenets of employment?
Or
What distinguishes Henry a professional accountant engaged as manager Financial
accounting in company X from Godfrey a practising accountant running his own accounting
firm?
• Employee vs. Independent Contractor/ Self employed.

Solution.
 The principle test of an employment as opposed to self-employment is the existence of a
contract of service (Employment) compared with a mere contract for services
(independent contractor).
 The determination of whether an individual is an employee or independent contractor will
for example involve considering whether the hirer has the legal right to control the
manner in which the work is performed and the degree of integration of the activities of
the persons hired within the hirer’s business.
However in the absence of a contract of service, if the answers to the following are in the
affirmative then it is likely that the arrangement is that of employment as opposed to self-
employment. These questions/principles have been handed down to us by case law.
 Does the employer control the manner and method of the work?
 Is the employee entitled to benefits normally provided to employees such as sick leave
and leave pay?
 Is the employee committed to working for a specified number of hours at certain fixed
times e.g 8am to 5pm?
 Is the engagement for a long time? Is the person hired on a continuous basis? This should
be studied together with other factors.
 Does the individual provide their own tools/equipment in furtherance of their work
assignments e.g. laptops?
 Is the individual obliged to work personally and exclusively for the employer and cannot
therefore hire his/her own helpers?
• Is the work performed by the individual an integral part of the business of the
employer and not a mere accessory to it? e.g. is determination of tax liability an
integral part of officers in URA or a mere accessory to its business.
 Does the individual provide their own tools/equipment in furtherance of their work
assignments e.g. laptops?
 Is the individual obliged to work personally and exclusively for the employer and cannot
therefore hire his/her own helpers?
Is the work performed by the individual an integral part of the business of the employer and
not a mere accessory to it? e.g. is determination of tax liability an integral part of officers in
URA or a mere accessory to its business
 Is the economic reality of self-employment missing- i.e. the financial risk arising from not
being paid an agreed , regular remuneration? Or better put is the individual ascertained of
a regular and agreed remuneration?
 Is the employer under obligation to offer work and the employee under obligation to
undertake work offered/? An employee would not normally be in a position to decline
work when offered.
 Treatment of income from employment and that of an independent contractor.
Income from employment will be treated as employment income under S.19.
Whereas;
Income from an independent contractor will be treated under S.18, and therefore takes the
character of business income.
EMPLOYMENT INCOME INCLUDES
1.Any wages, salary, leave pay, payment in lieu of leave, overtime pay, fees, commission,
gratuity, bonus or the amount of any traveling, entertainment, utilities, cost of living, housing,
medical or other allowance.
2.The value of any benefit granted.
3. Any amount reimbursed to or discharged on behalf of an employee by an employer which
is not for the benefit of the employer’s business.
4. Any amount derived as compensation for termination of any employment contract whether
contractual or not.
5. Any amount paid by a tax-exempt employer as premium for the life insurance of an
employee or his or her dependants.
6. Any amount derived by an employee as consideration of a change in employment terms or
any other conditions of employment.
7. Any gain arising from the employee’s share acquisition scheme either from the grant of
shares or the right or option to acquire the shares when the shares are transferred or the
receiver exercises the right or option to acquire the shares.
8. The amount of any gain derived by an employee on disposal of a right or option to acquire
shares under an employee share acquisition scheme.
• Illustration on shares
• On 1 July, 2014, Mugisha an employee is granted an option by his employer company to
acquire 200 shares under an employee share acquisition scheme. The exercise price is
Shs.5,000/= per share which is the market value of the shares at the time the option is
granted. The employee pays Shs.40,000/= for the option. On 1 st February, 2015, he
exercises the option of the paying Shs.1,000,000/= for the shares. At the time the option
is exercised the market value of the shares is Shs.6,000/= per share.
• The benefit from this employee share acquisition scheme is:-
• (200 x 6,000) – ([200 x 5,000] + 40,000)
1,200,000 – (1,000,000 + 40,000) = 160,000.

Please Note;
• Alternatively, if instead of exercising the option, Mugisha sold the option on 1st February,
2015 for Shs 100,000/=. In this case Shs.60,000/= (i.e. 100,000 – 40,000) is
included in employment income.
• If the employee subsequently decides to sell the shares for Shs.1,500,000, then a gain of
300,000/= (1,500,000 – 1,200,000) will be assessed.
9. Private Use of a Motor Vehicle
• This benefit arises if the employer provides the employee with the use or availability to
use a motor vehicle wholly or partly for the private purposes of the employee.
• The formula for determining the value of the benefit derived from use of motor vehicles
is:-
(20% x A x B/C) – D

Where;
A= Market Value of the motor vehicle at the time it was first provided for
private use of the employee.
B= Number of days in the year of income during which the motor vehicle was used
or available for use for private purposes by the employee for all or part of the day.
C= Number of days in the year of income.
D= Any payment made by the employee for the benefit
Illustration:
DIDI is employed by Mukwano enterprises and is availed a vehicle for use for both
employment duty and private purposes. The vehicle was purchased on 01/01/2013 at a cost of
Ushs.40 million. He used the vehicle for 300 days (excluding 65 days of annual leave) in the
year 2015. He was also charged a nominal monthly figure of Ushs.15,000/= for the benefit by
the employer.
Required: What is the chargeable benefit for the year of income 2015?

10. Provision of Domestic Assistant / Servants

• These would ordinarily in include housekeepers, chauffeurs or drivers, gardeners, security
guards, etc.
• The value of the benefit is the total remuneration paid by the employer to the domestic
assistant in respect of services rendered to the employee less any payment made for the
benefit by the employee
11. Meals, Refreshments or Entertainment
• Where an employer provides meals, refreshments or entertainment, the taxable value is
the cost of benefit to the employer less any contribution or payment made by the
employee for the benefit. We shall later on highlight circumstances when this benefit may
be tax exempt.
12. Utilities
• This includes facilities like water, sanitation, telephone, e-mail and internet facilities,
facsimile, electricity etc. The value of the benefit is the cost of providing the utility by the
employer less any payment made by the employee for the utility.
• Specific Benefits
13. Low Interest Loans
• An employee will derive a taxable benefit known as “loan benefit in kind” if he / she is
provided by the employer with a loan or loans whose (total) amount exceeds one million
shillings and with no interest or at an interest rate below the statutory rate.
• The value of the benefit is the difference between the interest that would have been paid
on the loan if the interest rate (charged) was the statutory rate and the interest actually
paid on the loan (if any) during the year of income.

13. Low Interest Loans

Example :
Mr. Musisi is employed by Kudu Co. Ltd. He received a housing loan for the year of income
2015 amounting to Shs.10 million at a nominal rate of interest of 5% per annum. Given a
statutory rate of 13%, the loan benefit in kind will be:
(10,000,000 x 13%) – (10,000,000 x 5%) = 800,000
14. Waiver of Debt Obligation
• Where an employer decides to waive a debt wholly or partly, the actual relief granted is
the value of taxable benefit.
15. Transfer or Use of Property or Provision of Service 
• Where an employer transfers a property to the ownership of an employee or avails such
property to the employee’s use or provides any service, the value of the benefit is the
market value of the property or services reduced by payment made by the employee for
the property or service.
16. Housing or Residential Accommodation (Quarters)
An employer can provide quarters in kind in three main forms:-
i) Houses directly owned by the employer.
ii) Houses let by the employer on behalf of the employees.
iii) Re-imbursement of rental expenses. 
In case of (iii), the benefit is the amount of the re-imbursed rental expenses, while
In case of (i) and (ii), the value of the benefit will be the lesser of:- 
a) The market value (rent) of accommodation or housing reduced by any payment made by
the employee for the benefit, or,
b) 15% of the employment income (paid by the employer to the employee), including the
market value of accommodation or housing (determined in (a) above).
Illustration on Accommodation
An employee with total employment income including all benefits other than housing
quarters of Shs 20 million for the year 2014 is given accommodation by his employer. The
house has an annual market rental value of Shs.5 million, but he was paying a monthly
nominal rental of Shs 30,000/= during the period of occupancy.
Required: What is the housing benefit for the year of income?
• Exemption
Please note that not all employment income is taxable!! The ITA, Cap 340 specifically
exempts certain incomes from taxation.

TAX EXEMPT EMPLOYMENT INCOME

1. The cost of passage to and from Uganda incurred by the employer in respect of
appointment and termination of employment of certain employees recruited outside Uganda.
2. The re-imbursement or discharge of an employee’s medical expenses
3. Life insurance premiums paid by a taxable employer for the benefit of an employee of his
or her dependants
4. An allowance, or re-imbursement or discharge of expenditure incurred by an employee on
accommodation and travel expenses and on meals and refreshments while traveling in the
course of performing duties of employment.
5. The value of any meal or refreshment provided by an employer to an employee in say a
canteen, cafeteria or dining room operated by or on behalf of the employer solely for the
benefit of employees on equal terms i.e. without any discrimination.
6. Any benefit received by employee from an employer whose value is less than Shs.10,000/=
in a given month.
7. A (taxable) employer’s contribution for the benefit of the employee or any of his or her
dependants made to a retirement fund.
8. Employment income of a person working in a public service of the government of a
foreign country.
9. Allowance payable outside Uganda to persons working in Uganda foreign mission.
10. Employment income derived under a technical assistance agreement where ;
i) An individual is a non-resident or a resident solely for the purpose of performing
duties under the agreement , and
ii) The minister has concurred in writing with the tax provisions in the agreement
11. Official employment income of persons employed in Uganda Defence People’s Forces,
Uganda Police Force, the external Security Organisation, the Internal Security Organisation
or the Uganda Prisons Service, other than a person employed in these organizations in a Civil
Capacity.
12.Relief of 25% on terminal benefits for employees who have served the same employer for
at least 10 years.
13. Income of any person entitled to privileges under the Diplomatic Privileges Act to the
extent provided in the regulations and order made under that Act e.g. Diplomats accredited to
Uganda.
14. A lump sum payment made by a resident retirement fund to a member of the fund or a
dependant of such a member.
15. Any educational grant which the Commissioner-General of URA is satisfied has been
made bona fide to enable or assist the recipient (an employee) to study at a recognized
educational or research institution.
16. Emoluments payable to employees of the East African Development Bank with effect
from 1st July 1997.
17. Tax free amount or threshold of UGX 235,000 per month for all employees.
18. Any amount derived by way of an alimony or allowance under any judicial order or
written agreement of separation.
19. Pension
20. The proceeds of a life insurance policy paid by a person carrying on a life insurance
business.
21. An award received by a sports person as a reward for winning or participating in a sports
competition.
22. Emoluments of MPs, other than the basic pay.

• Deductions allowable under Employment income.

