The Energy policy for Uganda was developed in 2002 to sustain the economic growth the country had achieved in the last decade and to ensure widespread access to affordable modern energy. The main policy goal is: ‘to meet the energy needs of Uganda’s population for social and economic development in an environmentally sustainable manner.
The policy is supported by other sub polices such as the Renewable Energy policy, 2007 (REP) for the renewable sector and the National Oil and Gas Policy, 2008 (NOGP) for the petroleum sector.
In the Energy Policy 2002, the government of Uganda places specific emphasis on the electricity supply industry, firstly; by seeking to make the power sub-sector financially viable and able to perform without subsidies from the government budget. This was achieved in 2012 as presented under 5.4 (cost reflective tariffs.)
Government also sought to improve the electricity sector’s efficiency by improving commercial performance. The focus was to achieve this objective by increasing the generation capacity of electricity.
The final power sector focused objective in the energy policy seeks to meet the growing demand for electricity at national and regional level and increase area coverage. In as much as electricity coverage has had some improvement since the time the policy was passed, Uganda’s demand for power is estimated to grow at 10% per annum and therefore there is still significant need for investment in the electricity supply industry.
Renewable Energy Feed in Tariff (REFiT)
The Ugandan REFiT is designed to provide price certainty to renewable energy generators. The policy covers a number of technologies and is attractive because it is based on the levelized cost of each technology and not the avoided cost. The priority renewable energy technologies for REFIT in Phase 2 include; hydro, bagasse, landfill gas, biogas, wind, biomass/ municipal solid waste (MSW);
The second phase of the REFIT marks an improvement over the first phase in that:-
- It widens the scope of the technologies covered;
- It provides for capacity limits for each renewable energy technology; and,
- It addresses a number of risks that were not fully covered under Phase 1 of Renewable Energy Feed-in-Tariff (REFIT).
Risks covered under the REFIT include the following
- Automatic grid interconnection and pricing flexibility;
- Off take risks – the REFIT policy mitigates the off-take risk. The renewable energy generator signs a 20-year Power Purchase Agreement (PPA) with the Uganda Electricity Transmission Company Limited (UETCL);
- Price and currency risks – there are no price risk and currency risk to the renewable energy generator as these are taken by the System Operator in the long-term PPA;
- Inflationary risks – it provides escalation factors for inflation;
- The feed-in tariffs are not adjusted downwards when a renewable energy generator qualifies for Certified Emission Reduction (CERs) or CDM revenues. This provides additional incentives to project sponsors;
- Reduced administrative costs – Standardized Power Purchase Agreements have been developed through a consultative process with Lenders, Developers, and the Electricity stakeholders. Investors in renewable energy no longer have to go through protracted negotiations.
Qualifying renewable energy generators
Qualifying renewable energy generators under the Uganda REFIT Phase 3 guidelines are defined as:
- Priority technologies as set out in Appendix 1 of the Uganda REFIT Phase 2, revised in July 2013. Additional technologies can be added in line with the REFIT review process;
- Projects greater than 0.5 MW installed capacity, in line with the Electricity Act (1999); Cap 145 Laws of Uganda.
- Projects of up to 20 MW installed capacity, in line with the Electricity Act (1999). Projects with an installed capacity greater than 20 MW are required to negotiate a tariff and Power Purchase Agreement with the System Operator, on a case by case basis;
- Plant including additional capacity resulting from project modernization, repowering and expansion of existing sites, but excluding existing generation capacity. Additional generating capacity must be ring-fenced;
- Projects connected to the National Grid. Off-grid projects may be included in future developments of the REFIT, although this would require close consultation and collaboration with the Rural Electrification Agency to develop the technical and operational modalities. In particular, this will require the establishment of a mechanism for the monitoring and sale of power to the System Operator as the Single Buyer; and,
- Being located within the territory of the Republic of Uganda.
Table 1: REFiT Tariffs and Maximum Technology Capacity limits (2013-2016), O&M %age, capacity limits and payment period
|Technology||Tariff (US$)/kWh||O&M %age||Cummulative Capacity Limits (MW)||Payment Period (Years)|
|Hydro (9 ><= 20 MW)||0.085||7.61%||30||90||135||180||20|
|Hydro (1 ><= 9 MW)||Linear tariff1||7.24%||30||75||105||135||20|
|Hydro (500kW ><= 1 MW)||0.115||7.08%||1||2||2.5||5.5||20|
Working with the Government of Uganda and KfW, ERA developed the Global Energy Transfer for Feed-in-Tariff (GET FiT) Program in 2012 in order to increase Uganda’s energy production to mitigate possible power supply shortages before the large hydro plants get online.
