TAX ALERT!....AFTER DEPLOYING EFRIS TO TACKLE INFORMALITY IN BUSINESS, URA NOW MOVES TO ENHANCE TAX REVENUE FROM STAMP DUTY.
WHAT IS STAMP DUTY?
Stamp duty is arguably one of the oldest forms of taxation and has existed in Uganda since the colonial times, codified as the Stamps Act of 1915 (Cap.342). This law has since been repealed and a new law enacted as the Stamp Duty Act, 2014.
Stamp Duty is generally a tax on documents, or in technical terms, instruments. It is a tax levied on executed or signed legal, commercial and financial documents (referred to as “instruments”), that emerge as a result of transactions or undertakings, and which are described as chargeable under the Stamp Duty Act. In other words, if there is a document and that document is signed by a party or parties to the transaction or undertaking, that document is chargeable with Stamp Duty. It is payable by the persons liable (generally the parties to the transaction), as listed in Schedule 3 to the Act. To be liable, an instrument must satisfy the following:
Traditionally, to make qualifying documents legal and binding under the Law, stamp duty was paid by impressing (embossing) a stamp on executed instruments upon physical presentation of the instrument to the tax authority and payment of the relevant amount. This has now been replaced with a digital stamp (E-stamping) accessible through the e-tax portal. A unique numerical code (bar code) is printed and attached to the relevant instrument as an endorsement that stamp duty has been paid. Some instruments may benefit from an exemption or relief.
Failure to have a document stamped does not invalidate the document.[2] However, the law confers certain privileges on stamped instruments, which are denied to unstamped instruments. As a direct sanction, an unstamped document cannot be admitted as evidence in civil or arbitration proceedings. In other words, if a person wishes to rely on a ‘stampable’ document in civil court proceedings, it must be stamped (NB: unstamped instruments can be admitted in evidence for criminal purposes).
Under the Act, an “instrument” includes any document by which a right or liability is, or purports to be, created, transferred, limitedmp Duty is generally a tax on documents, or in technical terms, instruments. It is a tax levied on executed or signed legal, commercial and financial documents (referred to as “instruments”), that emerge as a result of transactions or undertakings, and which are described as chargeable under the Stamp Duty Act. In other words, if there is a document and that document is signed by a party or parties to the transaction or undertaking, that document is chargeable with Stamp Duty. It is payable by the persons liable (generally the parties to the transaction), as listed in Schedule 3 to the Act. To be liable, an instrument must satisfy the following:
Traditionally, to make qualifying documents legal and binding under the Law, stamp duty was paid by impressing (embossing) a stamp on executed instruments upon physical presentation of the instrument to the tax authority and payment of the relevant amount. This has now been replaced with a digital stamp (E-stamping) accessible through the e-tax portal. A unique numerical code (bar code) is printed and attached to the relevant instrument as an endorsement that stamp duty has been paid. Some instruments may benefit from an exemption or relief.
Failure to have a document stamped does not invalidate the document. However, the law confers certain privileges on stamped instruments, which are denied to unstamped instruments. As a direct sanction, an unstamped document cannot be admitted as evidence in civil or arbitration proceedings. In other words, if a person wishes to rely on a ‘stampable’ document in civil court proceedings, it must be stamped (NB: unstamped instruments can be admitted in evidence for criminal purposes).
Under the Act, an “instrument” includes any document by which a right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded. Ideally, where there is no document, it may be possible to avoid stamp duty. While there is currently no general anti-avoidance provision in the Act, a shs.2 million court fine for acts undertaken to defraud government of revenue by omitting from a document, facts relevant to chargeability of duty, is provided for. Note that the mere fact that the parties label their transaction in a particular way will not prevent the Court from going behind the transaction to determine its true nature. In that sense the Court must look for, ''the real substance of the transaction instead of forming a judgment upon the mere document or machinery adopted by the parties for the purpose of carrying out the transaction. However, the substance of a transaction embodied in a written document is to be found in ascertaining the legal rights and obligations of the parties under it by construing the document as a whole.
Where no formal or written requirements are needed for an agreement under a law, the agreement can be concluded without written record and any relevant transactions can also be carried out in line with the oral agreement. Accordingly, if any type of transaction can be carried out by spoken words or by conduct, and there is no need for a written agreement, then no stamp duty is due. However, the conclusive force and enforceability of transactions between parties is directly related to whether the transactions are executed through written documents. Section 2 of the Act provides that the terms “executed” and “execution” used in reference to instruments means “signed” and “signature”, respectively i.e. the signing or affixing of a signature onto an instrument. In other words, if a legal transaction can be completed without the execution of an instrument being required, then the transaction will not attract any stamp duty. Plainly, until execution is completed, no duty attaches to an instrument.
From the above, the purpose of the Stamp Duty law is to levy a tax on any document which can be submitted to prove or indicate an issue. Documents which are within the scope of stamp duty are described in the Second Schedule to the Act. Accordingly, it is a legal requirement to have qualifying documents stamped within 45 days of execution in Uganda or if executed outside Uganda, within 30 days of receipt in Uganda. If an instrument is not stamped within the period stipulated, the administrative sanction for non-stamping of a dutiable instrument lies in the personal liability for payment of the duty by the designated party(ies), and in the non-availability of the instrument to be admitted in evidence in the event of a civil proceeding. URA may also resort to prosecution of non-compliant persons, subject to approval by the Attorney General.
Can liability to duty arise even though a document is not effective? Under the Act, an instrument is deemed to be first executed the first time that it is signed by any party thereto. In other words, all documents bearing a signature are liable to duty at the date of first execution. The fact that a contract for a sale or conveyance of a property is expressed to be conditional does not prevent the contract being liable to stamp duty.
The stamp duty rates may be fixed or ad valorem, meaning that the tax paid may be a fixed amount (currently a minimum of shs.15,000 per original document), or an amount which varies based on the value of the products, services, or property on which it is levied, respectively.
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