- Proposed amendment of Section 10
The principal Act is proposed to be amended in section 10 which defines a supply of goods by inserting immediately after subsection (3) the following—
“(3) The supply of goods by auction is suited as supply of goods made by the auctioneer as the supplier in the course of auctioning goods.” and
(4) For avoidance of doubt, the treatment of the supply of goods by the auctioneer under subsection (3) is separate from the treatment of the supply of the auction services by the auctioneer.”
The current law obliges the auctioneer to account for VAT on the auctioneer services offered by the auctioneer but does not provide for charging VAT on auctioned items by auctioneers. The proposed amendment introduces an obligation for auctioneers to account for VAT on sale of auctioned goods.
- Proposed amendment of section 16 of principal Act
Section 16 of the principal Act is proposed to be amended by substituting for subsection (2) the following—
“(2) Notwithstanding subsection (1), a supply of services by a person who carries on business outside Uganda and who does not have a place of business in Uganda shall take place in Uganda if the recipient of the supply is not a taxable person or a person who makes a supply with a total annual value in excess of the amount specified in section 7(2) or a government entity that is not registered under section 7(5) of this Act and-
(a) the services are physically performed in Uganda by a person who is in Uganda at the time of the supply;
(b) the services are in connection with immovable property in Uganda;
(c) the services are radio or television broadcasting services received at an address in Uganda;
(d) the services are electronic services delivered to a person in Uganda at the time of the supply;
(e) the supply is a transfer, assignment or grant of a right to use a copyright, patent, trademark or similar right in Uganda; or
(f) the services are the supply of telecommunications services initiated by a person in Uganda, other than a supply initiated by—
(i) a supplier of telecommunications services; or
(ii) a person who is roaming while temporarily in Uganda.”
The current law imposes the obligation to account for VAT on a non-resident supplier of electronic services when they supply a non-taxable person. This assumes a B2C context once the recipient is not VAT registered. However, there are entities that are not VAT registered but importing electronic services in a B2B context such as schools, hospitals, insurance companies and so on. This amendment imposes an obligation on a non-taxable person who makes supplies above the VAT registration threshold to account for VAT when they import electronic services.
(b) Section 16 of the principal Act is proposed to be amended by inserting immediately after subsection (4) the following—
“(4a) Electronic services shall be delivered to a person in Uganda at the time of supply as referred to in subsection (2) (d). ; and
(4b) The Minister may by statutory instrument prescribe the rules of determining that the electronic services are delivered to a person in Uganda.”; and
This provision clarifies when electronic services are delivered in Uganda. This has been a subject of contention in some Tax Appeals Tribunal such as Ernst and Young v URA TAT Application No. 30 of 2020. This therefore brings clarity to the law.
The provision also empowers the Minister to issue a Statutory Instrument for determining that the electronic services are delivered to a person in Uganda. Rules may include use of the use of the IP address, or the recipient’s billing address, or the recipient’s bank details, including the account the recipient uses for payment or the billing address held by the bank, or the location of the recipient’s fixed land line through which the service is supplied to the recipient.
(c) Section 16 of the principal Act is proposed to be amended in subsection (5) by substituting for paragraph (a) the following—
“(a) electronic services” means services supplied through an online or digital network by a supplier from a place of business outside Uganda to a recipient in Uganda including—
(i) websites, web-hosting or remote maintenance of programs and equipment;
(ii) software and the updating of software;
(iii) images, text and information;
(iv) access to databases;
(v) self-education packages;
(vi) music, films and games; including games of chance;
(vii) political, cultural, artistic, sporting, scientific and other broadcasts and events; including television;
(viii) advertising platforms;
(ix) streaming platforms and subscription based services;
(x) cab-hailing services;
(xi) cloud storage;
(xii) data ware housing; and
(xiii) any other service as the Minister may by statutory instrument determine.”
This provision adds the following services to the definition of electronic services – advertising platforms; streaming platforms and subscription based services; cab-hailing services; cloud storage; data ware housing; and any other service as the Minister may by statutory instrument determine.
- Proposed amendment of section 28 of principal Act
- subsection (5), by inserting immediately after paragraph (c) the following—
“(d) payment for entertainment made by a taxable person for membership of a person in a club, association or society of a sporting, social or recreational nature; or
(e) goods or services incurred by a taxable person provided for under section 16 (2) of this Act.”
The current VAT law disallows a claim for input tax on entertainment. However, the definition does not extend to payments for club membership fees, association, or society of a sporting, social or recreational nature. This proposed amendment introduces the limitation of input tax claimed by a person on non-business-related expenses.
