In the 2012/2013 budget speech, finance minister Maria Kiwanuka proposed to increase the PAYE threshold from Shs130,000 to Shs235,000 per month. She added that the “tax bands would be adjusted accordingly” and details would be contained in the Income Tax (Amendment Bill) 2012.
The minister also proposed “an additional 10%” to be imposed on individuals with “chargeable income of Shs.120 million and above per year”.
It appears most journalists (and probably MPs) didn’t understand the importance of the proposed changes for the individual tax payer. A lot of attention was paid to low income earners. But the minister’s proposals will actually affect both low and high income earners. In simple terms, anybody earning up to Shs235,000 will not pay income tax imposed on individuals. But also, those earning between Shs235,000 and Shs10,000,000 will pay less PAYE than previously. Alternatively, we can say they will take home more than they did previously.
However, individuals who earn above Shs10,000,000 will pay slightly more in income tax under the new proposed rates. Even then, however, it will not be 40% of their total income as some had suggested. In fact, the total income tax for an individual earning a chargeable income of Shs15,000,000 will be Shs4,902,000 or 32.68%.
The details in the Income Tax (Amendment Bill) 2012, which has since been published, provide the different bands. I will concentrate on the income tax rates for resident individuals (that is, in general terms, Ugandans and foreigners who spend more than half the year in the country in a given financial year).
Below are the rates applicable under the new proposals (they are proposals until Parliament passes them into law).
Income Tax Rates Applicable Resident Individuals:
|
Chargeable income (per year) |
Rate of tax |
|
Not exceeding Ushs 2,820,000 |
Nil |
|
Exceeding Ushs. 2,820,000 but not exceeding Ushs. 4,020,000 |
10% of the amount by which chargeable income exceeds Ushs. 2,820,000. |
|
Exceeding Ushs. 4,020,000 but not exceeding shs. 4,920,000 |
Ushs. 120,000 plus 20% of the amount by which chargeable income exceeds Ushs. 4,020,000. |
|
Exceeding Ushs. 4,920,000 |
(a) Ushs. 300,000 plus 30% of the amount by which chargeable income exceeds Ushs. 4,920,000 and
(b) Where chargeable income of an individual exceeds Ushs 120,000,000 an additional 10% charged on the amount by which chargeable income exceeds Ushs. 120 ,000,000 |
Knowing that most Ugandans think about their income in monthly terms, we can simplify the table above by using monthly figures.
Income Tax Rates Applicable Resident Individuals:
|
Chargeable income (per month) |
Rate of tax |
|
Not exceeding Ushs 235,000 |
Nil |
|
Exceeding Ushs. 235,000 but not exceeding Ushs. 335,000 |
10% of the amount by which chargeable income exceeds Ushs. 235,000. |
|
Exceeding Ushs. 335,000 but not exceeding shs. 410,000 |
Ushs. 10,000 plus 20% of the amount by which chargeable income exceeds Ushs. 335,000. |
|
Exceeding Ushs. 410,000 |
(a) Ushs. 25,000 plus 30% of the amount by which chargeable income exceeds Ushs. 410,000 and
(b) Where chargeable income of an individual exceeds Ushs 10,000,000 an additional 10% charged on the amount by which chargeable income exceeds Ushs. 10 ,000,000 |
Let’s use some examples to show how the proposed rates would work.
|
Monthly income |
Tax on 235,000 |
10% tax of amount exceeding 235,000 |
Sh10,000 tax on amount exceeding 335,000 but below 410,000 |
20% tax of amount exceeding 335,000 but below 410,000 |
Sh25,000 of amount exceeding 410,000 |
30% tax of amount exceeding 410,000 |
Additional 10% tax on amount exceeding 10,000,000 |
Total Tax |
|
235,000 |
0 |
- |
- |
- |
|
- |
- |
0 |
|
335,000 |
|
10,000 |
- |
- |
- |
- |
- |
10,000 |
|
410,000 |
|
|
10,0000 |
15,000 |
- |
- |
- |
25,000 |
|
500,000 |
- |
- |
- |
- |
25,000 |
27,000 |
- |
52,000 |
|
750,000 |
- |
- |
- |
- |
25,000 |
102,000 |
- |
127,000 |
|
1,000,000 |
- |
- |
- |
- |
25,000 |
177,000 |
- |
202,000 |
|
2,000,000 |
- |
- |
- |
- |
25,000 |
477,000 |
- |
502,000 |
|
5,000,000 |
- |
- |
- |
- |
25,000 |
1,377,000 |
- |
1,402,000 |
|
8,000,000 |
- |
- |
- |
- |
25,000 |
2,277,000 |
- |
2,302,000 |
|
10,000,000 |
- |
- |
- |
- |
25,000 |
2,877,000 |
- |
2,902,000 |
|
11,000,000 |
- |
- |
- |
- |
25,000 |
3,177,000 |
100,000 |
3,302,000 |
|
12,000,000 |
- |
- |
- |
- |
25,000 |
3,477,000 |
200,000 |
3,702,000 |
|
15,000,000 |
- |
- |
- |
- |
25,000 |
4,377,000 |
500,000 |
4,902,000 |
|
20,000,000 |
- |
- |
- |
- |
25,000 |
5,877,000 |
1,000,000 |
6,902,000 |
When the above total taxes on the different earners are taken as a percentage of income, the individuals who earn Shs20,000,000 a month will be paying 34.51% while those with Shs.10,000,000 will be paying 29.02% and those earning Shs5,000,000 28.20%.
