This week Uganda Revenue Authority (URA) once again declared
their intention to tax rental income.
Once again, because they do it every so often when they are
under pressure to meet even higher revenue taxes or they are in danger of
posting a deficit.
The landlords of course are jumping up and down, protesting
the “out of the blue” move and threatening to pass on the tax to their tenants.
Good luck to them.
"First of all the tax on rental income has been a fixture in our books since at least the Income Tax Act of 1997. For 20 years! But it goes back even further because I remember landlords not amused at being assessed tax as far back as 1995, when I rented my first house. So the claim URA is springing this out of the blue is the landlords admitting ignorance at best and being disingenuous at worst.
If it is ignorance, it is criminal because how can one
invest hundreds of millions, even billions, of shillings without understanding
the tax code. It brings to questions the source of ones funds, if you can put
such huge sums on the line without appraising oneself of the obligations and
risk involved in the investment.
It is being disingenuous for the same reason.
In fact these landlords have been evading taxes. They would
rather comply quietly than make noise and URA throws the book at them.
There is a deficit of good housing in Uganda. The national
housing policy puts this shortage at 710,000 units, adding that the annual need
for new housing is 200,000.
The argument could be made that the industry needs some
relief to quickly bridge the gap. In fact by enforcing the tax on rental income
URA is laying the ground for our housing shortage to be addressed in a more
systematic manner.
As it is now depending on, who you are, who you know or
whose palms you can grease, you have not been paying taxes on your rental
properties. Unfortunately this relief was not applied uniformly. This caused uncertainty
for serious investors.
To bridge our housing deficit we require investors who can
lay down at least scores of units at a time or even better hundreds of units.
However an investor of that sort looking in would be hard pressed to commit
funds when his competitors are financing their real estate enterprises with
stolen money, held afloat by evading tax while not adhering to basic building
standards.
Last year an official of US Overseas Private Investment
Company (OPIC) said they would not be interested in anything of less than a
billion dollars and a few hundred units. For that kind of investor they need
more certainty than we can currently offer.
"That being said at a fundamental level all economic activity should be taxed. Taxes are the price we pay for civilisation...
Landlords cannot on one hand complain of poor
infrastructure, inadequate security and below par uitilities and with the other
evade taxes. If anything this is to perpetuate the very ills you are
protesting.
Let’s be honest we don’t pay taxes because we want to keep
more of the income for ourselves. If it was for the benefit of our tenants we
would improve the standard of the housing to compensate for the bad roads and
inadequate public services that is not what is happening.
Many of our houses if assessed according to the existing
building code would not even pass the most basic of tests.
As for the threat to raise rents. There is only so much
tenants can pay in rent beyond which they will leave your house. Thanks to the
20 year tax “break” the stock of housing units is much more than it was in the
1990s.
That being said government needs to get serious with the
housing issue. One way is to finance the laying of infrastructure in
residential areas, a major cost in any development project. On another level it
should look to craft industry incentives that are objective and offered without
bias to potential developers.
