INTODUCTION TO TAX AND

TAXATION IN UGANDA

BY

MARTIN MUGIRI
(M&E and Municipal Financing Consultant)
mugirim@gmail.com
(June 2016)
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Learning Objectives
Basic

understanding of taxes and

taxation
Why we pay taxes and how these
taxes are used
The tax system in Uganda
Rights and Responsibilities of a
taxpayer

Presentation Structure
Meaning

of Tax
History of Taxation in Uganda
Characteristics of a Tax
Principles of Taxation
Legal Basis of Taxation
Structure of Ugandas Tax System

1. Tax and Taxation

Defined
Tax

is any compulsory levy from

individuals or entities to the
government
It involves a transfer of resources
from the private to thepublic
sector
Tax is levied on a basis of
predetermined
criteria
and
without reference to specific
benefit received.
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Taxes Defined Key things to

note
Taxes

can be levied Directly (e.g.

PAYE) or Indirectly (e.g. VAT,
Import duty)
Tax is levied on taxpayers as per
prevailing laws.
Payment
of
tax
does
not
necessarily entitle the payer to
corresponding
benefits
from
government
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2. Origin of Taxation
Traced

to the early civilization

and development of organized
and modern societies (Greek,
Roman, Egyptian)
The
need for well financed
administrative structures, and
increased
expenditure
for
infrastructure and public services
In ancient times, material items
like a portion of harvest and/or
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History of Formal Taxation in

Uganda
Traced

to
the
British
Colonial
Administration times for undertaking
public works.
Hut Tax introduced in 1900
Poll tax on all male adults in the early
1920s
Income Tax in the 1940s, imposed on
Europeans and Asians in the market
economy
Graduated tax in the 1950s to finance
local governments
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3. Justifying Taxation
Concept

of Public goods and services

e.g. Defence and Security, public
administration, Roads and Street lighting.
Require heavy investment, and individual
payment of full cost can be too high.
When provided, they generate benefits to
all individuals whether they paid or not.
One persons enjoyment cannot diminish
or exclude benefit to others (non
excludability)

4. Objectives of TaxationThe
Why?
To

finance government expenditure

To regulate demand and supply to
manage inflation
To
achieve strategic objectives like
employment creation, and protecting
local industries.
Consumer protection and behavioural
influence
e.g.
environmental
levy;
tobacco
Distribution of wealth and income. Tax
the rich and provide benefits to society.
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5. Principles / Canons of
Taxation
Basic

concepts which guide the design

and implementation of a good tax system
Enabling
tax
administration
with
minimum pain to the tax payer.
These include;
Equity / Fairness
Convenience
Certainty
Economy
Simplicity
Ability to Pay
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Principles / Canons of
Taxation
Equity/Fairness:

I.

a) Horizontal Equity: Tax payers that

are equal in incomes / wealth
should pay equal tax
b) Vertical Equity: Contribution to tax
should increase as taxable income
increases.
II.

Convenience: Taxpayer should

under go minimal difficulty.
Place, medium, mode, manner
and time of payment are critical

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Principles / Canons of
Taxation
III.

IV.
V.

VI.

Certainty: Time, Reason of payment,

Amount to be paid should be clear to
all parties.
Economy: Administrative cost of tax
collection should be minimal (<5%)
Simplicity: Assessment and collection
methods
must
be
simple
to
understand.
Ability to Pay: The tax should not
take away too much income of the
payer (<35%).
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Taxes & Taxation Concepts

Tax

Evasion: Failure to pay

legally due taxes.
Tax Avoidance: Legal means of
decreasing your tax bill

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6. The Ugandan Tax System

THE EXECUTIVE: The President approves all
Parliaments bills into law

PARLIAMENT: Enacts all relevant tax laws and

approves policies

NATIONAL TAXES:
Collected by URA on behalf
of MoFPED

LOCAL TAXES:
Collected by Respective
LGs for provision of
local services

VAT, Income Tax, Rental

Tax, Excise Duty, Gaming
Tax, Import Duty, Trade
Regulations etc

Local Service Tax, Local

Hotel Tax, Property Tax,
Trade Licences, Market
Dues
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Types of Taxes in Uganda - Highlights

1.

Income Tax:

a) Tax imposed on a persons taxable

income at specific rates.
b) Person
includes
an
individual,
company,
partnership,
trustee,
Government
and
subdivisions
of
Government.
c) Chargeable income is that derived
from three main types namely;
business, employment and property
d) Business Income: Trading in goods,
professional services, capital gains etc
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Types of Taxes in Uganda - Highlights

e) Employment Income includes Wages,
Salary, leave pay, payment in lieu of
leave, overtime pay, fees, commission,
gratuity, bonus, allowances, benefits in
kind e.g. company car
f) Employment Income is collected
monthly in form of Pay As You Earn
(PAYE), remitted by employer to URA.
g) Property Income: dividends, interest,
natural resource payments, rents,
royalties and any other payments
derived by a person from the provision,
use or exploitation of property.
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Types of Taxes in Uganda - Highlights

2.

Value Added Tax (VAT)

a) Introduced in Uganda in 1996.

b) An indirect tax paid by a person who
consumes or imports specified taxable
goods and services.
c) Charged as the value added at different
stages of production or supply of
goods/services.
d) Tax rate is either Zero or standard (18%)
e) Payable
by
VAT
registered
persons/entities (those with minimum
annual turnover of Shs 50m)
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Types of Taxes in Uganda Highlights

3.

Local Hotel Tax:

a) Tax levied and paid by room

occupants of hotels and lodges.
b) Collected by the Management of
the hotel/lodge and remitted to the
local government.
c) Ranges from 500/= to US$2 per
room.

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Types of Taxes in Uganda Highlights

4.

Local Service Tax

a) Tax payable by persons in gainful

employment,
self
employed
professionals
and
artisans,
businessmen/women and commercial
farmers.
b)
For employees, it is deducted by
employer and remitted to the local
government
c) Ranges from 5,000/= to 100,000/=
annually
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5.

Trading Licence
a) Permission granted to someone
upon application to a controlling
authority to do business in a
prescribed manner, usually after
payment of a fee
b) Guided by Licencing Act CAP 101
for purposes of maintaining trade
order
c) Non-national
require
clearance
from Ministry of Trade before
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applying.

Types of Taxes in Uganda Highlights

Customs Duty: Taxes levied on imported
goods (Import Duty) or exported goods (Export
Duty).
7. Local Excise Duty: Tax on consumption of
specified locally manufactured goods, services
e.g. Airtime, beers and imported goods.
NB: Customs and Excise Duties can be
6.

a)

b)

an Ad Valorem Duty (fixed percentage of the

value of the goods that are being imported e.g. 5%
of value) or
a Specific Duty (specific amount of money that
does not vary with the price of the goods but with
its weight, volume, surface e.g. Shs 50 per litre of
fuel)

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Rights of a Tax Payer

Confidentiality

of information
declared for tax purposes
Right of appeal within the tax
authority body or independent tax
tribunal.
Right to Equity / Impartiality /
Presumed Innocence until proven
guilty when his/her tax affairs are
being handled.
Right to tax refunds where
applicable
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Responsibilities of a Tax
Payer
Be

aware and comply with tax

requirements and regulations
Voluntarily register with the tax
authorities.
Obtain
a
Tax
Identification Number
Pay the due taxes promptly
Make full disclosure of information
and transactions at all times.
Cooperate with tax authorities in the
process of tax administration.
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THANK YOU

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