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How will the proposed land tax affect you?

Ms Musoke, as a landlord, is interested in the new Income Tax (Amendment) Bill, 2022, in which the government proposes to introduce sub-section 3 to Section 118B of the primary Act, which deals with withholding of tax by the purchaser of an asset.

Ms Sheila Musoke, a 48-year-old lawyer and mother of two, owns a plot of pristine land in Mukono District.

Ms Musoke told Bazzup yesterday that because land is such a sensitive topic in the country, she wants to be up to date on all new land tax suggestions.

“I obtained a copy of the Bill and thoroughly read it,” she explained.

“I’ve had problems in the past when dealing with land transfers, so it’s taught me to pay attention to land debates to avoid being taken for granted,” she added.
Ms Musoke intends to either invest in the land or sell it for a profit in the near future.

If Parliament accepts the proposed tax measures, anyone selling land, a house, or any other piece of property or equipment purchased purely or mostly for commercial purposes will be forced to pay tax.

For the purposes of this section, “business asset” means land, whether the whole or any part of the land, that is used or held for use in any business, except land held as a trading stock, and includes: (a) Land used in business to generate income other than land owned by an individual that is subject to rental tax; and (b) Land owned by a company, trust, or partnership.

Mr Gerald Namoma, a senior economist at the Finance Ministry’s tax policy department, told this publication yesterday that the Bill simply clarifies the definition of company assets, reducing the likelihood of complications such as administrative concerns.

“As a result, this definition in the Bill is attempting to clarify what a commercial asset is, and it is beneficial to business and the economy because people would know what types of land are exempt from taxation,” Mr Namoma explained.

Beneficiaries
Meanwhile, Mr Gerald Ssebandeke, a tax expert with Ligomarc Advocates, stated that the proposed regulation will benefit two groups of people.
Those that engage in land as a trading stock fall into the first category of beneficiaries.
“This means that if someone sells you land for Shs10 million, the buyer will get the entire amount,” Mr Ssebandeke explained.

“Under current law, land that is sold is subject to a 6% withholding tax, which depletes one’s cash flow. According to the present idea, “one will receive all of the Shs10 million because the tax will be waived,” he noted.

“The only tax that will therefore be paid by the purchaser for this particular land is stamp duty, which is paid upon transfer of land title names,” Ssebandeke adds.

Stamp duty is levied at various rates on a variety of transactions, including land.
Individuals whose land is subject to rental tax are also beneficiaries of this proposed law.

“For example, if I own land and rent it to someone to use it for farming, the money I get is rental income, which is subject to rental tax.” So, if I sell this land, I’m meant to get all of the money without keeping anything back,” Mr Ssebandeke explained.

Mr Henry Musasizi, the State Minister for General Duties and Finance, introduced the Income Tax (Amendments) Bill, 2022, and eight other legislation on March 31 before referring them to Parliament’s Finance Committee for review.

 

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