Uganda’s 2024/2025 tax amnesty opportunity URA’s Santa gift to taxpayers

Historically, tax amnesties have been recommended, especially in developing economies, during periods of economic hardship. The International Monetary Fund (IMF) often advises governments to implement tax amnesty programs during such times, as they help struggling taxpayers meet their obligations while bolstering state revenue. These programs are designed to achieve several objectives, including:

Increased tax revenue - A tax amnesty encourages voluntary payments, resulting in immediate revenue collection.

Widening the tax base - By bringing previously non-compliant taxpayers into the formal tax system, the government can expand its tax base.

Improved compliance - Tax amnesties foster long-term compliance, reducing tax evasion in the future.

Economic relief - They provide taxpayers with a lifeline, allowing them to settle liabilities without the financial strain of penalties and interest.

Reduced tax disputes - They help clear backlogs and minimize ongoing disputes between taxpayers and the tax authority.

Uganda’s first tax amnesty program, introduced under the Finance Act of 2007, offered a waiver on interest and penalties. The features of this initial program included voluntary disclosure and the waiver of penalties for taxpayers who paid their outstanding principal taxes within a specified period. The URA hoped that by encouraging voluntary compliance, it could reduce the size of the informal sector and increase tax revenue.

In 2023/2024, the tax amnesty aimed to collect unpaid taxes and incentivize taxpayers to regularize their tax affairs. However, due to technical issues and delays in enacting the tax bills, the program did not yield the anticipated results. Although the URA waived approximately UGX 272 billion in penalties, it only collected about UGX 50 billion in taxes. Many taxpayers struggled to organize their cash flow within the limited timeframe, missing out on the benefits of the amnesty.

For the financial year 2024/2025, the government plans to collect UGX 29.67 trillion in tax revenue. This is part of a broader fiscal consolidation agenda aimed at improving revenue collection, reducing borrowing, and controlling government spending. Recognising the challenges faced by taxpayers during the previous tax amnesty, the Ministry of Finance extended the tax amnesty program for another year.

Under the Tax Procedures Code (Amendment) Act, 2024, Section 40E provides for the waiver of interest and penalties on tax liabilities outstanding as of 30 June 2023. To benefit from this amnesty, taxpayers must meet one of the following conditions:

Full waiver: All interest and penalties will be waived if the taxpayer pays the entire principal tax outstanding by 31 December 2024.

Pro-rata waiver: A portion of the interest and penalties will be waived proportionally if the taxpayer pays part of the principal tax by 31 December 2024.

This amnesty is designed to encourage taxpayers to settle their principal tax obligations by the end of 2024, providing them with financial relief while boosting compliance.

Who stands to benefit?

Many taxpayers find themselves in difficult situations where their tax ledgers accumulate interest and penalties, often due to a lack of knowledge or mismanagement. Some, in their eagerness to start businesses, obtain Tax Identification Numbers (TINs) but fail to meet their obligations regarding income tax and other business-related taxes. Over time, their tax ledgers become so problematic that they see no way out. For these taxpayers, the amnesty is an opportunity to reset their tax obligations and avoid further complications.

The 2024/2025 tax amnesty applies to both resident and non-resident taxpayers. Residents, in particular, have the chance to declare and pay the principal tax on income derived from both domestic and foreign sources. Full disclosure of offshore investments is also required, as Uganda, like other OECD countries, implements international standards for tax transparency and exchange of information under the Convention on Mutual Administrative Assistance in Tax Matters. This agreement, which came into effect on 1 July 2023, allows the URA to request information on the offshore investments of Ugandan residents.

It’s important to note that this tax amnesty covers only domestic taxes, such as income tax, Value Added Tax (VAT), stamp duties, gaming and lottery taxes, and excise duties. It does not extend to customs duties or import taxes.

Why This Amnesty is a Win-Win for Both URA and Taxpayers

Benefits to URA:

Immediate Revenue Collection: By incentivizing taxpayers to settle their outstanding principal taxes, the URA can recover significant unpaid taxes without resorting to costly enforcement measures.

Increased Compliance: The amnesty promotes a culture of voluntary compliance, which should reduce future tax evasion and increase long-term tax revenue.

Reduced Administrative Burden: Clearing delinquent accounts helps the URA focus its resources on more critical compliance and enforcement tasks.

Benefits to taxpayers:

Financial Relief: Taxpayers can clear their principal tax liabilities without the added burden of penalties and interest, significantly reducing the amount they owe.

Avoiding Legal Action: Settling outstanding liabilities through the amnesty allows taxpayers to avoid legal consequences or audits that could result from prolonged non-compliance.

Rebuilding Relations with URA: Paying outstanding taxes under favourable conditions enables taxpayers to rebuild their relationship with the URA and stay compliant moving forward.

Key considerations for taxpayers and URA

To benefit fully from the tax amnesty, taxpayers should:

Pay on Time: Settle all or part of their principal taxes by 31 December 2024 to benefit from the waiver.

Ensure Accurate Reporting: Avoid further disputes by declaring and settling their tax liabilities accurately.

Plan Financially: Those unable to pay the full amount should consider partial payments, as the waiver is applied on a pro-rata basis.

For the URA, key considerations include:

Monitoring and Enforcement: Implementing measures to ensure taxpayers adhere to deadlines and maintain compliance after benefiting from the amnesty.

Capacity Building: As more taxpayers regularise their affairs, the URA should be prepared to handle increased compliance activities and provide adequate support.

Conclusively, the 2024/2025 tax amnesty presents a unique opportunity for both the URA and taxpayers. This is a timely gesture from the Ministry of Finance and URA, offering much-needed relief as Uganda seeks to enhance its fiscal performance. This is your Christmas Santa from the Uganda Revenue Authority and the Ministry of Finance at large!

The writer is a chartered Accountant and Tax Advisor