By Trevor Lukanga Bwanika
A charitable act from the government should be welcomed with open hands. Full advantage of such an act should be taken by a well-meaning taxpayer. The Tax Procedures Code (TPC) Amendment Act, 2023 was recently passed providing for an amnesty for waiver of interest and penalties. This act of benevolence is similar to what we saw in 2007 when Uganda implemented its first tax amnesty programme under the Finance Act of 2007.
While there have been other tax amendments over the years to provide for waiver of interest and penalties the operationalisation of the 2023 amendment is different from those. For example, the 2019 amendment to the Tax Procedures Code Act (TPCA) provides for waiver of interest and penalties on condition that a taxpayer concedes to having committed an offence before court procedures are undertaken. Likewise, it’s different from the 2020 amendment which waived any interest and penalties outstanding as at 30 June 2020.
This is because the tax authority’s operationalisation of the 2020 amendment did not result in a complete waiver of interest and penalties as intended by government. The good news is that the Tax Appeals Tribunal gave a ruling that, for now, provides for full waiver of interest and penalties as initially intended. A reflection from 2007 shows us that it has taken the Government of Uganda sixteen years to implement a similar tax amnesty, they do not come that often.
The current tax amnesty applies to only domestic taxes, i.e. income tax (including corporate and personal taxes, withholding tax and pay as you earn), value added tax, excise duties, stamp duty and lotteries and gaming taxes. The tax amnesty does not apply to customs and import duties. It’s not clear why this time the tax amnesty does not cover customs duties yet the 2007 amnesty included customs duties. Perhaps the reason could be the change in the legal framework where the 2007 amnesty was granted in accordance with the Finance Act (which encompassed both domestic taxes and customs duties) yet the current tax amnesty is provided for under the TPCA which does not govern tax administrative procedures with respect to customs duties.
So how does the tax amnesty work?
Firstly, the tax amnesty applies by waiving a taxpayer’s interest and penalties outstanding as at 30 June 2024 provided the taxpayer pays the Uganda Revenue Authority (URA) all principal tax due by 31 December 2024. Where the principal tax is not fully paid to the URA by the taxpayer, the waiver of interest and penalties applies on a pro-rata basis. According to recently issued guidelines from the URA, even where a taxpayer paid the principal tax prior to 30th June 2024, outstanding interest and penalty relating to the principal tax paid shall be waived.
Secondly, the tax amnesty applies to both non-resident and resident taxpayers in Uganda. The non-residents may take advantage of the amnesty in respect to unpaid tax arising on only income derived from Ugandan-sources. For example, if you are a non-resident that owns shares in companies located in Uganda and Kenya, and you sold shares in both companies but never paid capital gains tax in Uganda, a URA disclosure would only relate to the shares sold in the Ugandan company. Therefore, this tax amnesty presents a good opportunity for non-residents to re-examine any income derived from Ugandan sources and its tax consequences.
For the resident taxpayers, you have an opportunity to declare and pay only principal tax on income derived from sources in Uganda as well as income derived outside Uganda. Your income from a Ugandan source could comprise undisclosed income derived from your Kikuubo business whereas undisclosed foreign income could relate to capital gains, dividends, interest, royalties, rent etc earned from offshore investments.
Accordingly, for the purpose of full disclosure to the URA, resident persons with undisclosed offshore investments should establish the tax consequences of such passive income. The Convention on Mutual Administrative Assistance in Tax Matters (Implementation) Act came into force on 1 July 2023. You can expect the URA to use this information exchange avenue to start automatically receiving information on offshore investments of resident persons. So the sooner foreign investments are declared the better.
Although not apparent, if handled well, this tax amnesty programme can help Uganda in combating anti-money laundering and counter-terrorism financing (“AML/CFT”) as required by the Financial Action Task Force (“FATF”). If taxpayers disclose the source of assets to the URA and tax is paid on such assets, this tax amnesty can be used as one of the avenues to reduce the risk of Uganda remaining on the FATF grey list. This is because the beneficial owners of previously undisclosed income would now be known to Ugandan authorities.
How may the URA best benefit from this programme?
A side from the short-term benefit of revenue collection, to maximise benefits of this tax amnesty, there is need for the URA to give assurance to taxpayers seeking to regularise their tax affairs that there will be fair and objective application of the tax law. This helps in achieving the overarching objective of a tax amnesty which is to improve tax compliance at a very low cost as well as broaden the income tax base resulting from prospective taxation of previously untaxed income or assets.
However, it is not established yet as to whether the URA will achieve the desired tax compliance. Why? It’s less than two months to the deadline of 31 December 2024 and we still come across some questions from would be beneficiaries, for example whether a taxpayer currently under audit would qualify for the tax amnesty? What information does the URA require as part of the disclosure process? To incentivise delinquent taxpayers, should taxpayers expect stern enforcement measures taken in the post-tax amnesty period? etc. If such questions are addressed by the URA, it lends better credence to the tax amnesty programme, improves trust and transparency and encourages the delinquent taxpayers to come clean regarding their tax affairs.
Setting aside URA guidance, it’s prudent that as a taxpayer you start examining your transactions to ensure that you take full advantage of this window. However, the question is where do you start and what tax risks should you be looking out for? In my next article I will take you through some of the key tax areas you should consider for review. I will start with some of the monthly taxes and later consider annual taxes whose tax risk I will attempt to breakdown based on a balance sheet and profit and loss statements.
The writer is a Senior Manager Tax
Article first published on the pwc website