The following are deductions allowable to an individual whose gross income includes only
employment income;
S.22(1) (a) provides the general rule. “ there shall be allowed as a deduction , all expenditure
and losses incurred by the person during the year of income to the extent to which the
expenditures or losses were incurred in the production of income included in gross income.”
S.22(1) (d) Local Service Tax paid by an individual
• Non allowable deductions for Employment income.
S.22(2)(a) any expenditure or loss incurred by the person to the extent to which it is of a
domestic or private nature. Read with S.22(3)
S.22(2)(i) a contribution or similar payment made to a retirement fund by the employee either
for the benefit of the employee or for the benefit of any other person e.g. NSSF employee
contribution.
Resident individual – monthly rates

Non-Resident individual – monthly rates

 • Employment example
Mr. Thomas Hassler is a German national recruited by Airtel (U) Ltd and is in Uganda solely
for the purpose of fulfilling his employment tasks. He has been in the country for only the last
15 months ending 31/12/2016. The terms of his employment are:
i. A monthly salary of Ugx 2,500,000
ii. He stays in the company house worth a market value of Ugx 300,000 per month of
which Hassler pays no consideration.
iii. He uses a company vehicle for private and company business. Its on weekends that
Hassler uses the car valued at Ugx 30 millions for private work.
iv. An allowance of Ugx 200,000 for his mobile phone bills for private calls per month.
v. Employment example
The terms of his employment-Ctd
v. School fees for his four children to an international school, each at Ugx 500,000
per term.
vi. Electricity and water bill paid at ugx120, 000 per month of which Hassler pays Ugx
100,000 per annum in consideration for this benefit.
vii. He took a loan from Barclays Bank of Ugx 5,000,000 at 15% per annum. The
company meets the interest that accrues due to the loan.
viii. Annual bonus of 20% of the monthly salary, payable once in December.
ix. Life insurance worth Ugx 170,000 a month.
Required: Determine Hassler’s Taxable income and Tax liability for the month of
December 2016

PAYE ADMINISTRATION
EMPLOYER’S OBLIGATION
• Withholding:
To deduct the correct tax at the time of effecting payment to every liable employee
• Payment:
To pay the total tax by the 15th day of the month immediately following the month in
which emolument was paid.
• Accountability:
Account for the tax deducted to every employee on a monthly basis.
• Maintenance of Employees’ Records:
To maintain records and keep them for inspection by URA on demand for at least five (5)
years

• EMPLOYEE’S OBLIGATION
Employees deriving income from more than one source are required to complete an end of
year return to declare:
a) Total income from all sources, including business income.
b) Total taxes paid at source such as PAYE, Withholding tax or provisional tax. This
excludes presumptive tax and rental tax paid by such employee.
c) Tax payable.
• EMPLOYEE’S RIGHTS
EMPLOYEE’S RIGHTS
An Employee:
a) Is not required to furnish a PAYE return if tax is fully deducted and paid at source.
b) Is entitled to claim refund of over-paid tax where applicable.
c) Is entitled to accountability for all taxes deducted and paid at source by the employer.
d) Is not required to furnish a return of income if his or her only source of income is
from employment.

WHAT HAPPENS IF TAX IS NOT PAID?

An employer who fails to withhold and pay the tax as required by law is personally liable to
pay the tax together with any penal tax and interest thereon.

BUSINESS INCOME
Defined
S.2(j) refers to definition of business income to section 18.
S.18(1)
“Business income means any income derived by a person in carrying on a business and
includes the following amounts, whether of a revenue or capital nature”.
Question;
What is business?
• Badges of trade
Solution;
The badges /criteria / tenets of trade provide answers to the above question.
They are:

Section of the Act defines business at “Anytrade, profession, vocation or adventure in the
nature of trade, but does non-include employment”. This definition of business provided
bysection 3 provides a wider scope than its ordinary commercial meaning.
Business income according to section 19(1) includes any income derived by a person in
carryingon a business, whether capital or revenue in nature.

A profession
It is an activity that involves the uses of skills usually acquired over along period of academic
trading e.g an accountant, an engineer a teacher, a doctor and an accountant.

A vocation
Is simply a calling or something one does because he/she has special fitness for it e.g boxing,
football, signing. Etc.

An adventure
Is a daring and normally a very risk undertaking one does. Sometimes it may be associated
with magic e.g floating on very fast running water in Bujagali falls, climbing mountains etc.
Incomes from business
1. Gains that arise on disposal of business assets or on the satisfaction or cancellation
of a business debt, which was revenue or capital in nature, constitute business income.
2. Amounts received by a person as consideration for accepting a restriction on the person’s
capacity canyon business, aretreated as business income.
3. Gross proceeds/sales derived by a person from the disposal of trading stock constitute
business income.
4. The value of any gifts derived by a person in the course of or by virtue of past, present or a
prospective business relationship, constitutes business income.
5. Interest derived in respect of nude receivables or trade debtors or by a person engaged in
the business of banking or money lending constitutes business income.
6. Rent income derived by a person whose business is wholly or mainly the holding or letting
of property. Eg. commercial and residential house, vehicle, construction machines etc.
constitutes business income.
7. Any amount included in the business income under the Act, in any other section other than
section 19 (1).

CHARACTERISTIC OF TRADE
Is there a trade carried on? In most cases, it has been difficult to establish whether there has
been a trade carried on or not. The following points have been used as a guide to resolve this
question:
1. Profit seeking motive — If it can be established that in the purchase and sale of an asset,
there was a profit seeking motive, this is enough evidence for trade to have existed. The
three yardsticks used are:
i) Purchase for family use: If the purchased asset was much beyond the family requirement
and was resold at a profit, then there was a profit seeking motive and trade
ii) Purchased for pleasure or pride: No trade, but purchased to yield an income i.e.
investment then there is a profit seeking motive
iii) Purchase for resale at profit is a trade.
2. The way in which the asset was acquired: An article need not be purchased, it may be
inherited or by way of gift, either of which will indicate there was no view to sell for profit.
3. Nature of asset: Here we look at whether an article is purchased for personal use or as
investment to produce an income or for the pleasure it gives. Shares, jewellery, paintings, etc.
are normally purchased for motives other than that of selling at a profit, but not always.
4. Assets may be made more attractive to potential customers: If modification or even
processing in form of purchasing something as a raw--material, if marketable, any attractive
packaging or high renovation before sale, there is a profit and trade motive carried on.
5. The interval between purchase and sale: The shorter this interval is the higher the
possibility of an intention of trade is presumed.
6.The number of transactions (frequency): The number of transactions a person carries on
in a similar line is an indicator of trade.
7.The way in which the sale is secured: When the sale is secured by way of advertising and
soliciting customers, a trade is presumed.
8.Trading interest in the same or similar field: Interest in a similar field could indicate
trade. However a trader can hold an asset similar to his stock in trade as a private investment.
9.Method of financing: a person, who borrows more than he could normally afford to pay
with the aim of purchasing an asset, did so with the aim of financing the asset to be sold at a
profit.
10.Destination of the proceeds of sale: When the proceeds are retained for use in the similar
transaction, there is trade, and when it is invested and appears there is no need to require for
further use, there is no trade.

DEDUCTIONS ALLOWABLE FOR TAX PURPOSES

1.Expenses which were wholly and exclusively incurred in order to produce revenue, are
charged against the Gross Profit amount. The expenses should satisfy both the remoteness
and duality tests. Allowable deductions include the following items:
2. Any loss on disposal of business asset whether capital or revenue in nature during the year
of income is treated as an allowable deduction.
3. Expenditures on meals, refreshment and entertainment ate allowable as business expenses
under the following circumstances:
Meals and refreshment which are taken while undertaking, travel in course of performing
duties of employment.
Meals and refreshments are provided to employees within employers premises or those
operated by a third party on his behalf, which meals and refreshments art forsole benefitof
employees on equal terms.

Where the person’s business is the provision of meals, refreshments and entertainment and
such facilities have been provided to other persons (customers) at payment or arm’s length
consideration, then the cost of providing such meals, refreshment and entertainment is taken
as an allowable deduction.
Where meals were provided as benefits to employee for their private or domestic
consumption and included in their gross employment income.
4. Specific bad debts written off are allowed as expenses incurred in the production of
income.
i. Included in the person’s income in anyyearof income.
ii. The debt must have resulted out of businessoperations.
iii. The debt could have resulted out of money lent in ordinary course of business carried out
bya financial institution e.g. banks and other credit institutions.
iv. The business concern must have taken all reasonable steps Fu recover die said debt,
butfailed so that the amounts are allowed to be written off as haul debts.
Discussion Question:
What are the implications of a recovery of previously written off bad debt?

5.The Interest expenditure incurred during The year in respect of a debt obligation, only to
the extent that the obligation has been employed to generate income included in his gross
income.
6. Repairs: The cost of revenue or routine repairs of property occupied or used by a person in
the generation of income is allowed as a deduction/expense.

7 Minor Capital Equipment: A person is also allowed a deduction, on expense incurred

during the year of income to acquire a minor depreciable asset whose cost is less than one
hundred thousand shillings (100,000/=). This provision applies to a depreciable asset,(i.e
whose value should be written off as an ordinary expense), which functions on its own right
and it not an individual item which fonts part of a set.
8. Legal and professional fees
9. Premiums paid on short leases.
10. Damages and compensations.
i. Subscriptions paid or payable to professional and trade association, which
associations are important to enable the business generate revenue.
ii. Employees emoluments /remuneration

13. Startup Costs or Preliminary Expenses

These are costs incurred on formation of a company or any other entity. They include costs
incurred to enable on entity come into existence. A deduction is allowed for startup costs, at a
rate of 25% on a straight basis.

14. Intangible Assets

Intangible assets include, good will patent rights, trade marks, brand names etc which have
an ascertainable useful life, a capital deduction is allowed on such assets in each year of
income.
l5. Charitable Donations
A donation or gift made during a year of income is allowed as a deduction if such gift or
donation is made to any of the following organization:
1. Religious, institution.
2. Charitable organization.
3. Educational institutions of a public character.
4.Amateur sporting associations.

However the value of donations allowed as deductions should not exceed 5% of the business
taxable income, cacu1ated before taking into account the donation.
16. Carry Forward Losses
This treatment of any forward losses similar to that practiced in Financial Accounting
difference lies in the adjustments done prior to derivation of the loss. A loss realized the
previous year is allowed as a deduction in the current year of income.

Deductions not allowed for tax purposes:

(i) Depreciation
(ii) Losses or expenditure incurred on private/domestic activities.
(iii) Any expenditure or loss incurred of a capital nature
(i) Any expenditure recoverable under any insurance, contract or indemnity
(ii) Income tax payable in Uganda or a foreign country.
(vi) Any income carried to a reserve fund or capitalized.
(vii) The cost of a gift made to an individual and it was included an individual’s gross
income.
(viii) Any penalty/fine paid for breach of law.
(ix) A contribution made to a retirement fund by the employee either for his benefit
or for the benefit of any other person.
(x) A premium made to a person carrying on a life Insurance business.
(xi) The amount of a pension paid to any person.
(xii) Any alimony paid under any judicial order or written agreement of separation.
(xiii) The cost of education of a person not directly relevant to a person's employment
or business and cost of education leading to a degree.

Expenditure of domestic nature refers to;

(i) The cost of maintaining a person, his/her family, and his/her residence.
(ii) The cost of commuting from the person's residence to work and vice versa.
(i) The cost of clothing worn to work
(iii) The cost of educating a person in a field not relevant to his/her employment or
business and the cost of education leading to a degree whether it’s relevant or not.

CAPITAL DEDUCTIONS
These are deductions in respect of qualifying capital expenditure. The purpose' capital
deductions is to enable a taxpayer recover the qualifying capital outlay period of time depending on
the nature of the capital expenditure. Capital deductions the equivalent of depreciation.

Qualifying Capital Expenditure

The following are the qualifying capital expenditure:
 Expenditure on plant and machinery.
 Expenditure on industrial buildings.
  Expenditure on mining operations.
 Expenditure on farm works.

Types of Capital Deductions/Allowances

(a) Wear and Tear.
(b) Initial Allowance.
(c) Industrial building deductions.

(i) Wear and Tear

This is a capital deduction allowed in respect of depreciable assets which are plan machinery.
Depreciable assets are those that are allowed depreciation as explained I

Depreciation
A person is allowed a deduction for depreciation of the person's depreciable assets c the year
of income as calculated in accordance with this section. A person is all deduction for
depreciation of the person's depreciable assets, other than an asset the cost base of which does
not exceed UGX 1,000,000 (with effect from 1st July; during the year of income as calculated
in accordance with the provisions in the Act

Conditions of claiming Depreciation 3

• The asset must be owned by the taxpayer.
• It must be used for the purpose of business or profession;
and
• It should be wholly or partly used during the relevant
accounting period.

CLASS ASSET INCLUDED DEPRECIATION

RATE
i Computers software package, computers, and Data handling 40%
DEPRECIATION
material. RATES FROM DEPRECIABLE ASSETS

ii Automobiles: Buses and Minibuses with seating capacity of 35%

less than 30 passengers, goods vehicles with load capacity of
less than 7 tons, construction and earth moving equipment.
iii Buses with seating capacity of 30 passengers or more, goods 30%
vehicles with a load capacity of 7 tons or more, specialized
trucks, tractors, trailers, and trailer mounted containers, plant
and machinery used in farming, manufacturing or mining
operations.

iv Rail road cars, locomotive and equipment vessels, burgers, 20%

tugs and similar water transportation equipment, aircrafts,
specialized public utility plant, machinery and equipment,
office furniture, fixtures and equipment plus any other
depreciable asset not included in another class.
How Depreciation is worked out
Take the written down value (WDV) of the pool at the end of the preceding year of income.
Add the cost base of the asset added to the pool during the year of income.
Deduct the consideration received from the disposal of assets in the pool during the year of
income.
Assuming the result obtained from above is A. Apply the formula A x B where B is the
depreciation rate applicable to the pool.