The main purpose of the GET FiT Program is to fast-track development of renewable energy generation projects of 1 MW – 20 MW promoted by private developers with a total installed capacity of about 170 MW/ 830 GWh per annum. The Premium Payments constitute a result-based incentive grant designed to enhance the financial viability of the selected projects and are payable as a top-up premium of US cents 0.5-2.0 per kilowatt hour to the project developers in addition to the relevant REFiT tariffs determined by ERA.
To-date, GET FiT has approved 17 projects with a combined generation of 128 MW of Small Hydro, Biomass, Solar photovoltaic and Bagasse generation projects which will be commissioned within 2 to 3 years from the start of construction, adding to Uganda’s energy security. Since its launch in March 2013, the GET FiT Uganda program has created a unique momentum for the development of small scale, private renewable energy projects in Uganda. Uganda has become a front-runner for the swift implementation of small-scale Renewable Energy projects and the attraction of private finance into the domestic energy sector in Sub-Saharan Africa.
Overall, GET FiT has attracted more than US$ 450 million of private investment into Uganda. The Climate Scope 2014 Survey of countries’ ability to attract investment for clean energy companies and projects by Bloomberg ranked Uganda 10th out of the 55 countries from Latin America, Africa and the Caribbean. In Africa, Uganda emerged third due to its Investment Climate for clean energy investments partly facilitated by the huge interest ignited by the GET FiT program.
Following the success of the initial renewable energy technologies under this mechanism, coupled with the reduction of solar PV prices globally, and the relatively short lead-time to commissioning, the European Union (EU) offered Uganda a Euro 20 million grant from the Special EU Sustainable Energy for All Investment fund for the solar facility. ERA has since procured 20 MW of grid-connected solar photovoltaic that is expected to come online by the end of 2015.
Additional support has been provided by the World Bank through a Partial Risk Guarantee (PRG) facility for small-scale Renewable Energy projects in Uganda. The Bank has committed US$ 160 million for this facility which will focus on facilitating the provision of short-term liquidity support to the benefit of the Power Purchase Agreement (PPA) obligations of the Uganda Electricity Transmission Company Limited.
Cost reflective tariffs
In an effort to return the ESI onto a sustainable path, ERA with support from various stakeholders increased the end-user tariffs by 46%, effective 15th January 2012.
This was against the backdrop of an industry plagued by increasing fuel prices, a depreciating shilling against major currencies, load-shedding and heavy dependence on expensive thermal generation that necessitated Government subsidies, which accounted for over 50% of the end-user tariff by the end of the Financial Year 2011.
ERA took measures to prescribe a cost-reflective tariff that would relieve Government of the obligation to provide subsidies on electricity and ultimately improve the investment climate. One of the measures was the implementation of the Quarterly Tariff Methodology, which allows for adjustment of the tariff for changes in macro-economic factors, namely: inflation, exchange rate and the international price of fuel. The adjustment is done on a quarterly basis. As a result, the tariffs have been maintained at sustainable levels.
ERA in setting the end-user tariffs ensures that revenues allowed through the tariffs cover all reasonable costs and deliver a reasonable rate of return on investments.
Remarkably, the measures undertaken by ERA have resulted into electricity end-user tariffs that recover 93% of the production costs. The 7% component of the current end-user tariffs is covered by the Government of Uganda to buttress the 100 MW standby thermal generation as a deliberate strategy of ERA to ensure effective planning for the electricity industry.
ERA has developed Standardized Power Purchase Agreements (PPAs), Implementation Agreements (IAs) and model licenses in consultation with development partners, lenders and power project developers. This has resulted into the reduction in advisory service costs and the time required to negotiate the first initializing of a standardized PPA by a developer and UETCL (from six months to one week).
Applicable Tax Laws
Taxes in Uganda are assessed and collected by the Uganda Revenue Authority (URA), headed by a Commissioner General.
