RESOURCEBOOK FOR PUBLIC

ECONOMICS FINANCE AND FISCAL POLICY

UGANDA ADVANCED CERTIFICATE OF EDUCATION

ECONOMICS
RESOURCEBOOK FOR PUBLIC
FINANCE AND FISCAL POLICY
 Advantages/Merits of Indirect Taxes ............................................................ 31
Demerits of Indirect Taxes ............................................................................ 32
13.3.5 Categories of Taxes ............................................................................ 32
Taxes and du�es collected by the Central Government of Uganda (URA). .. 38
Taxes and Du�es Collected by the Local Government Authori�es. ............. 40
13.3.4 Reasons for the Low Tax Revenue in Uganda .................................... 41
13.3.5 Measures to Increase Tax Revenue in Uganda .................................. 44
13.3.8 The Role of Taxa�on in the Development of an Economy ................ 45
13.4 TAX ADMINISTRATION .............................................................................. 48
13.4.1 Meaning of Tax Administra�on ......................................................... 48
13.4.2 The Role of Uganda Revenue Authority in Tax Administra�on ......... 48
13.4.3 Key Stakeholders in Uganda’s Tax Administra�on ............................ 49
13.5 TAX COMPLIANCE ..................................................................................... 52
13.5.1 Meaning of Tax Compliance............................................................... 52
13.5.2 Elements of Tax Compliance .............................................................. 52
13.5.3 Factors Influencing Tax Compliance .................................................. 53
13.5.4 Benefits of Tax Compliance................................................................ 57
13.5.5 Forms of Non-Tax Compliance ........................................................... 58
13.5.6 Measures for enhancing Tax Compliance .......................................... 59
13.5.7 Rights of the Taxpayer ....................................................................... 61
13.5.8 Obliga�ons of the Taxpayer ............................................................... 63
13. 6 TAX COMPUTATIONS ............................................................................... 65
13.6.1 COMPUTING DOMESTIC TAXES ......................................................... 66
13.6.2 Individual Income Tax ........................................................................ 67
13.6.3 Employment Income Tax (Pay As You Earn) ...................................... 69
13.6.4 Presump�ve Tax................................................................................. 74
13.6.5 Rental Income Tax.............................................................................. 76
13.4 TAX ADMINISTRATION

13.4.1 Meaning of Tax Administration

13.4.2 The Role of Uganda Revenue Authority in Tax

Administration
13.4.3 Key Stakeholders in Uganda’s Tax
Administration
13.5 TAX COMPLIANCE

13.5.1 Meaning of Tax Compliance

13.5.2 Elements of Tax Compliance

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13.5.4
13.5.
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Shs.410,000. Total income exceeds Shs 410,000. Where the chargeable
income of an individual exceeds Shs. 10,000,000 an additional 10% is
charged on the amount by which chargeable income exceeds Shs.
10,000,000.

Step 1: to find taxable income

Shs 11,700,000 – 410,000

= 11,290,000

Step 2

30% × 11,290,000 = 3,387,000

Step 3

25,000 + 3,387,000 = 3,412,000

Step 4 additional income

11,700,000-10,000,000 = 1,700,000

Step 5

10% of excess income

1,700,000x10% = 170,000

(3,412,000+170,000)

PAYE TAX Shs 3,582,000

13.6.4 Taxation of Small Business Taxpayers (Presumptive Tax)
The concept of small businesses in taxation was developed to accommodate

accounts. The preparation of these accounts would usually require engagement

of a professional accountant which is costly. In order to address this challenge,
the Income Tax Act provides for an arrangement of taxing small businesses based
on gross turnover or total sales. This is commonly referred to as presumptive tax.
Who a Small Business Taxpayer is
For income tax purposes, a small business taxpayer is a resident taxpayer whose
gross turnover from all businesses owned by such a person in a year is more
than Ten million shillings but does not exceed ONE HUNDRED FIFTY MILLION
SHILLINGS. The term TURNOVER refers to one’s total sales in a year. However,
persons in the following business activities are excluded from presumptive tax:
• Medical practice • Dental practice
• Architectural service • Engineering service
• Accounting and audit practices • Public entertainment services
• Legal practice • Public utility service
• Any other professional services • Construction service
Note: Persons outside the presumptive scheme are required by law to file
provisional and final income tax returns and be assessed to tax based on
chargeable income for the year.
Determination of Sales for a Small Business Taxpayer
A taxpayer ought to keep records of his or her daily sales which is the basis for
determining the tax bracket under which he or she falls.
Daily sales may be recorded as follows:

Date Item sold Sales (shs)