The amount computed as A, when negative (where the total sales proceeds exceeds the total
of WDV of the pool at the end of the previous year and the cost base of the additions during
the year of income) is treated as income for the year of income i.e. the depreciation rate is not
applied.
Format of Wear and Tear schedule with initial allowance
Class of asset1st Class 2nd Class 3rd Class 4th Class

WDV (b/d)
Additions
Initial
allowance
Disposals
Wear and Tear
WDV (c/d)

Non-Commercial Vehicle
Commercial vehicle is defined as:
 A road vehicle designed to carry leads of more than half tone or more than passengers;
or
 A vehicle used in a transportation or vehicle rental business.

Therefore, a non-commercial vehicle is one which does not fit the above definition.
The cost of non-commercial vehicle (luxury vehicle) for purposes of Wear and Teas
restricted to UGX 30,000,000. If the vehicle cost more than UGX 30,000,000 then 1 person is
deemed to have bought two separate assets; i.e. a depreciable asset of U 30,000.000 and a
business asset whose cost is the difference between the actual cost c the UGX 30,000,000.
This business asset is assumed not to depreciate and is not include anywhere for depreciation.

(ii) Initial Allowance/Investment deductions

A person who places an item of eligible property into service for the first time during the year
of income is allowed a deduction for that year of income an amount equal to:
 50% of the cost base of the property within the prescribed areas of Kampala, Jinja,
Entebbe, Njeru and Namanve.
 75% of the cost base where the asset is placed in service outside the prescribed areas.
 A person who places a new industrial building in service for the first time during the year
of income is allowed a deduction for that year of an amount equal to 20 of the cost base
of the building at the time it was placed in service.
Eligible property is defined as plant and machinery wholly used in the production of in
concluded in gross income but does not include:
 Goods and passengers transport vehicles;
 An Appliance of any kind ordinarily used for household purposes;
 Office or household furniture, fixtures and fittings.

N.B: With effect from 1 July 2003, items in class I assets sorted to attract Initial allowance.
The initial allowance is deducted from the actual cost of an asset to arrive at the cost base that
is added to the pool during the year of income.

ii) Industrial Building Deductions

1. Capital deduction in respect of industrial building is called Industrial Building
Deductions (IBD).
2. The IBD rate is 5% on straight -line basis.
3. Expenditure on improvement/extension of an industrial building is considered as a
construction of a separate industrial building.
4. Capital expenditure incurred on acquisition of right over land on which an industrial
building is constructed, does not qualify for IBD. However, expenditure on preparing the
site or foundation of an industrial building qualifies for IBD.
5. The IBD must never exceed the cost; i.e. the residual value should never be a negative
figure.
6. Where an industrial building is bought and sold together with land, the value of land is
the difference between total consideration and the residual value.

NB: The initial allowance (Industrial Building) is not available for Commercial building!
Remember that commercial buildings are also defined as industrial buildings. Allowances for
Industrial Buildings are provided on a straight line basis. This is not the case for plant and
machinery, which are given on declining balance basis (after deducting Wear and Tear)
Practice Question 2
Kasese Ltd is a manufacturing company producing steel products. The Company is located
in Kabalore and has been in business since 2005. A summary of its financial results for the
year to 31st December 2017 is as follows:
 Income Notes Ushs’000
Sales 6,600,000
Other income 600,000
Total income 7,200,000
Expenditure: 380,000
Finance costs
Staff expenses 1 580,000
Depreciation 157,000
Repairs and Maintenance 106,000
Subscriptions 2 9,000
Legal fees 3 19,000
Advertising & Publicity 4 220,000
Insurance for business purposes 23,000
Training new staff 25,000
Other tax allowable expenses 105,000
Total Expenses 1,624,000
Net Profit for the year 5,576,000

Additional Information:
Kasese’s assets had the following Tax Written Down values as at 1st January 2017.
Shs ‘000
Class I 210,000
Class II 400,000
Class III 4,200,000
Class IV 1,460,000
They own an industrial building at Written down value of 826,000,000
During the year the following expenditure was incurred:-
More manufacturing machines were installed at the cost of shs.43, 000,000/=
Three computers each costing 2,000,000/= were purchased
Furniture worth shs. 3, 200,000/= was bought
During the same year the following were disposed off:-
Old furniture was sold to staff at shs. 1,540,000/=
There was an extension of the factory building which costed shs 476,000,000/
Notes:
1. Staff expenses are analyzed as follows:
Shs.’000
Salaries Wages 250,000
NSSF Company Contribution 120,000
NSSF staff contribution 60,000
Staff PAYE 150,000
Total 580,000
2. Subscriptions include Shs 5,500,000 which relates to the subscription of the Senior
Managers of the Company to Kabalore Golf Club and no Pay As You Earn was paid on
them. The balance relates to subscription to Kabalore Manufactures Association

3. Legal fees are comprised of Shs. 16,500,000 which was paid to lawyers for the defense of
company’s property’s Titles. The balance of Shs. 2,500,000 relates to a provision of
legal services to the son of the Managing director who is not an employee of the
company.

4. Advertising expenses are analyzed as follows

Shs.’000
TV & Newspaper Adverts 130,000
Contribution to area MP campaign 70,000
Renting billboard space 20,000
Total 220,000

Required
Compute the corporation tax payable by Kasese Ltd for the year of Income ending 31 st
December 2017 commenting on any information not used.

FARMING
Expenditure Incurredby a person in acquiring farm works is included in the person's pool for
class IV assets and will be depreciated at 20%. Farm works means any labour quarters and
other immovable buildings necessary for proper operation of a farm, fences, dips, drains,
water and electricity supply works, wind breaks and other works necessary for farming
operations carried on to produce income included in gross income but does not include:
(i) Farm house; and
(ii) Depreciation of assets.

A person carrying on business of horticulture in Uganda to produce income included in gross

Income, who has incurred expenditure of a capital nature on:
 The acquisition or establishment of horticulture plant, or
 The construction of greenhouse.
Shall be allowed a deduction of 20% of the amount of expenditure in the year of
income in which the plant or greenhouse is used in the business of horticulture carried
on by the person.

CAPITAL GAINS TAX

This is the tax arising on disposal of non-depreciable business assets. The arising from the
disposal of an asset is the excess of the consideration receiver disposal over the cost base of
an asset.
Likewise, the amount of loss arising from the disposal of an asset is the base of an asset at the
time of disposal over the consideration received from them.
Scope of Capital Gains Tax
Taxation of capital gains took effect from 1/4/1998, more especially residents and non-
residents in respect of a Ugandan branch or agencies are liable to in their chargeable gains i.e.
capital gains arising from the disposal of their non-o business assets. These gains are included
in the gross income and treated as business income subject to income tax of 30%.

Definition of Business Assets

Business assets are defined in Sec. 2 of ITA Cap. 340. A person's assets shall be business
asset if:
a) The person carries out activities that amount to business as defined in the ITA Mode! 3.
b) The asset is used or held ready for use in the person's business.
c) Regardless of the activity engaged in, if the person in question is a connection
partnership i.e. assets of a company or partnership shall always be tax account for capital
gains tax.
Business assets therefore include:
• Land and building (other than IB).
• Portfolio investment assets e.g. shares, securities, etc.
• Intangible assets e.g. Patents, copyrights, partner's investment, etc.

Exclusion from Business Asset

For interpretation purpose Sec. 18 (4) specifically excludes the following from business asset:
• Trade stock i.e. part of companies.
• Depreciable assets Sec. 27 (5) and 27 (7) deals with gains or losses on depreciable
assets, as such are excluded from capital gains tax.
• Capital gains also exclude all incomes already in gross income e.g. business,
employment, property income, etc.
• Current interpretation of the law includes l6 as depreciable assets and sc, outside the
bounds of capital gains tax.
NB: For gains or losses where a gain on the disposal of an asset arises when consideration
received for the asset is greater than the cost base of the asset at the t of disposal. The amount
received in excess is the gain on disposal (balancing charge).
And a loss on disposal of an asset is the amount of excess of cost base over consideration
received at the time of disposal.

TAXATION OF COMPANIES
A company means a body of persons incorporated or unincorporated, whether created or
recognized under the law in force in Uganda or elsewhere and a unit trust, but does not
include any other trust or a partnership sec (2). It can be resident and it's a resident if: It's
incorporated or formed under the laws of Uganda.
 It has its management and control exercised in Uganda at any time during the year of
income.
 It undertakes majority of its operations in Uganda during the year of income.
Note
Corporation tax is charged in respect of accounting periods i.e. a period of account is any
period for which a company prepares accounts. Usually this will be 12 months in length but it
may be longer or shorter than this. The accounting period starts when the company starts to
operate (trade), or otherwise becomes liable to corporation tax or immediately after previous
accounting period ends. It can be:-
12 months after start of the business.
At the end of the company's accounting period. Etc.
The taxation of a company is separate from its shareholders sec 74 (1) i.e. a tax rate of
companies is 30% of chargeable income.
Chargeable income of a company for a year of income is the gross income less total
deductions allowed under the Act.
Chargeable income = Gross income - Allowable deductions income.
Gross income includes, business income, e.g. trading receipts, capital gains, property income,
(interest, natural resources payments, rent royalties etc.).
Deductions include both capital and revenue e.g. wear and tear allowances, initial allowances,
startup costs, utility expenses etc. These must be incurred purely on the production income.

COMPUTATION OF THE TAXABLE PROFITS

(Deriving Chargeable Income)
Accounts are normally drawn up and tax calculated on the accrual basis. This ri: items are
included in particular set of accounts when they become due, not w-» are actually paid.
Therefore, at the end of an accounting period debtors and c have to be included in the
calculation of profits.
The normal method of converting accounting profits into taxable profits is to stc the profit in
the accounts and add on disallowable expenses, and take off income be included in the trade
profit assessable and expenditure not charged in the ace The table below shows some of the
main adjustments.
Profits as per accounts
Capital expenditure X
General provision for bad and doubtful debts X
Other disallowable provisions X
Expenses on increase on share capital X
Entertainment X
Education expenses X
Donations X
Legal expenses X
Interest on director's debit balance X
Balancing charge X
Realized exchange gain X
Unrealized exchange loss X
Loss on sale of capital assets X
Miscellaneous expenses contracted with capital X
Drawings of proprietors X
Depreciation X
NSSF company contribution X
 Appropriations to revenue X
Stock taken for business proprietor's use X
Private use of premises, motor cars etc. X
Expenditures recoverable from insurance policy X
Co cost tax appeals X
Fines and penalties X
Loans to staff written off X
Subscriptions not connected to trade 1

Deduct Income not from trading profit or expenses not charge allowable
Transfers from reserves x
Income taxable elsewhere x
Income already taxed at source e.g. dividends, interest, rent etc. x
Revenue expenditure charge to reserves x
Wear and Tear Allowances x
Profit on sale of a fixed assets x
Investment deductions/initial Allowances x
Industrial building Allowances x
Farm works allowances x
Start-up costs x
Realized exchange loss x
Unrealized exchange gain x
Deficit b/f x
(xx)
(xxx)
TAXABLE TRADING PROFIT
NB: Note that these are just examples; any expense may be disallowed or allowed depending
on the nature of the business, purpose it's used for, the narration in the financial struts.

ILLUSTRATIVE QUESTIONS
1. Mr. Kadaga runs a canteen. You have been given his Income Statement for the year ended
31 December 2015:
UGX’000 UGX’000
Gross Profit 1,500,000
Less: Expenses
Salaries 60,000
Rates 40,000
Lighting 20,000
Depreciation of Furniture 5,000
Other expenses 6,000
Net profit (131,000)
1,369,000
Additional Information
Mr. Kadaga sleeps in a room behind the canteen. 20% rates to be charged on him.
UGX 2,000,000 of other expenses were personal expenses -Mr. Kadaga.
The written down value of furniture as at 01 January 2015 8,000,000.