Within the organizational structure of URA, two operational departments (Domestic Taxes and Customs) headed by Commissioners are directly responsible for the assessment and collection of revenues resulting from the tax laws below:
- Customs Tariff Act, Cap. 337;
- East African Customs Management Act;
- East African Excise Management Act;
- Excise Tariff Act, Cap. 338;
- Income Tax Act, Cap. 340;
- Stamps Act, Cap. 342;
- Traffic and Road Safety Act, Cap. 361;
- Value Added Tax Act, Cap. 349;
- Finance Acts (Various);
In Uganda, income tax generally applies to all types of persons who derive income, whether an individual, bodies of persons (companies), or corporate entities. Resident persons are taxed on worldwide income, while non-resident persons are taxed only on income derived from sources within Uganda.
Income tax is imposed on three broad categories of income – Business income, Employment income and Property income.
Most of the taxes imposed are self-assessed. The self-assessment system imposes on the taxpayer, in the first instance, responsibility for calculating taxable income and the tax due on that income. The taxpayer's calculations may however be reviewed by revenue officials when returns are filed and may be subject to further audit.
Tax rates for Individuals in Employment
Employers are required by law to deduct tax from an employee’s salary or else they become personally liable for the tax that should have been deducted. The monthly PAYE (Pay As You Earn) rates are shown below:
|CHARGEABLE INCOME (CY||TAX RATE|
|0 to 235,000||Nil||CY x 10%|
|235,000 to 335,000||CY – 235,000) x 10%||CY x 10%|
|335,000 to 410,000||(CY – 335,000) x 20% + (10,000)||(CY – 335,000) x 20% + (33,500)|
|410,000 to 10,000,000||CY – 410,000) x 30% + (25,000)||(CY – 410,000) x 30% + (48,500)|
|ABOVE 10,000,000||[(CY – 410,000) x 30% + (25,000)] +[(CY – 10,000,000) x 10%]||[(CY – 410,000) x 30% + (48,500)]+[(CY – 10,000,000) x 10%]|
Tax rates for Companies
The income tax rate for a company i.e. a body of persons, corporate or unincorporated, created or recognized under any law in Uganda or elsewhere, is 30% of the entity’s CHARGEABLE INCOME i.e. gross income less tax allowable deductions.
For non-resident companies, an additional 15% tax may become chargeable on repatriated branch profits.
Withholding tax on payments to Resident & Non-resident persons
The obligation to withhold tax lies with a withholding agent who is defined under the Finance Act to mean any person required to withhold tax upon making any payment to a payee. A payee is any person who receives a payment from which tax is required to be withheld. The tax rates are subject to existing Double Taxation Agreements. Tax withheld may be final or creditable. Rates for this bracket generally lie between 6% and 15% of a given payment.
Income Tax reporting obligations
- I. Final annual returns by individuals, companies, partnerships and trusts are filed within 6 months after the year end;
- II. Provisional annual returns by companies are filed within 6 months after the accounting year; while individuals file the same within 3 months after the accounting year. There’s an option to amend the return before the year end; and,
- III. Withholding tax returns, including PAYE (Pay As You Earn) returns are filed by the 15th of the month following the withholding.
NOTE: Repeal of Section 28 of Income Tax Act, Cap. 340 (Initial Allowance); The repeal of Section 28 (1) of Income Tax Act, Cap 340, implies that accelerated depreciation (initial allowance) is no longer available effective 1st July 2014. Uganda Revenue Authority further clarified that; Power houses are industrial buildings depreciated at 5 percent on straight-line basis, and that access roads to water ways, power house and intakes are not qualifying expenditure and therefore no depreciation allowance is applicable to the said roads.
Value Added Tax (VAT)
VAT (also referred to as Goods and Services Tax in other jurisdictions) is a consumption tax charged at a rate of 18% on all supplies made by taxable persons i.e. persons registered or required to register for VAT purposes. The threshold for VAT registration is an annual turnover of UGX 50m or UGX 12.5m within 3 months of trading.
Some transactions are beyond the scope of VAT and these are classified as Exempt supplies. Supplies on which VAT is charged at 0% are classified as zero-rated supplies.
Accounting for VAT
VAT becomes due depending on the time of supply. Under the VAT Act, a supply of goods or services takes place when any of the following takes place first –
- A tax invoice is issued for the supply;
- The goods are delivered;
- The services are rendered;
- The goods are made available; or
- The goods or services are paid for in whole or in part.
