Parliament Scraps Software Import Tax Proposal, Approves VAT Amendment Bill

Updated by HICGI News Agency at 1153 EAT on Wednesday 22 April 2026

Parliament on Tuesday passed the Value Added Tax (Amendment) Bill, 2026 into law, after rejecting a government proposal to introduce an 8% tax on imported software.

Input tax credit refers to tax paid on business purchases that can be deducted when calculating output tax. Lawmakers warned that the proposed levy would undermine Uganda’s Digital Vision strategy and increase costs for both government systems and private sector operators.

The decision followed the presentation of the Finance Committee report by Amos Kankunda during a plenary sitting on Tuesday.

Debate on the Bill was marked by sharp disagreement, particularly over a separate provision granting VAT input tax relief for large-scale hotel and tourism developments.

The proposed input tax exemption was intended to stimulate investment in one of Uganda’s key foreign exchange–earning sectors. However, Members of Parliament raised concerns over the high eligibility thresholds set for both local and rural investors, arguing that they could exclude smaller operators.

Outgoing Kampala Central MP Muhammad Nsereko led opposition to the proposed software tax, warning that it would undermine years of investment in the country’s digital infrastructure.
“We have spent a lot of money on digital transformation, but here we are now trying to promote the very same thing that destroys the fabric of digital transformation,” Nsereko said.

“This gadget is hardware; without software, this gadget is useless.”

He pointed to the government’s Integrated Financial Management Information System (IFMIS), a key component of public financial management under the Digital Uganda Vision, as an example of systems that could be affected by increased software costs.

“The biggest consumer of software transformational updates in this economy is the payment systems we are using — the government payment system… IFMIS,” he said.

Muhammad Nsereko warned that existing contracts with software providers would likely have to be renegotiated, potentially increasing costs for taxpayers and public institutions, including Parliament, which rely on secure digital systems.

The ICT sector contributes about 9% to Uganda’s GDP and supports more than 2.3 million jobs, growing at an estimated annual rate of 14.8%, according to a Global System for Mobile Communications Association (GSMA) report.

Minister of State for Finance Henry Musasizi later conceded and agreed to withdraw the clause.

Speaker Anita Among put the matter to a vote, where MPs overwhelmingly backed its removal, upholding the principle that VAT should not become a cost burden for VAT-registered businesses.

The Bill’s most contentious provision — Clause 4(a), which amends Section 28 of the principal VAT Act (Cap. 349) — was retained after extensive debate. The amendment extends the period within which developers can claim input tax credits on civil works, feasibility studies, design, construction services, and locally unavailable materials for hotel and tourism projects.

Under the new framework, qualifying investors must commit at least $10 million (about Shs 36.9 billion) for foreign investors or $5 million (about Shs 18.4 billion) for Ugandan investors. Eligible inputs must have been incurred no more than two years prior to project commissioning.

Currently, developers are only allowed to claim VAT on costs incurred within six months of project completion. The Ministry of Finance argued that the change is necessary to prevent VAT from becoming a sunk cost in large-scale projects that typically take several years to complete.

“Large hotels often take about two years to build; therefore, any VAT paid before the six months cannot be claimed and becomes a cost to the developer,” said Amos Kankunda.

The Finance Committee backed the foreign investment threshold but recommended reducing the local investor threshold to $1.5 million (about Shs 5.5 billion). However, a minority report led by Mbale Industrial Division MP Karim Masaba proposed lowering it further to $500,000 (about Shs 1.8 billion) for rural investments, and extending the input tax credit window to 10 years.

“High thresholds favour large multinational chains that often repatriate profits. Lower thresholds empower local enterprises to build facilities that reflect indigenous culture and retain wealth within the country,” Masaba argued.

Nandala Mafabi also criticised the two-year limit, saying many hotel projects require more flexible timelines given their scale and financing structures.

However, Minister of State for Finance Henry Musasizi defended the provision, stressing the need to attract high-value investments capable of generating jobs and stimulating economic growth.

Tourism contributes about 3.64% to Uganda’s GDP and supports an estimated 1.56 million jobs, representing roughly 14.7% of the workforce, according to Uganda Tourism Satellite Account data.
The Bill now awaits presidential assent and is expected to take effect in the 2026/27 financial year.

-Observer

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