Accountancy in Uganda

>> Allowances in Uganda

Allowable deductions8

The general rule for allowing expenditure for tax purpose is if they are revenue in nature and incurred wholly and exclusively in the production of income. Expenditure which is allowable under the Income Tax Act includes: –

  • Bad debts are written off subject to specific provision
  • Assessed loss for the provision of year of income carried forward and deducted from the following year of income.
  • Repairs of the Property occupied or used by the person in production of income during the year of income.
  • Expenditure incurred during the year of income on acquiring a depreciable asset (minor capital equipment) of cost base less than Ush.1, 000,000.
  • Expenditure incurred during the year of income for the training or tertiary education, not exceeding in the aggregate five years, of a citizen or permanent resident of Uganda, other than an associate of the employer, who is employed by the employer in a business, the income from which is included in gross income.

Expenditure incurred in starting up a business to produce income included in gross income (restricted to only non-recurring preliminary costs) or in the initial public offering at the stock market shall be allowed a deduction of an amount equal to 25% of the amount of the expenditure in the year of income in which the expenditure was incurred and in the following three years of income in which the business is carried on by the person.

  • Realized foreign currency exchange losses
  • Legal costs relating to collection of trading debts, breach of trading contacts and protection maintenance of trading rights.
  • A gift made during a year of income to an exempt organization/charitable organization (i.e. an amateur sporting association, a religious education or education institution of a public character) for a year of income not exceeding 5% of the person’s chargeable income, calculated before taking into account the deduction.
  • 20% of the expenditure incurred on acquiring farm works in the year of income in which the expenditure is incurred on the acquisition or establishment of a horticultural plant; or the construction of a greenhouse.

There is a new requirement for any person who buys goods above Ushs. 5 million must have a TIN lest the expenditure is disallowed against the reporting taxpayer (S.22 of ITA)

  • Other capital deduction allowances in respect to depreciable assets, industrial building, cost of intangible assets.

8 The section about allowable deductions was extracted from Section 33 (1), Section 30 (1), Section 34 (3) of the Income Tax Act amended 2017.

Non allowable deductions9

Expenditure which is not wholly and exclusively incurred in the production of income and expenditure which is of a capital nature is disallowed. Expenditure which is specifically disallowed includes:

  • Specific bad debts and general provision for bad debt.
  • Self-education and education leading to a degree.
  • Expenditure or loss incurred by a person to the extent to which it is of a domestic or private nature, e.g. Personal expenditure like maintaining of a person and the family, cost of cloth worn to work, cost of commuting between residence and place of work.
  • Any expenditure or loss of capital nature or any amount included in the cost base of an asset.
  • Income tax payable in Uganda or any foreign country.
  • Any income carried to reserve fund or capitalized in any way.
  • The cost of gift made directly or indirectly to an individual where the gift is not included in the individual’s gross
  • Any fine or similar penalty paid to any government or political sub-division of a government for breach of law
  • A contribution similar to a retirement fund either for the benefit of the person making the payment or for the benefit of any other person
  • Life insurance premium
  • Amount of pension paid to any person.
  • Any alimony or allowance paid under any judicial order or written amount separation
  • Expenditure or loss which is recoverable under any insurance contract or indemnity.

9 The Non allowable deductions were extracted from section 24 (1), 22(3) (d), 22 (2),(a), (b),(d) (e),(f),(h),(i),(k),(l),(c) of the Income Tax Act as amended 2017.

Capital allowances

Tax allowances on capital expenditure are available against business income to companies and individuals. The allowances which can be claimed in respect of capital expenditure are; Industrial building allowance; Wear and tear deductions; and Farm works allowance;

Industrial building allowance

IBA at an annual rate of 5% is allowed on capital expenditure incurred on the construction of an industrial building which is used by the person during the year in the production of income included in gross income. The allowance is on a straight line and prorate basis. An industrial building is defined to include a building which is wholly or partly used or held ready for use by a person for manufacturing, research and development into new improved methods of manufacture, mining, an approved hotel business, approved hospital or approved commercial building10.

10 Extracted from section 2 (jj) of the Income Tax Act as amended 2017.

Wear and tear deductions

Wear and tear allowances are calculated by applying the rate of depreciation for that class against the written down Value of a pool on a reducing balance basis. There are four wear and tear classes;

Class Assets Included Rate
1 Computers and data handling equipment 40%
2 Automobiles; buses and mini-buses with a seating capacity of less than 30 passengers; goods vehicles with a load capacity of less than 7 tonnes; construction and earth moving equipment 35%
3 Buses with a seating capacity of 30 or more passengers; goods vehicles designed to carry or pull loads of 7 tonnes or more; specialized trucks; tractors; trailers and trailer-mounted containers; plant and machinery used in farming, manufacturing or mining operations. 30%
4 Rail cars, locomotives and equipment; vessels, barges, tugs and similar water transportation equipment; aircraft; specialized public utility plant, equipment and machinery; office furniture, fixtures and equipment; any depreciable asset not included in another class11. 20%

11 Extracted from sections 27, 28, 29 sixth schedule part 1 of the Income Tax Act as amended 2017.

Farm works allowance

Farm works are defined to include, fences, dips, drains, water and electricity supply works, labour quarters and any other immovable buildings necessary for the proper operation of the farm. Depreciable assets used in production of farming income are depreciated under class 3 through the ordinary Wear and Tear. Farm houses are excluded.


Latest version updated 11th April 2019

Country Breakdown

44.27

Million

Population

USh

Ugandan shilling

Currency

$ 25.89

Billion

GDP

241,037

km2