Input credit is also denied to non-residents supplying services that are deemed to be supplied in Uganda under Section 16(2) of the VAT Act.
- Section 28 of principal Act is proposed to be amended in by inserting immediately after subsection (6) the following—
“(6a) For the purposes of subsection (1), (2), or (3) “business use” or “use in the business” applies only to the related business, generating a taxable supply.”
This provision appears to be attempting to limit the claim of input tax to the output of a business stream in which the input was used. Thus where a taxpayer has multiple business streams, input VAT can only be claimed in relation to the specific business stream in which it was used. This amendment appears to be a reaction to interpretations of the current law such as the recent decision in Chestnut Uganda Limited v URA TAT No. 94 of 2019 (decided on 31st March 2021) where Chestnut owned Arena Mall and was in the business of developing, managing and exploiting it. Chestnut was making a taxable supply in the form of renting advertising space to Outdoor Atom Limited and as such was VAT registered. Chestnut made a claim for input tax credit incurred on the construction of Arena Mall while it was still under construction and URA attempted to deny the claim of input. The Tax Appeals Tribunal held in favour of Chestnut stating that:
“There is nothing in the VAT Act that requires a taxpayer to restrict credit input tax to only one business. Therefore, for the respondent [URA] to contend that the applicant should only apply VAT input in respect of construction of the Arena mall would be confusing the terms ‘commercial activity’ with ‘business’ of a taxpayer.”
This amendment attempts to overturn this position to restrict input to the specific business stream to which it relates.
- Proposed amendment of section 31A of principal Act
Section 31A of the principal Act is amended by inserting immediately after section (1a) the following—
“(1b) Notwithstanding subsection (1), a person who makes a supply of a total annual value in excess of the amount specified in section 7(2) and who imports a service, shall lodge a tax return with the Commissioner General within fifteen days after the end of the tax period in which the service was imported.”
This proposed amendment imposes an obligation to non-registered persons who make supplies above the registration threshold and imports a service to file a return.
- Proposed amendment of section 42 of principal Act
Section 42 of principal Act is proposed to be amended in subsection (2) (b) by deleting the words “with consent of the taxable person”.
This amendment removes the consent of the taxpayer in deciding whether to offset tax credits or seek a refund. The Commissioner will have full discretion in making that decision.
- Proposed amendment of section 65A of principal Act
Section 65A of principal Act is proposed to be amended by repealing subsection (2).
In 2017 the capping of interest was introduced in the different tax legislation. The purpose of this repeal is to have the capping of interest harmonised under the proposed amendment to Section 39 of the Tax Procedures Code Act in the Tax Procedures Code (Amendment) Bill, 2023.
- Proposed amendment of section 73 of principal Act
Section 73 of principal Act is proposed to be amended by inserting immediately after subsection (2) the following—
“(3) Notwithstanding subsection (1), a taxpayer under section 16 (2) of this Act may file a return and may pay the tax in the return in United States dollars.”
This proposed amendment permits non-resident providers of services who are required to register for VAT to make payment in US dollars.
- Proposed amendment of First Schedule to principal Act
The First Schedule to the principal Act is amended by inserting the following in its appropriate alphabetical position—
“ZEP-RE (PTA Reinsurance Company)”
This exempts ZEP-RE (PTA Reinsurance Company) from VAT.
- Proposed amendment of Second Schedule to principal Act
- in subparagraph (q), by substituting for item (viii) the following—
“(viii) adult diapers”
This replaces the exemption of diapers with an exemption of adult diapers. Ordinary baby diapers now become standard rated.
- by substituting for subparagraph (qa) the following—
“(qa) the supply of animal feeds, premixes, concentrates and seed cake”
This proposed amendment extends the VAT exemption to premixes, concentrates and seed cake.
- by substituting for subparagraphs (ww) the following—
“(ww) the supply for billets for further value addition in Uganda”
This eliminates VAT exemption on the supply of all production inputs into iron ore smelting into billets and leaves the supply for billets for further value addition in Uganda as exempt.
- by repealing subparagraphs (yy) and (fff)
This eliminates VAT exemption on the supply of all production inputs necessary for processing of hides and skins into finished leather products in Uganda and the supply of leather products wholly made in Uganda. The repeal of (fff)- supply of cotton seed cake- is linked to the proposed amendment of Paragraph 1(qa) which exempts seed cake.
- The Second Schedule to the principal Act is amended in paragraph 1 in subparagraph (ooo) by deleting the words “from cassava”
This proposed amendment leaves only the supply of liquefied gas and denatured fuel ethanol as exempt from VAT