Uganda Revenue Authority threatens Real Estate Industry

Wednesday, 17th August, 2011

Buying property has never been such a hustle. Julius (not real name), was finalising his payments for a National Housing flat in Kiwatule, but he discovered he had to show proof of tax compliance or suffer up to sh45m income tax on the flat he bought.

“I have been jumping through hoops getting cleared,” he said. The Uganda Revenue Authority’s (URA) recent move to collect income tax using land transactions, threatens to stifle the sector’s dynamism but is projected to raise billions of shillings in previously uncollected revenue, stakeholders say.

Since June, buyers of property or cars above sh50m have had to certify their tax compliance or suffer a 30% tax on the value of the transaction. However, buyers who borrow money to buy the property and can prove it will not suffer the tax or if the purchase is being made by someone abroad, the assumed income used to buy the property will not be taxed.

All income generated in Uganda should attract tax but until now this tax was mostly suffered by income earners in the formal sector. Under the Income Tax Act, tax on individual incomes and company profits can be as much as 30%.

“We have been collecting income tax since 1997, but evasion has been rampant in the informal sector where the transactions are in cash and income cannot be ascertained,” said Moses Kajubi, the URA commissioner for domestic tax.

“The only way to find these people is near their asset; how else we can find their income.”

Understandably, the new move has come under heavy criticism. “This is a brilliant idea on paper,” said a trader who also dabbles in real estate.

“I don’t think property prices will be affected just that the market will be less dynamic than it has been up to this point.” Over the last 10 years, the housing sector has been growing by at least 7% annually, but not making any significant impression on an estimated 550,000 housing unit deficit.

“We are already feeling it. Since the URA started implementing this initiative, I have one or two people who have said they want to wait because of this new move,” a real estate dealer said on condition of anonymity.

“So expect a slowdown in activity as people “organise” themselves to be compliant with URA’s requirements or find other places to park their money.”

Analysts argue that end does not justify the means and warn that this is an ill-advised way of compelling people to formalise their business dealings. They add that this will serve only to increase rather than decrease informality in the economy.

“I don’t care how they coat it. This is a property not an income tax,” the Makerere University Economic Policy Research Centre’s Lawrence Bategeka said. He dismissed claims of billion shilling transactions being done with cash as an indicator of how much income tax is falling through the cracks.

“Then they should go to the source of the income through licensing and formalising of businesses. As it is now, there really is little incentive to formalise business. That is a policy issue,” Bategeka, a senior research fellow, noted.

“People will go underground. They will have transactions done by agreement with agreements being passed down the generations,” he said.

But URA remains unmoved choosing to focus on the plus side. “Our job is to collect taxes and to do so within the law. Up to this point, I don’t think we collect even a billion shillings in income tax from the informal sector. With this new move, we project sh25b in collections,” Kajubi said.

By Paul Busharizi : The New Vision Newspaper