Required
Calculate the taxable income for Mr. Kadaga for the year ended 31 Dec 2015

INCOME FROM PROPERTY

Introduction
Imposition of tax on every person with chargeable income is under section 5 and the
definition of chargeable income under section 16. Section 18(l)(c) defines the gross income
of a person for a year of income to include property income.

However, the Act does not define property. Therefore, the interpretation of what property
entails is based on general knowledge acquired from accounting i.e. property includes
tangible and intangible assets.

Property income
Section 20(1) defines property incomes as:
a) Any dividends, interest, annuity, natural resource payments, rent, royalties and any other
payment derived by a person from the provision, use or exploitation of property.
b) The value of any gifts derived by a person in connection with the provision, use or
exploitation of property.
c) The total amount of any contribution made to a retirement fund during a year of income
by a tax-exempt employer.
d) Any other income derived by a person but does not include business, employment or
exempt income.

Rental income
Rent means any payment, including a premium or like amount made as consideration for the
use or occupation of, or the right to use or occupy, land or building. Rental income refers to
the total amount of rent derived from the individual for the year of income from the lease of
immovable property in Uganda by the individual with the deduction of any expenditure and
losses incurred by the individual in respect of property.
Tax treatment of Individual Rental Income
The rental income received by an individual is separately subjected to tax to the effect that:
 Such rental income shall not be included in the gross income of the individual for any
year of income.
 Expenditure and losses incurred by the individual in production of the rental income
shall be allowed a deduction at a flat rate of 20% of the gross amount. It does not matter
whether the expenditures and losses are less or more than 20%.
 The tax payable by a resident individual in respect of rental income shall not be reduced
by any tax credits allowed to the individual under the ITA.
  The individual is allowed a threshold of UGX 2,820,000 before charging rental income
to tax.
 The rate applicable is 20% of the amount in excess of UGX 2,820,00.0.
 Rental income of a resident individual includes rental income collects: properties
outside Uganda.
 Rental income of non-resident is subject to 15% withholding tax on gross an

Tax treatment of A Company's Rental Income

Rental income of a company is considered business income in accordance with sec: 18(l)(g).
Such income is therefore included in gross business income of the company a any
expenditure and loss incurred in deriving such rental income is allowed just like ordinary
business expenditure or loss.

EXAMPLES
1. Hajji Kirunda is a land lord with steady tenants. He earned rental income from houses
below for the year ended 31 December 2016 as follows;
Location Monthly rent Monthly maintenance Expenditure
UGX UGX
Plot 5, Nsambya 300,000 400,000
Plot 8, Kamwokya 50,000 60,000
Plot 12, Kireka 200,000 30,000

Required
a) Compute Hajji Kirunda's rental income tax for the year ended 31 December 201
b) If the landlord above was Iganga Consolidated Properties, comment as to whether it
would make any difference in tax payable; and if so compute the tax that would be
payable for the year ended 31 December 2016.

Valued Added Tax (Vat)

VAT is an indirect tax and it’s also referred to as ‘In rem’ in the tax is ‘on things’ and
‘advolorem’ meaning on value created.

As an indirect tax VAT is imposed at some point in the system but is meant to be shifted to
the person who will ultimately bear the burden. The value of VAT is a sales tax administered
is a multiple stage form. Each seller in the chain collects the VAT from the purchaser at the
time of sell as an addition to the sale price. . Each seller is required to state the sale price and
the VAT separately. The seller then remits the balance to the government collecting
authority. The net effect of this is that the tax is imposed at each stage on the sum of wages,
rents, profits and other Factors of Production furnished by the supplier hence tax n value
added.

Why was VAT Introduced in Uganda?

i)To generate move government revenue by widening the tax base.
2) To reduce the costs of administration especially with the collection of the sales and CTL
taxes.
3) Fair distribution of resources especially according to ability to pay since only those who
have the ability to pay are those who pay.
4) VAT is flexible both in the rate and tax liability.
5) It has an element of certainty and clarity (VAT is more certain and clear as compared to
sales tax and CTL) and may give some bit convenience to the tax payer.
6) VAT is more users friendly than sales and VTL
7) VAT can bring about economic stability especially during inflation
8) VAT is less harmful to people’s consumption, savings and output that’s it can’t deter
economic growth and stability (it is a neutral tax).

Disadvantages of VAT
(1) VAT is a complicated system, which needs an honest and efficient government
machinery to do cross checking and link up various production activities and the recent
tax liabilities of each firm.
(2) Unless the rates of VAT are extraordinarily high, the state should end up with smaller tax
revenue than sales tax.
(3) There are difficulties of maintaining accounts, crosschecking and preventing tax evasion
especially where there are exemption and different tax rates.
(4) VAT forces taxpayers to maintain elaborated and costly accounts.
(5) VAT is regressive at high income levels.

Types of VAT
There are generally four types of VAT, i.e.
(1) Production VAT - The value added by a firm is got by deducting inputs except capital
goods, from output. It is not a popular form of VAT because it tends to
retard economic growth.
(2) Consumption VAT - The value added by a firm is sales minus all inputs including capital
inputs purchased. This form of VAT is the most popular partly due to the fact that if firms are
allowed depreciation on capital equipment, they tend to apply a high rate of depreciation.
(3) Wage-type VAT - To get the tax base. a firm deducts the net earnings (profits and
interest) from the capital. In practice, this form of VAT is rare.
(4) Income-type VAT – Depreciation of fixed investments is deducted from gross value of
output to arrive at value added.

Why VAT was resisted by traders

(i) Illiteracy amongst traders.
(ii) Low level of VAT threshold.
(iii) Low levels of tax education to the traders.
(iv) Mode of VAT collection was projected to be harsh.
(v) Desire to evade the tax since VAT was threatening smuggling.
(vi) VAT required books of account to be kept. This was seen as expensive to traders.
(vii) Political sabotage i.e. the opposition used VAT to decampaign the government in
power.

Effects of VAT strike

(i) Prices of commodities went up.
(ii) Smuggling tentatively increased.
(iii) There was increased tax education.
(iv) There was general economic slowdown.
(v) There were changes in tax policies relating to collection.
(vi) Imported commodities were held up at major terminals.
(vii) The VAT threshold was increased from UGX 20 million to UGX SO million.

TAXABLE PERSONS FOR VAT

Taxable persons for VAT purposes
Taxable persons for VAT purposes are in two categories, namely:
(1) Any person registered for VAT.
(2) Any person who was supposed to have registered but not yet registered, is considered a
taxable person from the beginning of the period following the period in which the duty to
apply for registration arose.
VAT registration eligibility
(1) A person who carries on business activities or intending to carry on business activities
is required to apply to be registered for VAT, if the turnover of taxable supplies of the
enterprise for three consecutive calendar months exceeds or is likely to exceed UGX
12.5 million. The annual registration threshold is 50 million shillings.
(2) A person being a national, regional, local or public authority or body which carries on
business activities or intending to carry on business activities is required to apply to be
registered for VAT regardless of the turnover.
Note
(1) Taxable persons include sole traders, partnerships, company, estate of the deceased,
incorporated body, unincorporated body, club, or association.
(2) A taxable person whose turnover is below the threshold may voluntary register for
VAT; provided that he/she has a fixed place of abode, keeps proper accounting records
and is fit and proper in the wisdom of the commissioner.

Procedures for VAT Registration

(1) A trader applies for registration and is registered under Applicants for VAT Registration'.
(2) The district officers or the head of VAT registration at head office will acknowledge
receipt of the application form.
(3) An inspection is made by an officer partly to establish the validity of information on the
application form and also acquaint him/her with the business.
(4) The inspecting officer makes a report about the nature of the business, location and
address, status of record keeping, turnover etc.
(5) The officer makes a recommendation whether or not to register, giving reasons as
appropriate.
(6) A communication is made to the applicant indicating whether his application for VAT
registration has been accepted or rejected.
(7) If accepted, a VAT registration certificate is issued.

Deregistration for VAT

A taxable person registered for VAT can deregister for VAT if:
(1) He has ceased to make supplies of goods or services for a consideration.
(2) With respect to the most recent period of three calendar months, his taxable supplies do
not exceed UGX 12.5 million and his taxable supplies for the previous calendar months
do not exceed UGX 37.5 million.
(3) The Commissioner General cancels his registration due to any of the following:
(a) Lack of fixed place of abode; or
(b) Failure to keep proper accounting records relating to any business activity carried;
(c) Failure to submit regular or reliable returns;
(d) The commissioner in his opinion thinks he is not a fit and proper person to be registered.

NB A taxable person who voluntarily registered for VAT cannot deregister until after two
years have elapsed since registration.

Offences committed in relation to VAT

 Failure to file VAT returns,
 Breaches of regulations,
 Failure to pay VAT due,
 Filing incorrect VAT returns.
 Failure to notify URA on matters of concern relating to VAT.

Tax point
Tax point refers to the time when a supply is deemed to have taken place and tax become due
and payable.

Place of supply
Supply of goods shall take place in Uganda if the goods are delivered or made available in
Uganda by the supplier and;
Supply of services shall take place if the business of the supplier for which the services are
supplied is in Uganda.

Causes of the strike

1) Lack of adequate knowledge and education on the part of tax collectors that don’t pay the
taxes.
2) Increase of rates of other taxes other than those that were replaced by VAT.
3) Smuggling of goods was threatened due to the introduction of VAT where goods
accompanied with a tax invoice.
4) Political influence.
5) Lack of records, accounting methods used for VAT were not known to the tax collectors
or payers.
6) Lack of commitment from the URA officials to conduct the required services.
7) Erosion of the capital base by tying up the tax claims in taxes (Submission is with in the
15th day) yet tax claim is within 45 days.
8) Capital tied up in taxes would be two months.
8) The rate imposed was very high (the 17%)
9) Delay of refunds because URA was not efficient about meeting the rime of refund.
10) The threshold was very high for some small traders (small traders could not afford the
liability since the gains from such business were small.
11) Paying a tax on-tax effect (you pay VAT on import duty yet this import duty has been
paid for.

Effects of the strikes

1) Low of government revenue or cash flows.
2) Shall size traders were eliminated since the threshold was increased from 20m/= to
50m
3) The URA staff became more users friendly.
4) In the long run the government has steadily increased revenue from VAT.
5) Tax education, which was introduced and is being carried out vigorously
6)Some tax tariffs were reduced.

a) Exempt supplies.
These are goods and services on which Vat is not chargeable or even claimable examples
include financial services, Education services, Medical, dental and nursing services transport
services, supply of petroleum fuels, supply of societal services and Lotteries and games of
chance including casinos.

b) Zero-rated supplies.
Supplies in this category do not carry VA.T.A supplier who pays. VAT or inputs is entitled to
a refund and also does not change VAT on sales of goods and services. These goods are
found in schedule three of the VAT statute. Examples include Exports, supply of educational
materials, supply of seeds, international transport, pesticides and hoes, selected foodstuffs
such as milk, maize flour, and supply of medical and veterinary equipment and supplies.
c) Standard rated supplies.
These are taxable at a rate of 18%. They include all other items not mentioned in schedule
two and three, VAT payable on standard rated supplies calculated as in the format shown
above.

METHODS OF ACCOUNTING
Methods for accounting for VAT
There are two methods, namely: Cash basis and invoice basis (accrual).Cash basis accounting
may be adopted for by taxable persons whose annual value of taxable supplies does not
exceed UGX 200,000,000.The election is made in writing to the Commissioner General and
once allowed, the method cannot be changed until two years.