When any of the above takes place, the difference between VAT incurred by the person (input tax) and the VAT charged by the person (output tax) is paid to, or claimed as an offset or cash refund from the tax authority.
VAT reporting obligations
All taxable persons are required to file a return for every tax period (i.e. month) within 15 days after the end of the month.
NOTE: VAT Exemption for other Technologies. Hydro and solar renewable technologies for electricity generation are VAT exempt. However, other renewable technologies for generating electricity including bagasse, biomass, biogas, landfill gas, geothermal and wind are not yet classified as VAT exempt.
This is a tax that is imposed on specified imported or locally manufactured goods, and services. Essentially it is a tax on “luxury” items. The applicable rates may be specific or ad valorem.
The tax is imposed on the value of the import; and in the case of locally manufactured goods, the duty (local excise duty) is payable on the ex-factory price of the manufactured goods.
Exported locally manufactured goods are exempt from excise duty.
Persons supplying excisable goods and services are required to register and file monthly Returns to the tax authority by the 15th day of the month following the month in which delivery of the goods was made.
Stamp Duty is imposed by the Stamps Act. It is a duty payable on any instrument (document) which upon being created, transferred, limited, extended, extinguished or recorded, confers upon any person, a right or liability.
The affected instruments (currently about 66) are listed in the Schedules to the Stamps Act. The applicable rates are either fixed or ad valorem.
The most common instruments that attract stamp duty include –
- Agreements or Memorandums of Agreement
- Company Articles and Article of Association (0.5%)
- Insurance policies
- Powers of Attorney
- Promissory Notes
- Mortgage Deeds (0.5%)
- Debentures (0.5%)
- Transfer of immovable property (1%)
This is a tax levied on goods imported (import duty) or exported (export duty) from Uganda at specific or ad valorem rates. The East African Community Customs Management Act 2004 (EACCMA) is the legal framework for customs operations in Uganda and the region as a whole.
Documents for importation of goods
The following import documents may be required for purposes of making a declaration to customs:
- A Bill of lading or airway bill;
- An Insurance certificate;
- Pro-forma invoices.
- Commercial invoices
- A Certificate of Origin
- Permits for restricted goods
- Purchase order
- Packing list
- Sales contract; and,
- Any other supporting documents
Valuation of imported Goods
Goods imported into the country from without the EAC must be valued for taxation purposes i.e. a customs value must be determined. The customs value forms the basis for computation of customs duties which include import duty, Value Added Tax, Withholding tax, Excise duty and other duties e.g. environmental levy. Applicable tax rates are defined in the Customs External Tariff.
Goods are valued using the following methods adopted by GATT (General Agreement on Tariff and Trade) and applied chronologically –
- Transaction value;
- Transaction value of identical goods;
- Transaction value of similar goods;
- Deductive value;
- Computed value; and,
- Fall back value;
Rates of duty
Generally, the following rates will apply to an import of goods from outside the community:
- Import Duty - 25%
- VAT - 18%
- WHT - 6%
- Excise Duty - varies
NOTE: Equipment used in the construction of renewable energy generation plants is exempted from import duty.
Profit Repatriation Policy and investor asset protection
For non-resident companies, an additional 15% in income tax may be chargeable on repatriated branch profits. The provisions of Section 27 of the Investment Code Act ensure that the interests of a licensed investor may only be expropriated when it "is necessary for public use or in the interest of defense, public safety, public order, public morality or public health..." The said act also guarantees "prompt payment of fair and adequate compensation, prior to the taking of possession or acquisition of the property."
The Act also guarantees any person who has an interest or right over expropriated property access to a court of law. Uganda is a member of the Multilateral Investment Guaranty Agency (MIGA) and the International Center for the Settlement of Investment Disputes (ICSID).
The Central Bank’s foreign exchange rate policy
In line with a liberalised current and capital account of the balance of payments, Bank of Uganda pursues a flexible exchange rate policy regime. In this regime, the price of the shilling visa-vis the US dollar and other foreign currencies is determined by the market forces of demand and supply.
Bank of Uganda’s involvement in the foreign exchange market is limited to occasional interventions (purchase or sale of foreign currency) only to dampen excessive volatility in the exchange rate.
Stable exchange rate movements in either direction (appreciation or depreciation), enables the proper planning by all market players.