The Uganda Revenue Authority (URA) has started registering landlords ahead of the implementation of a 20 per cent tax on commercial properties whose rental income crosses the threshold of Shs 2,820,000.
A lively debate has since ensued. But rental tax is not a completely new thing. It has been on Uganda’s tax law books for a long time.
The challenge has been on how to collect the tax. The tax authority, for one reason or another, has found it hard to identify owners of commercial properties in order to make fair assessments.
Any measures that lead to a widening of our tax base should be welcomed. Uganda faces huge challenges in financing critical sectors such as health and education at a time when donor money is dwindling.
However, it is important to also consider the fairness of this tax. It is likely the landlords will pass on this tax burden to tenants, most of whom spend half their monthly salaries on rent.
For landlords servicing a bank loan or whose housing units don’t enjoy 100 per cent occupancy in a calendar year, it is hard to see them shouldering this tax burden.
The tax also comes at a time when Uganda has failed to solve many of the bottlenecks that contribute to high rental fees.
High interest rates on commercial credit, a weak Ugandan shilling, poor infrastructure such as roads, and unreliable power supply all combine to add to high rental charges.
High interest rates on commercial bank credit mean that many landlords borrow expensively to build. A weak shilling means that imported construction materials are expensive. A poor road network means that some landlords and tenants have to work on the roads themselves.
Unreliable power supply means some landlords need standby generators. Rental tax only goes further to increase this cost burden, be it on the landlord or the tenant.
So, as URA plans to collect rental tax, it is important for government to invest prudently in areas that can lead to a reduction in the cost of operation and living. Short of that, rental tax will likely make life harder for many already struggling Ugandans.