Parliament rejects withholding tax on land purchase

Kampala, Uganda |  THE INDEPENDENT |  Parliament has rejected a proposal by the government to introduce a withholding tax on the purchase of land in the coming financial year 2020/2021.   

Under the Income Tax (Amendment) Bill, 2020, the government had proposed a withholding tax on the purchase of land other than land which is a business asset, by a resident from a resident person at a rate of 0.5 percent of the purchase price. 

However, during a debate on the Bill, MPs adopted the Finance Committee recommended rejecting the tax.

In his report, the Finance Committee Chairperson Henry Musasizi revealed that the income, in form of capital gains, made on the sale of land which is not a business asset is already exempted from income tax under Section 21 (k) of the Income Tax Act. 

“It is therefore contradictory to impose a withholding tax, as a tax collection mechanism, where the law has exempted the income from tax,” said Musasizi. 

He added that this was double taxation because there is already stamp duty to be paid on transfer of land. Musasizi explained that if approved, it would lead to an increase in land prices as many sellers might not want to incur the tax cost. 

“This will negatively impact families who sell land for non-commercial purposes who are the majority in Uganda. Many Ugandans do not have Tax Identification Numbers-TINs and this makes it difficult on how this tax will be accounted for. There is need for URA to improve tax administration before such a measure can be introduced,” said Musasizi.

The Shadow Attorney-General Wilfred Niwagaba supported the committee position saying that this would make Ugandans perpetually poor and even increase domestic violence in the country.

Bunyaruguru County MP John Twesigye Ntamuhiira also noted that people sell land for different reasons not necessary making an earning. He also objected to the new proposed tax saying that it would pose difficult to citizens.

Bukoto South MP Muyanja Mbabali said that some people buy land to keep it as a form of savings and that taxing it would not be necessary. 

After receiving overwhelmingly support from both sides of the House, MPs voted to have the proposal deleted in the Bill. 

Meanwhile, Members of Parliament resolved that an insurance service provider who makes a payment of a Commission to an insurance agent or advertising shall withhold tax on the gross amount of the payment at a rate of 10 percent. 

Legislators supported Musasizi’s report in which he told parliament that the objective of the tax was to enhance the revenue effort of withholding tax and ease tax administration considering that the majority of the persons who earn commissions do not keep records.

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URN