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MARK RUHINDI
In January this year, the Uganda Revenue Authority(URA) issued a public notice reminding taxpayers of compliance obligations under the Stamp Duty Act in regards to agreements executed or received in Uganda.
In the aftermath of that Public Notice issuance, I wrote a commentary emphasizing the need for Parliament to bring the Stamp Duty Act into the digital age, bearing in mind that a sizable percentage of commercial transactions are now concluded digitally through internet communication tools, electronic payments systems and e-commerce platforms.
I further emphasized that it may be necessary that the Commissioner General comes up with a practice note addressing the applicability aspects of the law as it currently stands, to electronic transactions in order to offer clarity on some of the ambiguities and unfairness resulting from gaps in the law, at least as far as the stamp duty levy on agreements is concerned.
Taxation of the digital commercial world is an emerging area of focus for tax administrations and tax practitioners around the world and will continue to be so, as the internet increasingly plays a critical role in commerce.
I therefore encourage business leaders, policy makers and students of taxation especially, to read that commentary as it highlights and explains certain key nuances of taxation of electronic transactions under stamp duty. This commentary further expounds upon those aspects. You can access the earlier commentary here.
In this commentary I want to offer further highlights on the defects in our current law, which policy makers and indeed Parliament, may still need to consider and address in the current bill before parliament and in future amendments.
The Current Position.
The Stamp Duty Act as it currently stands, presents significant challenges in its applicability to digital transactions due to its lack of explicit provisions for transactions concluded electronically. This creates ambiguities, unfairness, potential double taxation, and administrative headaches for the Taxman. Some of the gaps in the law are;
- The statute does not clearly address the status of electronic instruments such as agreements and receipts arising out of transactions concluded electronically by way of data messages.
- Ambiguities arise from broad definitions such as “receipt,” which could inadvertently capture digital contracts and yet the law does not provide for e-stamping mechanisms for digital agreements and receipts.
- Since application of the statute to digital transactions remains unclear, URA’s enforcement mechanisms remain tied to traditional paper-based transactions, with the result that stamp duty is levied based on physical execution of paper transaction documents, yet modern commerce relies on digital exchange of data messages.
The Stamp Duty(Amendment) Bill 2025
By this bill, recently tabled before Parliament, The Minister for Finance seeks to do away with the stamp duty obligation on agreements. That this proposed amendment comes just 2 months after URA’s enforcement public notice first mentioned above is surprising.
The Minister proposes an amendment to Schedule 2 to the Stamp Duty Act, to provide for nil duty for an agreement or memorandum of agreement executed or received in Uganda.
I need to warn at this point that Taxpayers better not celebrate just yet. This is because, the proposed amendment if passed into law might not in fact take away this liability. The Stamp Duty Act as it currently stands is littered with overlapping levies and one of these is the one the Minister proposes to do away with.
The tax sought to be done away with might still be brought home to a taxpayer by enforcing another provision. That other provision happens to be item 52 of Schedule 2 of the Stamp Duty Act, which levies Stamp Duty of a similar amount(Shs. 15000/=) on a RECEIPT as defined by Section 2, for any money or other property the amount of value of which exceeds Shs. 50,000 /=.
Section 2 of the Act defines the RECEIPT as follows;
“RECEIPT” includes a note, memorandum or writing whether the note, memorandum or writing is or is not signed with the name of a person,
(a) by which any money, or any bill of exchange, cheque or promissory note is acknowledged to have been received;
(b) by which any other movable property is acknowledged to have been received in satisfaction of a debt;
(c) by which a debt or demand, or any part of a debt or demand, is acknowledged to have been satisfied or discharged; or
(d) which signifies or imports the acknowledgment;
The definition of a receipt under that Section is so wide that it in fact includes and indeed refers to what essentially is an agreement and a Memorandum of an agreement.
It may however be argued that the agreement in the context of the statute connotes to an instrument that creates a legal right or an acknowledgment of a debt, as opposed to one that acknowledges a discharge of an obligation or settlement of a debt, but these are technical legal gymnastics beyond the scope of this commentary.
As earlier stated in my earlier commentary, the Stamp duty Act does not contain any special provisions dealing with electronic transactions, and in my opinion, the absence of such special provisions may mean the bulk of the statute applies ambiguously to taxpayers who conclude transactions electronically, and creates unfairness in tax administration.
Conclusion and Policy Recommendations
The Stamp Duty tax system we have today is an archaic system from the old era. It has been modified in many countries to take into account the way of doing business in the internet age, with nations either abolishing stamp duty on low value agreements altogether or providing for specific exemptions for digital transactions.
This amendment may be the first baby step in that direction for Uganda. However, more provisions in the law need to be amended or repealed with the result that Stamp duty should be levied only on specific high-value instruments such as property transfers in real estate and in creation of securities, but not every commercial bargain including very low value routine transactions.
At any rate, a Stamp Duty levy of tax of Shs 15,000 on a transaction of Shs 50,000 is quite problematic. This is over-taxation and an obvious absurdity that Parliament may need to undo even this year, through the amendment bill currently before it.
And so there are three ways to addressing these complications;
- Either ensure that electronic contracts have the same standing in the law as paper contracts, by enacting e-stamping provisions(and develop an e-stamping tool/system like it was done in VAT with EFRIS), OR
- Simply explicitly exempt digital transactions from the application of the Stamp Duty Act.
- The easier and more reasonable way is to abolish stamp duty on all low value agreements and receipts altogether to avoid this confusion.
It may therefore become necessary for parliament to consider further amendments to the law to bring that statute into the digital age and to do away with these ambiguities and absurdities so as to breath clarity and fairness into the statute.
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