VAT rates
There are two rates of VAT. The standard rate which is 18%, and the zero rate, which is 0%.
VAT computation
VAT is computed by applying the VAT rate on the taxable value i.e.,
R x.TV = VAT
R = VAT rate
TV = Taxable value
This applies when the taxable value is VAT exclusive. Where we have a VAT-inclusive
value, VAT is computed as follows:
R—— x VAT-inclusive value R + 100
R+ 100
For e.g. if we have a price of UGX 250,000 paid for an item including VAT, then the amount
of VAT, can be extracted as follows;
18 x 250,000
118
= 38,136

The VAT - exclusive value =250,000 - 38,136

= 211,864
Output VAT
This is a tax charged on sales made to customers.
Input VAT
This represents a tax chargeable on purchases being made during business transactions.
VAT remitted to URA
VAT payable to URA = output VAT - input VAT.
This shows that the taxable person is allowed credit of all the VAT Incurred on purchase or
import of inputs.

ILLUSTRATIVE QUESTIONS
(1) Miss Nakazzi is a trader based in Kikubu market in Kampala City. Records show that
her total sales were UGX 785,000 VAT exclusive upon purchases of general
merchandize worth UGX 245,000 VAT inclusive.

(2) Miss Kirabo is a VAT registered trader based in Masaka Town. During the year ended
31 December 2015 she made an annual standard rated gross sales worth UGX
224,000,000 (VAT exclusive). During the period, she made an annual standard rated
gross purchases amounting to UGX 184,000,000 (VAT inclusive).
(3) Nakitende who is a registered VAT payer has her annual standard rated:
(i) Gross sales as UGX 60,000,000 (price exclusive).
(ii) Gross purchases as UGX 40,000,000 (price inclusive).

(4) Namazzi, who is registered for VAT had the following transactions in the month of
March 2014. All amounts are exclusive of VAT.

UGX
Payments made for:
Duplicating paper 218,000
Fuel (diesel) 970,000
Water 204,000
Telephone 312,000
Electricity 447,000

Receipts for the month:

Sales (standard rated) 1,700,000
Experts 680,000

INPUT TAX CREDIT [Section 28]

Calculation of VAT
Computation of VAT occurs at two levels:
(a) VAT on a transaction i.e. a sale or a purchase
(b) VAT payable or claimable by the taxpayer other way put is VAT collectable or
refundable by URA.
VAT Computations
Tax rate Vs. Tax Fraction
Tax rate is the percentage that is applied to the consideration for a transaction or taxable
value, so as to determine the VAT amount. For example: if the consideration or taxable value
is Shs 20, 000 and the
VAT rate is 18% (18/100), then VAT = 20,000 x18/100
= Shs 3,600
The Tax fraction refers to the ratio used to determine the amount of VAT where the
consideration is inclusive of VAT. The fraction is given by the formula:
r
r + 100
where r is the VAT rate.
Illustration
If the rate of tax (r) = 18% then the tax fraction =18/(18+100) = 18/118.
For example if the consideration (VAT inclusive) is Shs20,000,then VAT = 20,000 × 18/118
= Shs 3051.

Computation of VAT on a Transaction

VAT = Taxable value × VAT Rate (where taxable value excludes VAT)
Or
VAT = taxable value × VAT ratio (where the amount is VAT inclusive).
 VAT payable is determined by formulas in section 1(b) & 1(c) of Schedule IV.
 VAT payable = Output tax – Input tax credit.
 Input tax credit arises when a taxable person makes purchases or incurs costs upon
which VAT is charged. These could be locally procured or imported during the
period.

Conditions for Allowing Input Tax Credit to the Taxable Person.

1. There should be documentary evidence as follows;
I. For local purchases and expenses, there should be an original tax invoice for the
supply.
II. For imports, there should be the Customs bill of entry, URA tax receipt or other form
of evidence for payment, Airway bill or bill of lading and other documents prescribed
under the Customs Management Act.
III. Exception:
Input tax credit may be allowed where the failure to acquire a tax invoice is not the fault
of the taxpayer and an amount claimed is correct.

2. Purchases and costs ought to be for business use only.

Input tax not related to business should not be allowed. E.g. utilities for domestic use
should not be allowed.

3. Shared supplies should be apportioned, allowing only part or percentage that relates to
business of a particular taxpayer.
4. Input tax credit for a taxable person that deals in both taxable and non-taxable
supplies
Where this occurs, input tax credit should be apportioned as described below
 a. Standard Method [section 7(b)]
Input tax credit allowed = A x B/C[section 1(f) of VAT Act]
 
Where: A is total input tax in the period
B is total taxable sales in the period
C is total sales (both taxable + exempt sales)
 
Where fraction of B/C < 5%; taxpayer may not claim any credit
Where fraction of B/C > 95%; taxpayer may claim all input tax credit in the period.
b. Standard Alternative Method: [Regulation No. 15]
Under this method, input tax credit is determined as follows:
i. Allow all input tax that directly attributable to taxable supplies
ii. Disallow all input tax credit that directly attributable to exempt supplies.
iii. Apportion all input tax credit that is not directly attributable to either of taxable and
exempt supplies.
 
 Note that this method can only be applied by the taxpayer upon written approval
by the CG.
The challenge with it is that in the current form it does not guide on the effective date.
Whereas arguments have been advance that it would be effective the day the CG approves,
there is no legal backing to this nor does it bar approval retrospectively. In its current status,
effective date is at the discretion of the CG.
 
 This method requires the taxpayer to prepare and keep three separate purchases
records. These include the following;
a) A record of purchases of taxable goods and services directly related to taxable
supplies.
b) A record of purchases of taxable goods and services directly related to exempt
supplies.
c) A record of purchases of taxable goods and services which cannot be directly
attributable to either taxable supplies or exempt supplies

Example:
Mukunzi Ltd deals in a variety of goods, both taxable and exempt. In the month of July 2013
it operated as follows:
Sales: All VAT Inclusive where applicable.
i. Made standard rated sales worth shs.236,000,000.
ii. Made exempt sales worth shs350,000,000
iii. Made zero rated sales worth shs.500,000,000
 
Purchases and costs: all exclusive of VAT.
i. Purchase of 1,000 bags of sugar at shs50,000 per bag.
ii. Rent for the month of shs.40,000,000
iii. 200 bags of different fruits all at shs.250,000,000.
iv. 1,000 cans of milk from Fresh Foods “U” ltd at shs200,000,000
v. 20 New refrigerators at shs1,500,000 each; of which 10 were used to preserve
milk the balance for fresh fruit salads.
vi. Staff salaries for the month worth shs.110,000,000.
vii. Electricity bill was shs.5,000,000.

Required:
a) Compute tax payable or claimable using standard method of apportionment
b) Compute tax payable or claimable using standard alternative method of
apportionment

Solution:
a). Tax payable using the standard method of apportionment.
output tax; 236,000,000 x 18/118= 36,000,000
Input tax = A X B/C
where; B= Standard rated sales + zero rated sales
200,000,000 + 500,000,000
= 700,000,000
C= Taxable sales + Exempt sales
700,000,000 + 350,000,000
= 1,050,000,000
Therefore B/C = 700,000,000/1,050,000,000 = 0.67 or 67%
Total input tax;
sugar (1000 x 50,000) = 50,000,000 x 18% = 9,000,000
Rent = 40,000,000 x 18% = 7,200,000
Refrigerators
( 20 x 1,500,000) = 30,000,000 x 18% = 5,400,000
Electricity 5,000,000 x 18% = 900,000
TOTAL 22,500,000
therefore; A= 22,500,000 x 67% = 15,075,000
Tax payable = Output tax - Input tax
36,000,000 – 15,075,000
= 20,925,000

b) Tax payable using the standard alternative method

Note: When using the standard alternative method, we only apportion input tax that is
not directly attributable to either taxable or exempt supplies.
Electricity + Rent = (Total input tax) 67%
900,000 + 7,200,000 = 8,100,000 x 67% = 5,427,000
Therefore input tax allowed using the standard alternative method;
Shared input tax = 5,427,000
Input tax on sugar = 9,000,000
Input tax refrigerators
(10 x 1,500,000)18% = 2,700,000
17,127,000
Tax payable = Output tax – Input tax
36,000,000 - 17,127,000
= 18,873,000

Exercise;
Mugaga Ltd operates a supermarket and in the month of November 2010 the
operations were as follows:
Sales: All VAT exclusive where applicable. i. Made standard rated sales
worth shs. 148,000,000
ii. Made exempt sales worth shs 200,000,000
 iii. Made zero rated sales worth shs 350,000,000

Purchases all inclusive of VAT

i. purchased 15 mobile phones at 150,000 per phone
ii. Rent for the month was Shs 24,000,000
iii. 10 bags of salt (was exempted from 2008-14, now its standard rated) at Shs
80,000 per bag.
iv. Sanitary towels at Shs 30,000,000.
v. 12 new refrigerators at Shs 1,500,000 each which were used to preserve milk and
fresh fruit salad.
vi. Electricity bill was Shs 3,000,000.
Required:
a) Compute tax payable or claimable using the standard method of apportionment.
b) Compute tax payable or claimable using the standard alternative method of
apportionment.
Solution:
a) Tax payable using the standard method of apportionment:
Output tax : 148,000,000 x 18% = 26,640,000
Input tax allowable = A x B/C
Where; B= standard rated sales + zero rated sales
148,000,000 + 350,000,000
= 498,000,000
C= Std rated sales + Zero rated sales + exempt
148,000,000 + 350,000,000 + 200,000,000
= 698,000,000
Therefore B/C = 498,000,000/698,000,000
= 0.713 or 71%
Total input tax before apportionment: (A)
Mobile phones (15x150,000)18/118 =343,220
Rent 24,000,000x18/118 = 3,661,017
Refrigerators (12x1,500,000)18/118 = 2,745,763
Electricity 3,000,000 x 18/118 = 457,627
Total 7,207,627
Input tax allowable = A x B/C
7,207,627x 71% = 5,117,415
Tax payable = output tax – Input tax
26,640,000 – 5,117,415
= 21,522,585
b) Tax payable using the standard alternative method of apportionment:
Note: When using the standard alternative method, we only apportion input tax that is
not directly attributable to either taxable or exempt supplies.
Rent + Refrigerators + Electricity
3,661,017 + 2,745,763 + 457,627= 6,864,407
Apportioned input: 6,864,407x 71% = 4,873,729
 Therefore Total input tax allowable using the standard alternative method:
Shared input(apportioned) = 4,873,729
Input phones (directly attributable) = 343,220
Total 5,216,949

Tax payable using the standard alternative method;

Output tax – Input tax allowed
26,640,000 – 5,216,949 = 21,423,051

Uncreditable /Non – allowable Input Tax Credit. [s.28(5)]

The general rule is that input tax incurred for business purpose should be allowed or
credited to the taxpayer. However, the VAT Act disallows some input tax credits.
 
The following input tax credit is not allowed though incurred in respect to business activities.
a. Passenger Automobiles
VAT incurred on purchase or importation of passenger automobiles is not credited to the
taxpayer. This includes spare parts, repairs and maintenance of the same.
 
Exception:
Purchase of passenger vehicles as stock for resale in business activity e.g. Kampala Nissan
“U” Ltd.
Taxable person deals in hiring of passenger automobiles.

b. Entertainment:
 This includes VAT incurred on food, drinks, tobacco, accommodation, amusement,
recreation, or any other form of hospitality.
 
 Exception:
i. Allowed if the taxpayer is in the business of providing entertainment itself
ii. Allowed if supplies were meals or refreshments to the taxpayer’s employees in
premises operated by the taxpayer or on behalf of the taxpayer solely for the benefit
of the taxpayer’s employees.

c. Telephone services:
10% of input tax on telephone services is not allowed.
 

 End of Year Adjustments (28(13))

A taxpayer who has applied any one of the input tax apportionment methods shall in the first
tax period following a calendar year make annual adjustments using the same formula of
apportionment but based on the annual value of taxable and exempt supplies.
This adjustment is intended to allow for variations in the different tax periods resulting from
use of different percentages.
 Where;
 
A=Total value of input tax for the year
B=Total value of taxable supplies for the year and
C=Total value of supplies including exempt supplies for the year.
 
The result of the calculation is the total input tax credit which a person is entitled to for the
year.
Where the return credit is greater than the calendar (annual) year credit calculated, the excess
amount shall be regarded as tax payable by the person and shall be declared in the VAT
return of the first tax period of the following year.

On the other hand where the return credit is less than the calendar (annual) year credit
calculated, the difference (the amount under claimed) is regarded as credit claimable in the
first tax period of the following year.