Clearly, the only people who are going to pay more in taxes are those earning above Shs10,000,000.
Although the government used a “politically correct” formula of saying their additional income exceeding 10,000,000 per month will be subjected to an additional 10% tax, another way of looking at it would be to say they will be paying 30% for income from Shs410,000 to Shs10,000,000 and 40% on the income exceeding Sh10m.
The table below shows the alternative way of calculating the tax for individuals earning above Shs10,000,000 per month.
|
Monthly income |
Tax on 235,000 |
10% tax of amount exceeding 235,000 |
Sh10,000 tax on amount exceeding 335,000 but below 410,000 |
20% tax of amount exceeding 335,000 but below 410,000 |
Sh25,000 of amount exceeding 410,000 but below 10,000,000 |
30% tax of amount exceeding 410,000 but below 10,000,000 |
40% tax on amount exceeding 10,000,000 |
Total Tax |
|
11,000,000 |
- |
- |
- |
- |
25,000 |
2,877,000 |
400,000 |
3,302,000 |
|
12,000,000 |
- |
- |
- |
- |
25,000 |
2,877,000 |
800,000 |
3,702,000 |
|
13,000,000 |
- |
- |
- |
- |
25,000 |
2,877,000 |
1,200,000 |
4,102,000 |
|
14,000,000 |
- |
- |
- |
- |
25,000 |
2,877,000 |
1,600,000 |
4,502,000 |
|
15,000,000 |
- |
- |
- |
- |
25,000 |
2,877,000 |
2,000,000 |
4,902,000 |
|
20,000,000 |
- |
- |
- |
- |
25,000 |
2,877,000 |
4,000,000 |
6,902,000 |
As you can see, the total tax remains the same. But here, the formula for tax payable by an individual earning Shs15,000,000 would be:
[(10,000,000 - 410,000)*30% + 25000] + [ (15,000,000 - 10,000,000)*40%] = 4,902,000
The politically correct formula would be:
[(15,000,000 - 410,000)*30% + 25000] + [ (15,000,000 - 10,000,000)*10%] = 4,902,000
I am told URA and the Ministry of Finance have been arguing over which of the formulas is a correct interpretation of the proposed amendments.
But not to lose time, URA has already posted a new PAYE calculator on their website. To try it out yourself, go to www.ura.go.ug, check under the Information Library section, and look for PAYE Calculator under DT Guides.
The following table shows the difference in individual net incomes between the previous and proposed PAYE regime.
Analysis of Old and Proposed PAYE regimes based on Various Monthly Salaries
|
Monthly income |
Old PAYE Rates |
OLD NET before NSSF |
% of Tax |
New PAYE Rates |
NEW NET before NSSF |
% of Tax |
Difference |
|
235,000 |
10,500 |
224,500 |
4.47 |
0 |
235,000 |
0 |
10,500 |
|
335,000 |
30,500 |
304,500 |
9.10 |
10,000 |
325,000 |
2.99 |
20,500 |
|
410,000 |
45,500 |
364,500 |
11.10 |
25,000 |
385,000 |
6.10 |
20,500 |
|
500,000 |
72,500 |
427,500 |
14.50 |
52,000 |
448,000 |
10.40 |
20,500 |
|
750,000 |
147,500 |
602,500 |
19.67 |
127,000 |
623,000 |
16.93 |
20,500 |
|
1,000,000 |
222,500 |
777,500 |
22.25 |
202,000 |
798,000 |
20.20 |
20,500 |
|
2,000,000 |
522,500 |
1,477,500 |
26.13 |
502,000 |
1,498,000 |
25.10 |
20,500 |
|
5,000,000 |
1,422,500 |
3,577,500 |
28.45 |
1,402,000 |
3,598,000 |
28.04 |
20,500 |
|
8,000,000 |
2,322,500 |
5,677,500 |
29.03 |
2,302,000 |
5,698,000 |
28.78 |
20,500 |
|
10,000,000 |
2,922,500 |
7,077,500 |
29.23 |
2,902,000 |
7,098,000 |
29.02 |
20,500 |
|
11,000,000 |
3,222,500 |
7,777,500 |
29.30 |
3,302,000 |
7,698,000 |
30.02 |
-79,500 |
|
12,000,000 |
3,522,500 |
8,477,500 |
29.35 |
3,702,000 |
8,298,000 |
30.85 |
-179,500 |
|
15,000,000 |
4,422,500 |
10,577,500 |
29.48 |
4,902,000 |
10,098,000 |
32.68 |
-479,500 |
|
20,000,000 |
5,922,500 |
14,077,500 |
29.61 |
6,902,000 |
13,098,000 |
34.51 |
-979,500 |
As you can see, individuals earning between Shs335,000 and Shs10,000,000 per month will take home an extra Shs20,500 per month.
But our friends earning above Shs10,000,000 will take home a little less. Some may call it pocket change. Others will continue cursing the tax collector.
About the Author: Dr. Mwesige is co-founder and executive director of the African Centre for Media Excellence. He is a former head of the Department of Mass Communication at Makerere University, where he was also a senior lecturer, and a former executive editor of the Monitor.
