Local investors to get 3-year tax holiday

KAMPALA - Ugandans starting up businesses have got a reason to smile after the finance ministry tabled before Parliament a proposal to exempt them from income tax for a period of three years. 

According to the Income Tax (Amendment) Bill 2025, tabled by finance state minister in charge of general duties Henry Musasizi, the exemption will benefit businesses that will start after July 1, this year. 

The tax holiday will benefit Ugandan businesses registered with an investment capital not exceeding sh500m, according to the Bill. Musasizi clarified that the investment caters for all registered investments whose capital is below sh500m. 

The minister said the tax exemption will benefit citizens or their associates who have not previously benefited from any exemption. “The intention is to help businesses to start and grow. We don’t want someone who has just started a business and then Uganda Revenue Authority (URA) asks for taxes,” Musasizi said. 

The current tax law does not provide a blanket tax exemption for start-ups. Companies are generally subject to a 30% corporate income tax rate, except for those operating in strategic industries or places such as industrial parks. 

For example, the current tax regime gives a 10-year tax holiday to developers who establish or rent a facility in an industrial park with an investment capital of $50m (sh182.4b) for foreigners and $10m (sh36.4b) for East African Community (EAC) citizens. 

For general business investments, foreigners are required to have a minimum capital of $10m, while EAC members are required to have capital of $300,000 (sh1.09b) in Kampala metropolitan area and $150,000 (sh547.3m) in upcountry areas.

Bujagali for further exemption 

The Income Tax (Amendment) Bill also proposes a tax exemption for Bujagali Energy Limited to 2032. 

In March 2023, Parliament rejected the Government’s request for a five-year tax waiver, but the finance ministry instead decided to ask for one-year waiver extensions, which have been passing for the last three years. 

This was after MPs asked the Auditor General to first audit all the tax waivers and investments in Bujagali. 

“The rationale of this proposal is to avoid escalation of the end-user tariff since tax is part of the formula for computing the tariff as we await the report from the Auditor General,” finance minister Matia Kasaija told Parliament then. 

The latest extension was in February this year when Parliament approved a request by Musasizi seeking to extend the tax exemption for Bujagali up to June 30, 2025.

NINs to replace TINs 

Musasizi also tabled the Tax Procedures Code (Amendment) Bill, 2025, that proposes replacement of the Tax Identification Number (TIN) with the National Identification Number (NIN) or company registration number. 

Musasizi said the move is aimed at streamlining tax collection, enhance taxpayer identification and reduce tax evasion. 

If passed into law, no individual or company will be issued a license or stamp duty without a NIN or a registration number issued by the Uganda Registration Services Bureau. 

“A local authority, government institution or regulatory body shall not issue a licence or any form of authorisation necessary for purposes of conducting any business in Uganda to any person who does not have a NIN in the case of an individual, or a registration number in the case of a non-individual, or a tax identification number issued by a foreign tax authority with whom Uganda has a tax treaty or agreement for the exchange of information,” the Bill states. 

The Bill also proposes a tax waiver of interest and penalties on outstanding taxes as at June, 30, 2024, if the taxpayer pays the principal by June 30, 2026.

Currently, taxpayers must apply separately for a TIN, which they use for tax purposes.

Gaming and betting 

The Bill also proposes a new gaming and betting centralised payments gateway system that will be linked to the URA electronic notice system. 

According to the Bill, an operator of a casino, gaming or betting activity, shall only receive a wager or money staked and only make payouts through the gaming and betting centralised payments gateway system licensed by the Bank of Uganda under the National Payment Systems Act. 

The Bill proposes a penal tax of sh8m or a penal tax equivalent to double the gaming or withholding tax due for an operator who does not use or is not integrated with the gaming and betting centralised payments gateway system whichever is higher. 
Of recent, there have been several attacks on betting firms and winners, who handle cash.

Stamp duty on pacts scrapped 

The Bill proposes that with effect from July 1, 2025, no stamp duty will be payable on agreements or memoranda of agreement, mortgage deeds (including any related collateral, auxiliary, additional or substituted security) and mortgage of a crop (agricultural loans). 

“That tax measure was ridiculous. You cannot register every agreement you make to make it valid. But I am happy that businesses and individuals will no longer incur stamp duty when entering into contracts or when securing loans using land or crops,” an economist from Uganda Investments Authority, who preferred anonymity said. 

In a market where mortgages over land and real estate are still the most prevalent security taken by lenders, doing away with the current 0.5% stamp duty requirement on mortgage deeds will significantly reduce the cost of borrowing. 

Currently, the Government charges stamp duty on various instruments, including mortgage deeds, agreements and collateral securities, which increases transaction costs, the economist said. 

By extending the relief to primary mortgage deeds and standard agreements, the proposed 2025 amendment reflects a continued effort to support access to credit and lower the cost of doing business in Uganda.

VAT on textile inputs scrapped 

Under the Value Added Tax (VAT) Amendment Bill, the Government has proposed exempting textile inputs from VAT. 

The Bill outlines the textile inputs for exemption as wet processing operations and garmenting, cotton lint, artificial fibres for blending, polyester staple fibre and viscose. 

Others include textile dyes and chemicals, garment accessories, textile machinery spare parts, industrial consumables for textile production and textile manufacturing machinery and equipment. 

The proposed amendments in the Bill will further see solar lanterns exempted from VAT and such products include deep cycle batteries, solar lanterns and raw materials for the manufacture of deep cycle batteries and solar lanterns. 

“The repeal of the VAT exemption on pellets is intended to boost local production, reduce reliance on imports, and advance Uganda’s industrialisation agenda. By supporting domestic manufacturing, this measure is expected to create jobs, enhance value addition, and stimulate economic growth,” Musasizi said. 

Bio-mas pellets have also been exempted, with the justification that this will promote environmental sustainability by encouraging the adoption of cleaner, energy-efficient cooking and heating solutions, reducing reliance on traditional biomass fuels. 
The Bill also proposes zero tax rate on aircraft supply.

Stakeholders comment 

Kampala City Traders Association chairperson Thaddeus Musoke described the proposed tax measures as exciting. 

“This is good news. We are going to make a party if this is passed because this is what we have all along been pushing for,” Musoke said. 

John Walugembe, the executive director of Federation of Small and Medium-Sized Enterprises Uganda, also welcomed the move, saying the tax holiday will enable them start and grow. 

“It is good the tax regime recognises that the people starting business need to be encouraged and supported,” he said, adding that many will be encouraged to formalise their businesses. 

On replacing TINs with NINs, Walugembe expressed concern that the measure is likely to bring so many “unwanted” individuals on the tax register, making it hard for economists to estimate the actual taxpayers on the register. 

Commenting on the tax proposal on gaming and betting companies, the National Lotteries and Gaming Regulatory Board chief executive officer, Denis Mudene Ngabirano, said companies are currently reporting their taxes independently. 

“This new tax measure means that payment for betting and gaming transactions will all be conducted electronically and monitored closely,” Ngabirano said.