Activity 2
Julie Ltd is a VAT registered business and deals in only standard rated goods and
services. For the month of November 2017 the following transactions took place;
a) Purchased computers for Shs. 26,000,000.
b) Used telephone services for Shs. 950,000.
c) Bought some more stock of cement for Shs. 50,000,00.
d) Paid salary for November 2017 for Shs. 6,500,000.
e) Rent for the premises for November 2017 was Shs. 7,200,000.
f) Bought furniture for Shs. 2,300,000.
g) Purchased iron sheets for resale of Shs. 29,200,500
The total sales for the month of November 2017 was Shs. 186,000,000
Apart from sales all other prices are exclusive of VAT.
Required
Calculate the VAT payable or claimable for the month of November 2017.
INCOME TAX RETURNS AND ASSESSMENT
Furnishing of return of income and what a return of income is:
A return of income is a declaration made on a prescribed form to the commissioner on which
incomes earned or losses made during the year of income is declared (Sec. 92).
It is a legal document which must be signed and dated by a tax payer or tax payer's appointed
agent and includes a declaration that the return is-complete and accurate. There are two
categories of returns used by URA i.e. provisional and final returns. These are different for
individuals and companies.
Who is eligible to file a return of income?
 A return may be filed by an individual, a company or a partnership.
 In case of an individual, a return should be filed by a person whose global income in a
year of income should exceed 2,820,000 (235,000 x 12).
 In case of a company, a return should be filed for all global income. The threshold of
2,820,000 doesn't apply.
 A partnership is also required to file a return of income in its own name (right) as if it
were an individual person sec. 66 (3).

Provisional returns
Any person who derives or expects to derive any income during the year of income which
will not be subject to WHT at source under the following categories is required to file a
provisional return,
 Employment income under PAYE (sec 116).
 Income inform of interest received by a resident person (other than interest paid by
natural person or received by financial institutions or paid by a company to its associated
company or which is exempted from tax) from a resident person, (sec 117)
 Dividend income received by a resident share holder from a resident company (sec 118)
 Rental income tax payers (Sec.5).

Therefore, provisional tax is an estimated tax for the year of income payable in advance
before the year end. Provisional tax payers include all persons who are required to file a
return of income and those required to file a return of gross turn over (presumptive tax
payers).

Final returns
Subject to Sec. 93 (where a return is not required), all other tax payers are required to file a
return of income with URA for each year of income. It must be filed not later than 4 months
after the end of that year. The year of income also includes substituted year of income. E.g. A
tax payer who has been permitted to 31/12 as the end of his accounting year must submit the
income tax return by 30/4 following the end of his accounting year.
 The return must be on form prescribed by commissioners signed by tax payer or the agent
where strut of income and expenditure and strut of assets and liabilities.
 If a tax payer is legally incapacitated, the tax payer's return of income is required to be
signed by a legal representative of the tax payer who must make a declaration as to the
completeness and accuracy of the return.
 During the year, if a tax payer dies, becomes bankrupt, a company is wound up or gone
into liquidation, tax payer is about to leave Uganda indefinitely, about to cease activity in
Uganda, the commissioner considers it appropriate, may by notice in writing require a tax
payer or tax payer trustees furnish by date specified in the notice, a return of tax payers
for a period less than 12 months.
 Where any person fails to furnish a return of income as required by the tax laws, the
commissioner may by notice in writing appoint a person to prepare and furnish the return
and return furnished is deemed to be the return of the person originally required to furnish
the return.
 Where the commissioner is not satisfied with the return of income he/she may by notice
in writing require a person who furnished the return to provide a fuller or further return of
income.

Where a return is not required

Sec 93 of Income Tax Act ITA cap 340 provides that, no return of income is required by
the following unless requested for by the commissioner by notice in writing;
(i) A non-resident person who derives any dividend, interest, royalty, natural
resource payments or management charge from sources in Uganda, because taxes
charged on such payments must be withheld by the person making such payments
see. 120.
(ii) Anon-resident entertainer, sports person or theatrical, musical or other groups of
non-resident entertainers, sports persons who derive income from any
performance in Uganda. This is because tax on such payments or collections is
required to be withheld from remuneration or receipts by the person who makes
the payment or receives the collection sec 120 (c).
(iii) Anon-resident person carrying business of ship operator, charter or air transport
operator who derives incomes from the carriage of passengers who embark or
cargo or mail which is embarked in Uganda.
(iv) A resident individual whose taxable income in the year of income consists
exclusively of employment income 6er\ye6 from single employer. Because sec
116 requires every employer to withhold tax from payments of employment
income to all liable employees.
(v) A person whose total chargeable income for the year of income does not exceed
the amount chargeable at "Nil rate" according to the individual rates of tax i.e.
below UGX 2,820,000
SMALL BUSINESS TAX PAYER
Who are small business taxpayers?
The Income Tax Act defines a small business tax payer for income tax purpose as a resident
tax payer whose gross turnover from all business owned by such a person in the year is less
than UGX 50 Million i.e. turnover is the total sales for the year.

Persons excluded from small business taxpayers

The following should be excluded from this category of taxpayers even if their turnover is
less than UGX 50 Million include:
 Medical practice.
 Dental practice.
 Architectural services.
 Engineering services.
 Accounts and Audit services.
 Legal practice.
 Any other professional services.
 Public entertainment services.
 Public utility services.
 Construction services.

COMPUTING SMALL BUSINESS TAX PAYER'S LIABILITY

The tax liability of a small business tax payer is calculated and determined on the basis of 1%
of the turnover. In the case of a tax payer whose gross turnover does not exceed 20million a
year, the tax payable is fixed at UGX 100,000 a year.

PRESUMPTIVE INCOME TAX RATES222

Gross Annual Turnover Tax
Less than UGX 5,000,000 Nil
Greater than UGX 5,000,000–UGX 20,000,000 UGX 100,000
Greater than UGX 20,000,000–UGX 30,000,000 UGX 250,000 or 1% of gross turnover
whichever is lower.
Greater than UGX 30,000,000–UGX 40,000,000 UGX 350,000 or 1% of gross turnover
whichever is lower.
Greater than UGX 40,000,000–UGX 50,000,000 UGX 450,000 or 1% of gross turnover
whichever is lower.

Example
Calculate the tax payable for the following range of turnover:
1. Bracket (20M - 30M).
i. Actual turnover = 22M.
Therefore, tax payable = 1% x 22M = 220,000 (i.e. less than 250,000)
ii. If actual turnover was 28M.
Then tax payable =1% x 28M = 280,000, but this is more than 250,000, therefore consider
tax payable as 250,000 as .the maximum limit for the range-of income from 19-30m.
2. Bracket (30M - 40M)
i. Actual turn over = 34M
1% of turn over = 340,000 (this is less than 350,000)
Therefore, Tax payable = 340,000
ii. If actual turnover was 39,000,000
1% of turn over = 390,000 (This amount is greater than 350,000). Then consider the tax to be
paid as 350,000 as the maximum limit for the bracket.
Bracket (40M - 50M)
i. Actual turn over = 43,580,000, 1% x 43,580,000- 435,800 should be considered
for payment as it's less than 450,000 as the maximum limit for the bracket.
ii. If actual turnover = 48,700,000, 1% x 48,700,000= 487,000. This is more than the
maximum limit and therefore considers 450,000 as the tax to be paid.

Presumptive Tax
S.4 (5) an overview.
This is predominately a turnover based tax. The turnover should not exceed Uganda
shillings 150Million.
In determining Chargeable Income under S.4(1), such income is excluded and therefore tax
payable will not be established under S.4(2) except where the taxpayer elects in writing to
the commissioner to have their chargeable income determined under S.4(1).
Question;
Who is included / liable for presumptive tax?
Answer:-
 Taxpayers whose gross turnover from businesses does not exceed 150 million
shillings. S.4(5).
Question; What is gross turnover?
Gross turnover has meaning in S.2(gg) I.T.A Cap 340.
 Only resident taxpayers who have carried on a business/businesses during the year of
income.
Question; What is business?
S.2(g) defines business to include “ any trade, profession, vocation, or adventure in the nature
of trade, but does not include employment”.
 Only applicable to resident taxpayers.
Question ;Who is a resident taxpayer?
S.2(kkk),defines resident taxpayer as “a taxpayer who is a resident person”. S.2(iii) defines
a resident person as “ a resident individual, resident company, resident partnership, resident
trust, resident retirement fund, the Government of Uganda, or a political subdivision of the
Government of Uganda”.
Who is excluded from presumptive tax?
 Persons in employment/Income from employment. Note that it is levied only on
persons carrying on a business or businesses. In the definition of business under
S.2(g) employment is specifically excluded.
 Nonresident taxpayers are excluded. S.4(5) “……, where the gross turnover of a
resident taxpayer…..” Therefore by implication nonresident taxpayers are excluded.
 All persons in the business of professional services (e.g. construction, medical etc.),
public entertainment services, public utility, or construction services. Note the
opening phrase of S.4(5), “ subject to subsection (7),…” Subsection 7 therefore
excludes all resident taxpayer offering professional services and public entertainment
services, public utility, or construction services .
Tax payable under the presumptive tax regime.
 Tax will be determined in accordance with the second schedule to the I.T.A Cap 340.
(S.4(5))
The lower of the following methods will be applied in determining tax payable for a
presumptive taxpayer.
 1.5 % of gross turnover
OR
 Established rates depending on gross turnover.

Example
• John (resident taxpayer ) is a professional engineer and offered engineering services
for which he recorded a turnover of shillings 40,000,000. He attended a workshop
conducted by Kacita and was advised that such income falls under the presumptive
tax regime.
Qn. Advise John if you think Kacita miss guided him on the appropriate tax regime.
Small Business tax payers tax rate- second Schedule of the ITA
Second Schedule
Part (i)
GROSS ANNUAL TURN OVER TAX
Exceeds Ugx 50m but does not exceed 937,500or 1.5%, which ever is lower
Ugx 75m
Exceeds Ugx 75m but does not exceed 1,312,500/= or 1.5% of the gross
Ugx 100m turnover, whichever is lower
Exceed Ugx 100m but does not exceed Shs 1,687,500/= or 1.5% of gross turn
Ugx 125m over , which is lower
Exceed Ugx 125m but does not exceed Shs 2,062,500/= or 1.5% of gross turn
Ugx 150m over, whichever is lower

Second Schedule Part (ii)

Where the gross annual turnover is less than Ugx 50 millions
i)Kampala city and Divisions of Kampala
 Business trade With turnover With turnover With turnover
between Shs 35m-50m between Shs 20m-35m between Shs 10m-20m
General trade 500,000 400,000 250,000
Carpentry/ metal 500,000 400,000 250,000
Garages/ motor 550,000 450,000 300,000
Hair/ beauty 550,000 400,000 300,000
Restaurants/ Bars 550,000 450,000 300,000
Clinics 550,000 450,000 300,000
Drug shops 500,000 350,000 100,000
Others 450,000 300,000 200,000

Where the gross annual turnover is less than Ugx 50millions

ii) Municipalities
Business trade With turnover With turnover With turnover
between Shs 35m-50m between Shs 20m- between Shs 10m-
35m 20m
General trade 400,000 300,000 150,000

Carpentry/ metal 400,000 300,000 150,000

Garages/ motor 450,000 350,000 200,000

Hair/ beauty 450,000 350,000 200,000

Restaurants/ Bars 450,000 350,000 200,000

Clinics 450,000 350,000 200,000

Drug shops 400,000 300,000 150,000

Others 400,000 350,000 150,000

Where the gross annual turnover is less than Ugx 50millions
iii)Towns and trading centres
Business trade With turnover With turnover With turnover
between Shs 35m- between Shs 20m- between Shs 10m-
50m 35m 20m
General trade 300,000 200,000 100,000

