The Ministry of Finance in Uganda had suggested additional taxes on collective investment plans like unit trusts, but the country's Parliamentary Committee on Finance, Planning, and Economic Development has rejected the idea.
A 5% and 15% tax on earnings, interest, or dividends made by members from their contributions to collective investment schemes were suggested. The tax would go into effect on July 1, 2023, and was included in the Income Tax (Amendment) Bill, of 2023.
According to the Bill, members who had made donations totaling less than Sh100 million would be subject to a 5% tax, while members who had made contributions totaling more than Sh100 million would be subject to a 15% tax.
The fee, according to the Bill, would be treated as income tax and would be deducted from the gains credited to a member's account by a unit trust.
The revenue levy (Amendment) Bill contained a proposed levy, but the Committee on Finance, Planning, and Economic Development noted in its report that it had been removed, adding that revenue from such programs would continue to be exempt.
“To maintain income for collective investment schemes as exempted from tax in order to encourage saving and investment culture,” the report reads in part.
According to data from the Capital Markets Authority, there are 32,998 investor accounts in Uganda that are part of collective investment schemes that are run by five licensed managers, including UAP-Old Mutual, ICEA Lion, Britam, Xeno Technologies, and Sanlam Investments. Over Shs1.15 trillion in assets are managed by the five.
Collective investment plans are a type of saving strategy that enables participants to gain from having their savings handled by experts while reducing transaction costs, reducing transaction risk, and increasing access to a choice of security investments at rates that are generally reasonable.
The chair of the committee overseeing finance, planning, and economic development, Dr. Keefa Kiwanuka, announced on Wednesday that in addition to taxes on collective investment plans, the committee has also dropped the capital gains tax that was previously included in the same Bill.
The two taxes were slated for the 2023–2024 fiscal years, which will begin in July.
The plan to enact capital gains tax, according to Mr. Nathan Nandala Mafabi, one of the three committee members who filed a minority report, would limit business income gains that result from the cancellation or fulfillment of corporate debt.
“Thus, capital gains derived from business assets would not be part of business income. Ideally, this was going to ring-fence capital gains as a separate income that would be taxed separately,” he said.