Computation of Rental Tax in Uganda - FY2023-2024
9 Dec 2023
14 min read
Section 5(1) of the income tax Act Cap 340 of the laws of Uganda imposes rental income tax for each year of income on every person who has chargeable income for the year of income.
In this article, we discuss the step by step process in computing accurately the rental income tax liability of a resident individual as per the income tax (amendment) bill 2023/2024 of the tax laws of Uganda.
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Calculating the Rental Income Tax Liability for a Resident Individual in Uganda
Rental Tax Explained
This is tax levied on income earned by a person from letting out immovable property (land and buildings) in Uganda. For income tax purposes, it does not matter whether the building is let out as a residence or for commercial use. Property is let out by a landlord or landlady to another person also known as a tenant for a consideration.
A person (landlord or landlady) may take the form of an individual e.g Robert Wamala, a corporate body e.g., RORA Properties Ltd, Government e.g Luwero District Administration, an institution e.g. Makerere University, or a listed institution such as Deposit Protection Fund of Uganda. In this article, we are mainly going to focus on the taxation of individuals.
Taxation of Rental Income is provided for under S. 5 of the Income Tax Act. This is rent earned by persons and is segregated and taxed separately as though it were the only source of income for the taxpayer.
Tax law provisions in the computation of Rental Tax for an individual
In determining the tax due for individuals, the threshold for payment of tax is Shs. 2,820,000 and no other deductions are allowed.
Tax is charged at a flat rate of 12% for individuals and 30% for non- individuals.
Steps in Computation of Rental Tax for an individual
In computing individual rental tax for a resident individual, the following steps are
considered:
Step I:
Determine the total annual gross rents from all sources of the individual;
Step II:
Deduct the threshold of Shs.2, 820,000; therefore chargeable rental income =
R-2,820,000
Step III:
Determine rental income tax at 12% i.e. 12 %( R-2,820,000)
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Activity Question (Exam Type)
Acul Ocolo earned annual rent of: Shs 3,500,000 from a house in Kitintale, Shs 900,000 from a house in Kabale and Shs 600,000 from a house in Lyantonde. He is charged an annual interest of 500,000 on a mortgage he got from the bank to build the houses. Acul Ocolo incurred Shs. 4,000,000 as expenses in generating the rental income.
Required
Determine the Rental tax payable
SOLUTION:
The rental tax is computed as follows:
Step I:
Determine the total annual gross rents from all sources of the individual Gross
rental income = 3,500,000 + 900,000 + 600,000 = 5,000,000
Step II:
Deduct the threshold of Shs.2, 820,000 = 5,000,000-2,820,000
Therefore chargeable income= 2,180,000
Note: No other deductions allowed
Step III:
Determine rental income tax at 12%
So 12% X 2,180,000 = 261,600
Rental tax payable = Shs. 261,600
About the Writer
CPA Innocent MUGISHA
CPA Innocent Mugisha is a Professor of Finance and Accounting with over 10 years experience in teaching Accounting and Finance related courses including Financial Accounting both at University and Professional level. His qualifications are: PhD (candidate), MBA(Finance), CPA(U), FCCA, CIPS, CTA and BCOM (Accounting). Innocent has also published various books on most topics in Accounting and Finance for Business and Professional Studies.