Carpentry/ metal 300,000 200,000 100,000

Garages/ motor 350,000 250,000 100,000

Hair/ beauty 350,000 250,000 100,000

Restaurants/ Bars 350,000 250,000 100,000

Clinics 350,000 250,000 100,000

Drug shops 300,000 200,000 100,000

Others 300,000 200,000 100,000

Part iii
Rate of advance tax
• For good vehicles : fifty thousand shillings per ton per year
• For passenger service vehicles : twenty thousand shillings per passenger per year
Deductions under the presumptive tax regime
• S. 4(5)b reads thus“ no deduction shall be allowed under this Act for expenditures or
losses incurred in the production of business income”.
Example.
Suppose that John’s is has a turn over 40M. He incurred rental expenditure of 5,000,000. He
has not applied to the commissioner for application of Section 4(1) in determination of his
chargeable income.
Qn. Would John claim this expense?
Tax credits allowed for tax payable under presumptive tax.
• S.4(5)c, reads “ No tax credit allowed under this Act shall be used to reduce the tax
payable, except as provided in the second schedule to this Act”.
• Tax credits allowed under the Act are;
Foreign tax credit S.81
Tax credit under S.128
Tax credit under S.111(8).
 S.4(5)c allows only credits under S.128(3) and S.111(8)-provisional tax.
Finality of tax under presumptive tax
• S.4(5) a reads thus “ the tax shall be a final tax on the business income of the
taxpayer”.
Recall a tax is a final tax if; 
 no further tax liability is imposed upon the taxpayer in respect of the income to which
the tax relates;
 that income is not aggregated with the other income of the taxpayer for the purposes
of ascertaining chargeable income;
 no deduction is allowed for any expenditure or losses incurred in deriving the income;
and
• no refund of tax shall be made in respect of the income

Exercise
Muhumuza is an entrepreneur with several businesses in Uganda as shown below;
District Type of business Annual gross turn over
Kampala city Saloon Ugx 60m
Bushenyi municipality Shoe repairing Ugx 45
Kabwohe trading centre-Kabwohe General merchandise Ugx 35
district
Gulu Municipality Garage Ugx 12
Gayaza trading centre-Wakiso Poultry farming Ugx 88
Lawio town centre - Kitgum District Restaurant Ugx 20

Required;
Using presumptive tax, compute the taxable income for Muhumuza.
OFFENCES AND PENALTIES
The essence of making accurate declarations of income and filing of returns in time is to
avoid penalties.
The penalties are imposed on tax payer or any other person who fails to act in accordance
with the provisions of the sections 137, 139, 151, 152, 153 and 154 of ITA.

Summary of the offences and their corresponding penalty

Offences Penalties
1. Under estimating provisional income 20% of the difference between taxes based on
where the income per provisional return provisional return as per revised and calculated
revised is less than 90% of the actual in respect of 90% of the actual income for the
chargeable income assessed for the year of year of income. NB: it excludes taxpayers in
income. (sec.154). the business of agriculture, plantation, or
horticulture.
2. Failure to furnish a return of income for 2% per month of the tax payable for that year
the year of income within the time required of income or one currency point per month,
by the Act (sec 152) whichever is greater for the period the return is
outstanding.
3. Failure to maintain proper records for An amount double the amount of tax payable
the year of income as required by the Act by the tax payer for that year of Income.
(sec 152).
4. Knowingly or recklessly, making Double the amount of the excess of the j proper
statements to an officer of URA which is tax over the actual tax assessed based on the
misleading in material to a particular false bases or misleading information.
matter or omitting it from statement made
to an officer ofURA (sec 153).
5. Failure to pay any tax e.g. provisional 2%simple interest per month on the amount
tax, penal tax (i.e. imposed tax), any tax unpaid calculated from the date on which the
withheld by a person on or before the due payment was due until the date on which
date for payment, (sec 136) payment is made.
6, Failure to furnish a return (not a return On conviction a fine not exceeding 20currency
of income) or any other documents within points,
15daysof being so required. This is
regarded as an offence (see 137).

CORPORATE TAX PLANNING

This refers-to the arrangement of the tax payer's affairs in such a way so as to achieve the
lowest tax liability at the lowest cost without contravening any tax laws {regulations). It can
be carried out for any form of taxation e.g. VAT, corporate tax, customs and excise duties,
etc. Tax planning should be done after taking into consideration other factors like labour cost,
political stability, power costs, and government policies. Tax planning is applicable for both
prospective investors and existing business. It provides guidelines that help to decide on
which industry or sector to invest in and where to locate the industry or business i.e. it's a
way of attracting business by government by offering tax incentives.
However, the investor has to plan his investments to obtain maximum benefit within the tax
laws operating in Uganda. It's not done in isolation but in conjunction with other factors.

Factors to consider when arranging for Corporate tax planning

(a) Economic environment.
(b) Political environment.
(c) Socio-cultural environment.
(d) Return on investment.
(e) Infrastructural development e.g. power, roads, etc.
(f) Repatriation policies.
(g) Labour costs.
(h) Availability of market.
(i) Cost and availability of raw materials.
Note
These factors provide guidelines as to which country, Industry or sector to invest in or to
disinvest from. Tax planning affects all stakeholders’ e.g. existing investors and potential
investors, employees, tax authority's management, etc. and as such it's an ongoing activity.
AREAS TO CONSIDER IN TAX PLANNING
a) Chargeable income
Sec. 15 of Income Tax Cap.340 defines chargeable income of a person for a year of income as
the gross income of a person for the year less total allowed deduction for the period under the act
for that year of income.
Allowed deductions are the areas of concern under tax planning. E.g. initial allowances. IBA,
startup capital, farm works and other allowed deductions under the Act,

b) Tax evasion and avoidance

Tax evasion is an illegal act under the law and punishable, it could result into penalties and also
imprisonment. Hence it's important to comply with the provisions of the law to avoid the above
disadvantages.
Whereas tax avoidance is a legal ac: where the tax payer prepares his books or tax records so as
to reap a maximum benefit within the legal practice (frame work of existing laws) and tax
avoidance is not punishable under the courts of law in Uganda. That is, it's a legal way of using
available tax laws to obtain maximum tax benefits (relief).
c) Capital allowances/deductions
These are allowances given to a tax payer (taxable person) who incurs capital expenditures.
Capital deductions include: initial allowances, IBA, farm works, startup capital, wear and tear
deductions; etc. Capital items that qualify for capital deductions include plant and machinery,
industrial building, motor vehicles, office equipment, R&D expenses, etc.

d) Industrial buildings
This refers to any building which is wholly or partly used or held ready for use by a person in
generation of income included in the gross income in that year of income. Industrial buildings
include; manufacturing operations, R&D into a new method of manufacturing, mining
operations, an approved hotel business, etc.
e) Exempt incomes not subject to tax
(Sec 21), the following amounts are exempt from tax;
 Incomes of listed institutions such as African Development bank, African Development fund,
Agakhan Foundation, European Union, and etc.
 Diplomatic privileges person's incomes.
 Any allowances payable outside Uganda to a person working in Ugandan foreign mission,
etc.
f) Preferential industries
These are industries to which the government attaches special Importance as being necessary for
development. E.g. industries for agricultural inputs, manufacture of mosquito nets, text books,
exports, etc.
g) Allowable expenses and others
Expenses allowed under the Income Tax Act are those expenses that led to generation of income
included in the gross Income in the year of income.
This excludes the expenses that are shared between, the business and the shareholders and such
expenses are to be apportioned using appropriate basis of apportionment and treated as allowed
and disallowed for tax purposes.
Capital deductions are also part of the allowed deductions such as startup capital charged at 25%,
farm works at 20%, IBA, initial allowances, etc.
h) Withholding tax
This is a method of deducting tax at source. This improves the cash flows if the tax payer is
compliant to withholding tax e.g. PAYE because money withheld as tax does not earn interest
and though it's refundable, practically it takes time for the tax authority to refund.
i) Disallowable expenses
Expenses not allowable as deductions for tax purposes to arrive at chargeable income. They
include: depreciation, donations to non-prescribed institutions, personal expenses etc.
j) Double taxation relief
Double taxation means imposition of comparable taxes in two or more countries on the same tax
payer in respect of the same subject matter for identical periods. It means an expatriate working
in Uganda will pay taxes in Uganda as well as in his country of origin. To avoid harmful effects
of double tax, countries enter into agreements either as bilateral conventions or multilateral
reliefs such that income is taxed once.
k) Roll over relief
A resident person can avoid paying tax on disposal of a business asset by transferring the
business asset to a resident company which will in turn offers him paid up shares as
consideration provided the voting power of the seller is 50% or more after transfer.

l)Import duty
Taxes payable on imports, some products are exempt on some duties e.g. raw materials imported
for manufacturing and construction,
m) Excise duty
These are taxes on locally manufactured goods such as soft drinks and imports of certain
categories as motor vehicles above 2250cc.
n) Leasing of equipment
Under finance lease, a taxpayer would be allowed capital deductions at the same time lease
rentals. This obviously improves company's cash flows and savings on tax.

IMPORTANCE OF CORPORATE TAX PLANNING

As the objective of tax planning to maximize the net take home by an individual and 3 company,
it affects all stakeholders. The following benefits accrue:
(a) Choice of a sector or industry to invest in e.g.
o Mining- There is a full allowance of capital expenditure in R&D and tax ratesare different
from corporation tax rates (25%).
o Agriculture - Example farm works (20%), wear and tear, initial allowanceson plant and
machinery, VAT exempt on agricultural inputs, remission of dutyon all raw materials,
o Export - zero rated VAT and duty draw back.
o Tourism- initial allowance on industrial buildings, hotels and lodges.
Industrial allowance is at 5%.
o Manufacturing - Initial allowance on new industrial buildings 20%. Initialallowance on plant
and machinery of 5% p.a.
(b) Choosing where to locate the investment, this "helps in the area of obtaining initial
allowances at 50%, 75%, and 20%, IBA (5%).
(c) How to structure investments, this involves through off-shore planning companies with the
advantages such as low tax rates, tax reliefs, no capital gains tax, sales tax, VAT secrecy and
confidentiality of accounts and high quality of financial infrastructures.

TYPES OF CAPITAL (WEALTH) TAXES:

In taxation, capital taxes and wealth taxes are used inter-chargeable to mean the same thing.
a) Capital stock
This is levied on a stock of wealth frotuei4ier individuals or companies preferably once a year.
b) Capital transfers.
This is a tax transfer on wealth e.g. gifts, Inheritance.
c) Capital appreciation or gains
A liability to capital gains tax arises when a chargeable disposal of a chargeable asset e.g where
you buy an asset and later sell for more than your purchase price, the profit is called a capital
gain on which capital gains tax ought to be paid. Countries like Japan introduced it and later
abolished.
The reason for this tax is to maintain horizontally equality e.g reduce differences of income,
welfare standard of living etc.

Problems Associated With Capital Gain Tax:

1) It reduces efficiency.
People refrain from selling their shares or property in a bid to avoid the capital gains tax i.e.
Adam Smiths invisible hand principle will not work properly.
2) Calculating the capital gains is difficult i.e. considering the value or cost of the asset when it
was acquired and price offered on realization serious estimation problems will arise if the asset
was a gift.
3) Inflationary problems:
Do you index the tax to update the acquisition value in line with retail price index?
Is the retail price index the best measure?
4) Lack of records:
Wealth taxes have 2 common objectives.
I. Horizontal equity i.e. same treatment should be given to similar tax payers.
2. Vertical equity i.e. an equal (difficult) treatment should be subjected to equal (different) tax
payers depending on the wealth.

ANNUAL PERSONAL WEALTH TAX

This tax considers all the individual’s asset less specifies excludes like clothing, jewelry and
shares. It does not exist in Uganda.

Arguments for annual wealth tax

1. It contributes towards government revenue.
2. It promotes horizontal equity.
3. It promotes vertical equity.
4. It leads to efficiency in resource utilization.

Administrative and statistical reasons (government will have the incentive to find out about the
wealth and thereby provide statistical data).

Arguments against annual wealth tax

1.Disclose people don’t like their assets to be known by others.
2. It is difficult to value the assets and during inflation you can’t match with inflationary
tendencies.
3. Economics: It acts as a disincentive to investments as people see accumulating wealth as
accumulating tax liability.
The annual wealth tax is not levied in Uganda but in countries like Sweden, such taxes still exist.
A tax may be levied annually on assets of individuals or natural persons or companies or both.
The Annual wealth on a company however discriminates property held in a certain Levy annua1
wealth tax on companies and persons involves double taxation due to ownership. It is therefore
preferred to levy the annual wealth tax on the value of all assets belonging to natural persons
above a specified threshold fewer assets that may expressly excluded and debts or liabilities.

