The Tax Procedures Code (Amendment) Bill, 2023 has introduced a tax incentive for taxpayers who can have their interest and penalties waived as at June 2023, under section 40 D. However, this is premised on the condition that the taxpayer pays up all or part of their Principle Tax, in the scenario where part of the principle tax is paid then the waiver is also applied pro rata.
It is very important that the taxpayer understands how they are to benefit from this tax incentive. Uganda Revenue Authority needs to clarify what it actually means by payment of Principle Tax. The Revenue Body with time will come up with clear explanations to this section, but we have tried to use the available legal frame work and work procedures to try to explain this to the taxpayers as much as possible. This article therefore is intended to break down the key components under section 40D and how one benefits from this incentive.
“Section 40D Waiver of interest on payment of Principal Tax
“The Commissioner shall waive the payment of interest and the penalty by a taxpayer, where the taxpayer voluntarily pays the principal tax outstanding at 30th June, 2023, by 31st December, 2023.”
The basis of a taxpayer’s liability is the taxpayer’s Tax ledger. The tax ledger includes all tax transactions of a taxpayer and it is made up of 5 components, these include the following; Returns, Assessments, Penalties, Interest and Tax paid.
Principle Tax has no definition as per the Income Tax or VAT Act, and the ledger as it is currently has no distinction between principle Tax, Penal tax and interest. However, we shall derive the definition/ explanation of Principle Tax from Section 39 (4) of the TPC which states that “For the avoidance of doubt, where interest due and payable under a tax law as at 1st July, 2017 exceeds the aggregate of the principal tax and the penal tax, the interest in excess of the aggregate is waived.” This section clearly differentiates the different components of the ledger that form the taxpayer’s liability into three elements, principal Tax, Penal Tax and Interest.
If we consider the current lay out of the ledger it has returns, assessments, penalties, interest and tax paid, therefore from section 39 it can be inferred that Principle Tax is the sum of Returns and Assessments, Penal Tax is the sum of penalties, and Interest payable.
Therefore, principle Tax is the summation of Total Returns filed and Total Assessments raised (Assessments where objections have not been raised or objections have been raised and rejected by URA), let’s take an example of an Income Tax Ledger;
| Tax Period | Returns | Assessments | Penalties | Interest | Tax paid | Balance |
| July 2020 | 0 | 5,000,000 | 600,000 | 112,000 | 0 | 5,712,000 |
| July 2021 | 1,000,000 | 0 | 0 | 20,000 | 1,000,000 | 5,732,000 |
| July 2022 | 2,000,000 | 0 | 200,000 | 80,000 | 0 | 7,972,000 |
| June 2023 | 2,000,000 | 0 | 0 | 0 | 2,000,000 | 8,012,000 |
| 5,000,000 | 5,000,000 | 800,000 | 212,000 | 3,000,000 |
From the above example this taxpayer’s ledger shows that their outstanding balance
is Ugx 8,012,000, a breakdown of this liability is; Principal Tax (10,000,000), Penal Tax (800,000) and Interest (212,000) and Tax so far paid is 3,000,000. According to Section 40D TPC, if this taxpayer pays their principle tax by 31st December 2023, the entire Penal Tax and Interest will be waived. However according to this ledger the Taxpayers’ Principal tax is 10,000,000, does it mean they have to pay 10 M
to be entitled to the full waiver? If this taxpayer pays 10 M, he will have paid 1,988,000 more than their total liability. Therefore, by inference under section 40D the principal Tax should be less any tax already paid, URA needs to clarify on this though. In the above example the Principle Tax Liability would
be Principal Tax (10,000,000) less Tax paid (3,000,000) which translates to 7,000,000. So if the above taxpayer pays the whole 7,000,000 then the penal tax (800,000) and
interest of (212,000) should all be waived. What happens for partial payment of the principal tax? This will come in our next
edition of understanding section 40D. however we implore URA to come out with a
clear position on how the section 40D will be administered.