{UAH} The rental tax of 25% should not scare you

By Maverick Blutaski 

The rental tax of 25% should not scare you if you understand the political calculus. It's unintended consequence is to redirect your investment options to less obvious "gold" mines. But the actual political intent is to escalate the existing financial distress among the urban poor to distract them, then facilitate a cascade of gradual loan defaults and foreclosures so those with access to the public vault can take over those properties on the cheap. This is already happening and the 25% rental tax among others is just Kasukali twongeremu. 

If I have UGX150M today, between buying a 12Dec plot, whose actual value is inflated by 50%, in Kyaliwajjala to build rentals and 20 acres of land in Kapeeka or Bweyale for agriculture, I would go for the later. There is no hefty tax on agriculture or agricultural land as property itself. It will arrive possibly in 30 years when the value is up there for me to liquidate anyway long into my retirement. 

Taxation is good especially if the revenue is used to optimally deliver public goods. 

But again, like any cost, taxation must not out weigh the benefits associated with ones investment or cripple an industry. 

So you borrow 150M/- to buy a plot whose actual value is inflated by 50% in "juicy" Kampala at an annual interest rate of 25%. Before you complete paying the loan, you are under pressure to develop it and use other vehicles to secure another loan of UGX 250M/- at an interest of 25% to put up rentals. You buy building materials with 18% VAT locked and once you get tenants at completion you must pay 25% of the rental income in taxes. This does not account for the income tax aka PAY AS YOWERI ENJOYS(P.A.Y.E) which you pay already from the income that gave the bank any remote assurances you deserve a loan. 

It is a complex web of financial engineering that often breaks the back of a genuinely ambitious invester. It by default turns the tax payer into a "beast of burden". 

 There is also the systemic residual risk of Ugandans being an unable to pay their rent on time because of the very fragile nature of the cartoon economy yet the Banks don't want to hear non of that. If taxation does not deliver the intended benefits for the investment, then the invester has to shift his investment elsewhere or in another sector. 

What are the alternatives?The population is growing and a large population needs food and housing. But the government is also getting weary of a large population of poor urban dwellers in Kampala who form a large section of opposition supporters. Their incomes won't grow and the government knows this. A rental tax is to force the renters/tenants to dig deeper into their pockets even when already struggling to survive. The net effect is to drive a wedge between tenants and landlords and between borrowers and banks exerting pressure on the urban hustler and divert them from the political demands of the day. With the potential for defaults, the Banks will be foreclosing on properties sending some investers back to their cracle. The government is saying go back to the village and start from the basics. There is some trickle down economics you taking your 150M investment to the village away from Kyaliwajjala. 

The political calculation is to force defaults on bank loans and have those with access to the public vault in the Central Bank take over Kampala suburbs while pushing the former owners back to their villages. 

Temwesiiba mu Kampala. Don't wait for Bank loans and taxes to force you back to the village where you have nothing. 

Mzee Kabulasoke.

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