01/01/2019 Groceries 100,000
02/01/2019 Plastics 200,000

Monthly total 300,000

Keeping this kind of record of daily sales helps a presumptive taxpayer
in ascertaining the monthly, quarterly and annual total sales on which
tax payable would be based. This record will also assist the trader during
Schedule for the computation of “presumptive” income tax for small
businesses
Gross turnover per annum With records Without records
Not exceeding UGX 10 million NIL NIL
Exceeding UGX 10 million but does 0.4% of annual turnover in UGX 80,000
not exceed UGX 30 million excess of 10 million
Exceeding UGX 30 million but does UGX 80,000 plus 0.5% of annual UGX 200,000
not exceed UGX 50 million turnover in excess of UGX 30 million
Exceeding UGX 50 million but does UGX 180,000 plus 0.6% of annual UGX 400,000
not exceed UGX 80 million turnover in excess of UGX 50 million
Exceeding UGX 80 million but does 360,000 plus 0.7% of annual UGX 900,000
not exceed UGX 150 million turnover in excess of UGX 80 million
Illustration
Mukasa owns two businesses. One is a shop located in Mpigi and while another is
a carpentry located in Wakiso. Every year, he derives 60 million from the shop in
Mpigi and 65 million from the workshop in Wakiso. Mukasa is not good at keeping
records but has a counter book where he records daily sales.
Question: Calculate Mukasa’s tax payable every year
Solution:
Total chargeable income = Income from Mpigi + Income from Masaka
= 60,000,000 + 65,000,000
= 125,000,000
Tax payable = 360,000 + 0.7% of (125,000,000 – 80, 000,000)
= 360,000 + 0.7%X 45,000,000
= 360,000 + 315,000
= 675,000
Note: No deductions are allowed in respect of any expenditure or losses and the
assessed tax is final for presumptive tax payers, however one has an option of filing
returns
Key features of the presumptive tax regime
1. The tax is computed on the basis of a GROSS TURNOVER; and is a final tax.
2. No deductions are allowed in respect of any expenditure or losses.
3.
following cases:
a) A tax credit arising out of withholding on receipt included in the gross
turnover of the taxpayer
b) Any provisional tax paid against the taxpayer’s gross turnover during the
year of Income
Note: No deductions are allowed in respect of any expenditure or losses and the assessed tax is final for
presumptive tax payers, however one has an option of filing returns
Election (Option) not to be under Presumptive Tax
A taxpayer who would ordinarily fall under the presumptive tax regime may
opt out by notifying the Commissioner in writing to be assessed on chargeable
income. The chargeable income method involves the preparation of financial
statements by the taxpayer. Such a taxpayer is required to submit the election
notice together with their Annual Income Tax Return for that year by the due
date of filing such return of income.

12%

12%
 12%

1,180,000

1,180,000 x 12% = 141,600

141,600
In determining rental income tax for companies, deduct 50% of the expenses
from the annual rental income and tax the balance at a rate of 30%.

Example 6
RORA Ltd earned 25 million shillings in rental income from their houses
located in Gayaza and Mukono. Their expenses total to 20 million shillings.

Calculate Rental income tax.

Solution
Chargeable rental Income = 25,000,000 – (50% of 20,000,000)
= 25,000,000 – 10,000,000 = 15,000,000
Rental tax paid = 30% X 15,000,000 = 4,500,000
13.6. 10 Environmental Levy
This is a levy imposed to limit the importation of used cars as a way
of protecting the environment. The rate varies depending on the years
of manufacture. Passenger vehicles that are above nine years since
manufacture pay environmental levy of 50% while goods vehicles
above nine years since manufacture pay environmental levy of 20%. All
vehicles pay infrastructure levy except specialized vehicles such as road
drilling and fire fighting vehicles.

Example 12
If you imported a car worth 2,000 dollars, paid 200 dollars for
insurance and 300 dollars as freight charges up to Mombasa and the
exchange rate is 1 dollar = 3,700 shillings; Given the tax rates as:
Import duty = 25%, VAT = 18%, Withholding Tax = 6% determine the
relevant customs taxes.
Step I
Customs Value = Cost + Insurance + Freight
= 2,000 + 200 + 300
= Shs.2, 500
Step II
Customs Value = Customs value X Exchange rate
= 2,500 X 3,700
= Shs. 9,250,000
Step III
Determine the Taxes
Import Duty = 25% of 9,250,000
= 25/100 X 9,250,000
= Shs. 2,312,500
VAT = 18% of (Customs Value + Import Duty)
= 18% of (9, 250,000 + 2,312,500)
= 18/100 X 11,562,500
= Shs. 2,081,250
WHT = 6% of Customs Value
= 6/100 X 9,250,000
= Shs.555, 000
INFRASTRUCTURAL LEVY = 1.5% of Customs Value
= 1.5/100 X 9,250,000
= Shs. 138,750
NB
a. If the car is a passenger vehicle above nine years since the date of
manufacture, you need to compute environmental levy at 50%
ENVIRONMENTAL LEVY
= 50% of Customs Value
= 50% X 9,250,000
= 4,625,000
b. If the car is a goods vehicle above nine years since the date of
manufacture, you need to compute environmental levy at 20%
ENVIRONMENTAL LEVY
= 20% of Customs Value
= 20% X 9,250,000
= 1,850,000

TOTAL TAXES for the passenger vehicle above nine years since
manufacture
= Import duty+ VAT+ WHT+ Infrastructural Levy+ Environmental Levy
= 2,312,500+2,081,250+555,000+138,750+4,625,000
= Shs.9,712,500

TOTAL TAXES for the goods vehicle above nine years since manufacture
= Import duty+ VAT+ WHT+ Infrastructural Levy+ Environmental Levy
= 2,312,500+2,081,250+555,000+138,750+1,850,000
= Shs.6,937,500
NB Please note that there is a value guideline for used cars. This means
that customs value for a used car has already been determined. The
value guideline disregards the invoice price. It is available on the URA
web portal; [Link] under motor vehicle Guidelines.
Domestic VAT
This
Uganda on March 1, 2001. It is VAT charged on standard rated imports

million shillings and above, imported by non VAT registered importers.

Domestic VAT = (CIF + ID + ED) X 15%) X 18%

NB
Motor vehicles manufactured 15years ago are prohibited