E-TAX
Introduction
URA, through its modernization process, has introduced a new E-TAX system to cater for
registration of taxpayers, filing of returns, assessments and payment of taxes.
E-TAX is a name given to an Integrated Tax Administration System that provides online services
to the taxpayer on a 24 hour basis

Enrolling on the E-TAX platform

E-TAX enables taxpayers to lodge their applications online through the web portal, from
anywhere on the globe as long as they are connected to the internet.
Upon uploading the application on the web portal, the system will generate an e –
acknowledgement receipt with a reference number and search code that you can use to track the
status.
Note; any attachments have to be delivered to a URA, Domestic Taxes Office.
As the application is being processed, the applicant will be contacted in case of any query,
interview or inspection.
When the application is finally approved, the applicant will be issued a TIN with limited details
displayed on the Certificate of Registration.
Where the application has been rejected, the taxpayer will be issued a rejection notice stating the
reason(s) for rejection in their registered email addresson approval the notice goes with TIN and
password.

Some of the benefits of e registration

A streamlined and less time wasting process, application easily done on the web portal.
Besides registration, the taxpayer will be able to amend his / her registration details with URA in
case of any changes.
Taxpayer will always receive feedbacks on the application and this will be possible especially
when accurate email addresses and telephone numbers (of the taxpayers) are indicated in the
application.
E – Filing
A taxpayer registered with URA for any tax type as the only source of income other than
employment has an obligation to submit a return for the tax period defined by the respective tax
law.
URA has facilitated the taxpayer to fulfill this obligation by introducing electronic filing in of
TAX

E-Filing- how it is done

The taxpayer can obtain a return from the web portal (http://ura.go.ug), save a template on any
storage devise,
Take time to fill in the return and validate the return before they finally upload it on the web
portal.
If the upload is successful, the taxpayer will receive an auto generated e-acknowledgement
receipt which is evidence of submission.
In case of any problems in filling the respective returns, do not hesitate to send an email about
the challenge to URA on the email address; services@ura.go.ug or call the toll free lines.
In case there are errors in the return detected by the system, the taxpayer will be given a chance
to amend the errors when he/she is issued a Return Modified Advise Notice.
The return must be submitted by the due date to avoid penalties for late filing and it must also be
submitted for each tax period to avoid estimated assessments that arise out of non-submission of
returns.
In case the taxpayer is unable to submit a return on time, he or she can apply for the extension of
time to submit a return late using an application form for late filing also found on the web portal.
Some of the benefits accruing from e-filing are that the return process has been clearly separated
from the payment process and the taxpayer can now file returns before/ after making the
payment, or make the payment before/ after filing the return.
NB: Both Payment and Return should be made before the deadline.

E – Payment
A taxpayer required to make payments to URA for any tax type can do so using the new e
payment process.
All the taxpayer needs to do is to go onto the URA web portal (http://ura.go.ug), access the
payment registration slip, register the payment and go to the bank to make the actual payment
over the counter.
The taxpayer now may even not need to go to the bank as such facilities like, MTN mobile
money can be used.

Benefits accruing from E-payment

The taxpayer can utilize the service on a 24 hour basis,
The taxpayer’s costs of movement between his/her premises and URA or the bank are reduced;
and thus saving time.
Taxpayers can also monitor the status of their payments online through the web portal
Other E-Services available
 All you Need to Know about your Motor Vehicle
 Guide if you are Bringing Goods into Uganda
 Get help After Acquiring a Taxpayer Identification Number
 Guide if you Qualify for a Tax Refund
 How to get a Tax Clearance Certificate
 Guide on Taking your Goods Outside Uganda

Other E-Services available

 Licensing for Customs Purposes
 Guidance on Objections and Appeals
 How to Handle your Stamp Duty Transactions
 Tax Audits and Reviews
 Parcels, Passengers and Accompanied Luggage
 Making Changes and/or Alterations to your Customs Documents
 Auctioning of Goods in the Customs Warehouse
Tax returns and Assessments
• Furnishing a return
A return of income(ROI) is a declaration made on a prescribed form to the commissioner on
which income earned/loss made during the year is declared.
A return of income may be filed by an individual, a company or a partnership.
– An individual fills a ROI if their income from all global sources in any year of income is
above 2,820,000/=
– A company fills a ROI for all global income.
– A partnership fills return as if it were a person.
• The two categories of returns used by URA.
– Provisional returns. This is filed before year end and it is based on provisional tax (an
estimated income for the year of income payable in advance before the year end).
– Final returns. This is filed not later than six (With effect from 1st July 2006) months after
the End of that year.
• Due dates for filing of returns of income
• Final return. It must be filed not later than 6 months after the end of that year of income.
• Provisional return.
– Individuals. This is paid in 4 installments.
• First installment. On or before the last day of the first calendar quarter following year of
income.
• Second installment. On or before the last day of the second calendar quarter following year
of income
• Third installment. On or before the last day of the third calendar quarter following year of
income.
• Fourth quarter. On or before the last day of the taxpayer’s year of income.
– Tax payers other than individuals.
– These are liable to pay 2 installments of provisional tax on or before the last day of the
sixth and twelveth month of the year of income.
• Provisional tax is calculated as follows:
– Individual: (25% x A) – B
– Tax payers other than individual: (50% x A) – B
Where;
A is the estimated tax payable by the provisional taxpayer for the year of income.
B is the amount of any tax withheld under this Act, prior to the due date for payment of the
installment.
• Changes of the law
• Please note that since 2014, the assessment issues were repealed from the ITA Sec 95-98;
and due dates Sec 103-110 to Tax Procedures Code Act Sec(2014) 16-19;20-23.
• In this session, Tax Procedures Code Act, will be referred to as TPCA
• Assessments
The TPCA defines an assessment to mean:
(i) The ascertainment of the chargeable income of, and the amount of tax payable on it, by a
taxpayer for a year of income under this Act, including a deemed assessment under Section 96;
(ii) The ascertainment of the rental income of, and the amount of tax payable on it by an
individual for a year of income under this Act;
(iii) The ascertainment of the amount of penal tax payable by a person under this Act; or
(iv) Any decision of the Commissioner which, under this Act, is subject to objection and
appeal;
• Tax assessment
“Tax assessment” means a
self-assessment, default assessment, advance assessment, or additional assessment”;
• Additional assessment” means an additional assessment made by the Commissioner
under section 23 of TPCA;
• “Advance assessment” means an advance assessment made by the Commissioner under
section 22 of TPCA;
• “default assessment” means a default assessment made by the Commissioner under
section 21 of TPCA;
• self-assessment” means an assessment treated as having been made by a taxpayer under
section 20 of TPCA;
• Where a self-assessment return has been filed, the commissioner is deemed to have made
an assessment of the chargeable income of the tax payer and tax payable for the year.
• The self-assessment system imposes on the taxpayer, in the first instance, responsibility
for calculating taxable income and the tax due on that income and for making installment
payments at designated times.
• Payment of taxes
• Payment of provisional tax.
• An individual. It is Paid in four installments in the 3rd, 6th, 9th and 12th month.
• Other tax payers. Provisional tax is paid in 2 installments in the 6 th and 12th
month.
• Payment of final tax.
When the tax payer files the final income tax return himself, payment of any unpaid tax relating
to the assessment for the year of income is due on or before the date when the income tax return
is due for filing.

• Payment of taxes
– Where an assessment is raised by the URA, and served on the tax payer, tax payment is
due not later than 45 days from the date of service of the notice of assessment.
 – Payment of tax withheld. Where tax has been withheld by a withholding agent, it is
payable to the commissioner within 15 days of the end of the month in which the
payment was made by the withholding agent.

Objections and Appeals

Tax Procedures Code Act Sec 24-26
• Changes of the law
Please note that since 2014, the Objections and Appeals issues were repealed from the ITA Sec
99-102 to Tax Procedures Code Act Sec 24-26.
In this session, Tax Procedures Code Act will be referred to as TPCA
• Meanings
• An objection is a communication in writing from a taxpayer to a commissioner
expressing dissatisfaction with an assessment raised on him/her.
• An appeal arises where a tax payer is dissatisfied with the way the commissioner has
handled an objection.
• An appeal is therefore made against the commissioner.
• Validity of an Objection
1) Must be made in writing.
2) Made within 45 days after service of the notice of assessment to which the objection
relates.
3) It must precisely state the grounds upon which the objections is based (grounds of
objection).
4) In case of a late objection, a written application seeking an extension of time to lodge the
objection is made to the commissioner stating the grounds for late objection.
5) Considering the objection
Where a taxpayer has lodged an objection to a tax assessment for a tax period, the Commissioner
may consider the objection if the taxpayer –
(a) Has furnished the return to which the assessment relates in the case of a default or
advance assessment;
(b) Has paid the tax due under the return to which the assessment relates together with any
penalty or interest due.
• Decision on Objection
The Commissioner may make a decision on an objection –
(a) To a tax assessment, affirming, reducing, increasing, or otherwise varying the
assessment to which the objection relates; or
(b) To any other tax decision, affirming, varying, or setting aside the decision.
• Thus the commissioner may accept in whole or in part, and amend the assessment
accordingly, or disallow the objection; and the Commissioner’s decision is referred to as an
“objection decision”.
• If the commissioner does not make an objection decision within 90 days after lodging in the
objection, the tax payer, may by notice in writing to the commissioner, elect to treat the
commissioner as having allowed the objection.
Review of an objection decision:
Sec 25 of TPCA
• A person dissatisfied with an objection decision may, within 30 days after being served with
a notice of the objection decision, lodge an application with the Tax Appeals Tribunal for
review of the objection decision.
• A person dissatisfied with a decision of the Tribunal may, within 30 days after being served
with a notice of the decision, lodge an application with the High Court for review of the
decision.
Appeal to the high court or Tax Tribunal
• A taxpayer dissatisfied with an objection decision may, at the election of the taxpayer –
(a) Appeal the decision to the High Court; or
(b) Apply for review of the decision to a tax appeals tribunal (TAT) established in law by
Parliament for the purpose of settling tax disputes in accordance with Article 152(3) of the
Constitution.
Appealing to high court
• Made on questions of tax law only.
• Lodge notice of appeal with the registrar of high court within 45 days after service of notice
of objection decision.
• Copy the notice of appeal to the commissioner within 5 working days after lodging the notice
of appeal with the registrar of high court.
• Any party (URA or taxpayer) dissatisfied with the decision of the high court, can appeal to
Court of Appeal.
Tax Appeals Tribunal (TAT).
• TAT was established by an Act of parliament in accordance with the Constitution of Uganda-
Article 152(3).
• Procedure is like for the appeal to the high court only that here its more informal as far as
legal procedures are concerned.
• Appeals to TAT are to review the objection decision.
• Appeal to TAT is based on facts and not the law
• TAT High Court Court of Appeal
• Any party ( URA or taxpayer) dissatisfied with the decision of the TAT, can appeal to High
Court, and the a tax payer shall serve a copy of the tribunal.
• Any party (URA or taxpayer) to a preceding before the high court who is dissatisfied with
the decision of the high court , may appeal to the Court of Appeal.

Burden of Proof: Sec 26 of TPCA

• In any proceeding under this Act—
 (a) For a tax assessment, the burden is on the taxpayer to prove that the assessment is
incorrect; or
(b) For any other tax decision, the burden is on the person objecting to the decision to prove
that the decision should not have been made or should have been made differently.

Tax payer dissatisfied

Serves
Taxpayer prefers notice to
Question of law High Court commission
er within

High Court hears

Appeal & takes
decision

Tax payer dissatisfied Question of law? Appeal to court of Court of

Appeal Appeal
decision

Sec 44 (1) of the ITA talks about refund of a tax by URA as a result of Supreme Court. This
suggests that the appeal process does indeed end with the highest court: Supreme Cour
(i)