Government dragged to court over rental tax

The Ugandan government has been dragged to the Civil Division of the High Court in Kampala over the rental income tax that recently came into effect.

In a suit filed on Monday, The Open Forum Initiative(TOFI), a policy advocacy non-profit organization says the Minister of Finance was wrong in exercise of powers undr section 164 of the Income Tax Act  to make The Rental Rates(Income Tax) Regulations ,2020 and publish them under the gazette without getting approval from parliament.

“The regulations which prescribe rates on rental properties along roads , lanes or streets specified in the schedule to the regulations was passed but didn’t follow the rightful procedure of obtaining parliamentary  approval as required of statutory instruments made under section 5 of the Income Tax Act, cap 340,”the group says.

They also argue that the said regulations as prescribed in the Income Tax Act impose a minimum prescribed rental income and rate of tax applicable thereof but they aver that this has not been tabled before parliament for debate and approval as required by law.

“The continued existence of the Rental Rates(Income Tax) Regulations 2020 is an illegality which ought not to be pardoned by this court.”

Orders

The group wants court to quash the rental tax for having been illegally gazetted  by the Finance  Ministry without approval of parliament as required under section 5 of the Income Tax Act.

“The applicants seek for an order restraining and preventing Uganda Revenue Authority from enforcing The Income Tax(Rental Rates) Regulations ,2020 Statutory instrument no.42 of 2020 published in the Uganda Gazette .”

Rental tax

An individual, company, partnership, trustee, retirement fund, a government, a political subdivision of a government and a listed institution that has rental income for each year of income is liable to rental tax.

Rental income is the total amount of rent derived by a person for the year of income from the lease of immovable property (land rented for a washing bay, customs bond, selling sand or gravel and/or buildings like a house, flat, apartment, office) in Uganda with the deduction of any expenditures and losses incurred in respect of the property.

Rental income is segregated from business income and taxed separately. Rental tax is charged for each year of income and is imposed on every person who has rental income.

The rental income of a resident individual for a year of income is charged to income tax at 20% of the chargeable income excess of Shs2,820,000 while the rental income of a company for a year of income is charged to income tax is at 30%.