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The URA is toughening up on the rental income tax and deploying tax compliance technology.

Despite a thriving real estate market, Uganda Revenue Authority (URA) Commissioner General John Rujoki Musinguzi voiced dissatisfaction with the low collection of rental income tax.

Despite a thriving real estate market, Uganda Revenue Authority (URA) Commissioner General John Rujoki Musinguzi voiced dissatisfaction with the low collection of rental income tax.

Given the fast expansion of the real estate market, Musinguzi called the meagre Shs120 billion collected each year from rental income taxes as “unbelievable” during a recent meeting with significant taxpayers.

According to him, the sheer volume of property development in Kampala during the previous five years implies that a significant amount of revenue is being lost.

Behind the scenes, the authority launched the fully operational Rental Tax Compliance System at the same time as the conference (rTCS).

URA ran an initial trial based on rTCS analytics from September to December last year.

The first batch of analytics was released on September 26, 2021, and it focused on 88 high-income, non-compliant landlords in Greater Kampala and their 285 related properties.

On November 29, 2021, the second set of analytics was released, which included 2,000 non-compliant property owners and their 9,521 properties.

Landlords without tax identification numbers (TINs), those who claimed no rental revenue, and those who had not filed tax returns in the previous five years were all included in the study.

Following the successful trial, the full rTCS software program was launched on April 18th, with URA Rental Team training starting the next day.

rTCS is a sophisticated software program that identifies the persons or businesses most likely to be underpaying their rental income tax obligations.

The software’s rollout follows the Minister of Finance’s request to URA to broaden the tax base in order to relieve the load on the few complying taxpayers.

According to the IRS, the rTCS program has discovered slightly over 70,000 unregistered landlords (those without TINs) and their related properties, as well as another 80,000 landlords who are either not filing tax returns or under-declaring or not declaring their rental revenue.

In comparison, the system recognized about 4000 people as compliant.

Commissioner of Domestic Taxes at URA Sarah Muzungyo Chelengat believes broadening the tax base is critical because COVID-19 has damaged tax collection from the few compliant landlords, limiting URA’s ability to meet its rental targets.

“COVID had a significant impact on rental income collections in the last nine months of 2022, and many commercial properties were closed down.” This suggests that landlords didn’t have rental money, and even those who had couldn’t pay on time, relying on promises from tenants to pay,” Chelengat explained.

“As a result of this, we’ve had a lot of taxpayers request payment in installments, and those who were working lost their jobs but still had to pay rental income to their landlords—had it’s a rippling effect across the supply chain,” she stated.

Since the implementation of rTCS, however, URA has focused on reducing the burden on the few who pay by expanding the tax base of unregistered landlords.

According to Chelengat, rTCS identifies a large section of the population that has never been identified before.

“Landlords have not been in the tax net,” she explained, “but we are doing registrations to bring them on board, and many of them are actually registering.”

URA will focus heavily on rental tax in the coming months in order to fulfill its ambitious revenue collection target of Shs21.9 trillion this fiscal year.

“We are hoping that as the fiscal year draws to a close, we will be in a better position to exceed the target,” Chelengat added.

The business sector has also urged the government to focus on unregistered landlords in order to increase the revenue base and turn around the economy’s downward spiral.

Francis Kisirinya, the Chief Membership Officer at the Private Sector Foundation, testified before the National Economy Committee on Wednesday, May 11, 2022, that while rent has had poor tax revenue collections, the real estate sector is increasing.

“Based on what we know about this industry, we can tell you that not even 25% of tax income is received.” How can you complain that you don’t have money if you can’t even collect half of a sector?” Mubiru pondered.

Most Ugandans in the middle class, he said, avoid paying rental taxes.

“In this sector, there is mediocre performance; most middle-class Ugandans are the perpetrators of this tax component, but you can never hide rentals,” he argues.

Manufacturers, according to Mubiru, want the government to employ National Identity Cards to track people in the informal sector so they can pay taxes.

“We have national IDs; we can extract land data and registration data,” Mubiru continued, “so we can tap into the majority of Ugandans who have decided to remain informal but are doing well.”

“This is precisely how rTCS operates.

The software combines data from a variety of ministries, departments, and organizations to identify properties in the Greater Kampala Metropolitan Area with their beneficial individual or corporate owners, allowing URA to bring these informal landlords into the official economy.”

Meanwhile, Uganda’s national budget continues to be financed mostly through external and internal borrowing.

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