A proposal by the Government to impose a 5% tax charge on land deals within cities and municipalities has been rejected by Parliament.
The lawmakers, who passed the Income Tax (Amendment) Bill, 2024 on Monday, argued that the 5% tax proposal was not only discriminatory, but also unequitable.
MPs added that the proposed tax, which was first tabled three years ago, was rejected because it focuses on capital gains on non-business assets for dealers in city and municipality land.
BACKGROUND
The Government had introduced a 5% tax on the capital gains derived from the disposal of non-business assets targeting shares of a private company, rental property subject to rental tax and land in cities or municipalities, except the principal place of residence, saying it will boost revenue figures.
The tax was required to be paid within 15 days of the disposal, during which period, notifications were required to be made to the commissioner general of the Uganda Revenue Authority (URA).
REJECTION FROM MPS
However, MPs led by the chairperson of Parliament’s committee on finance, Amos Kankunda (Rwampara), argued that there is a capital gains tax arising from the sale of shares in a private limited liability company provided under Section 21 (k) of the Income Tax Act.
Similarly, they argued that rental property is subject to rental tax under Section 5 of the Income Tax Act.
Therefore, Kankunda said imposing another rate of 5% would not only cause a conflict in the implementation of the provision, but also lead to double taxation.
“Land being a factor of production should not be subjected to tax since it has the effect of increasing the cost of doing business.
The proposal is discriminatory and not equitable since it proposes to tax land in cities or municipalities,” he said.
MPs argued that land is not a business asset that should be brought under the capital gains tax.
The rejected clause stated: “A tax shall be charged on the gains from the disposal of nonbusiness assets at a rate of 5% on the gain computed under subsection 4.
The tax payable by a person shall arise from the gains from the disposal of property, such as shares of a private company, land in cities or municipalities except the principal place of residence and rental property that is subject to rental tax under Section 5 of this Act.”
Non-business assets mean all assets owned by an individual or a company or its subsidiaries, whether currently or in the past, which do not relate to the business.
REAL ESTATE CONCERNS
Outside Parliament, the proposed tax had triggered a storm, with real estate dealers arguing that the 5% withholding tax on property sale, especially land, will kick them out of business.
In earlier interviews, Shirley Kongai, the president Association of Real Estate Agents Uganda (AREA-U), said:
“Tax on property and land affects the common man because it affects the prices of real estate. If that tax affects the cost of construction, when time comes for me to sell that property, I will pass on the burden to the end user.”
Kongai argued that the real estate business has been rendered unpredictable and unattractive to the prospective investor, since every year, new taxes are introduced.
“Last year, we were bombarded with rental tax, which digs deep into our profits. This year, the Government is proposing withholding tax on sale of property. This makes planning for our future investment into this market impossible,” Kongai said, advising the Government to come up with innovative ways of raising taxes instead of targeting property developers.
“The real estate sector is currently not regulated. The Real Estate Bill was tabled in Parliament 14 years ago, but pushed back to the lands ministry, where it
