Govt to impose 15% tax on transactions in Islamic banking, microfinance system

By Francis Lubega

22^nd June 2023

Government is set to impose a 15% tax on all transactions under Islamic banking and Microfinance Institutions once operationalized in the country.

This was revealed in a report tabled by the State Minister of Finance, Henry Musasizi while presenting several taxation amendment bills before the Parliamentary Finance Committee chaired by Rwampara County Member of Parliament, Amos Kankunda.

Among the bills tabled to enable the establishment of the Islamic banking system in Uganda is; the Financial Institutions Amendment Bill, Excise Bill Amendment Bill, Value Added Tax Amendment Bill and the Stamp Duty Amendment Bill all of 2023.

The 15% excise duty tax levy will apply on ledger fees, ATM, withdrawals, periodic charges and other transactions and non-transactions except loans obtained from any Islamic Bank as per Sharia Law.

Musasizi justified the imposition of the 15% levy saying that this is done to allow the operationalization of Islamic banking commensurate with the current governing regulations and laws in the banking and microfinance sector.

A few authorities such as the Central Bank, Uganda Microfinance Support Centre, Insurance Regulatory Authority, Uganda Muslim Supreme Council, Uganda Insurers Association, Insurance Training College of Uganda, and other institutions and centers are helping in promoting and developing Islamic finance.

Islamic finance is already proven to be a strategic instrument to tap into the unbanked population and address the important issue of financial inclusion, as well as a catalyst for boosting foreign direct investment (FDI) and trade flows among Africa, East Asia, the Middle East, the OIC, and international markets.

By offering low-income people digitalized banking services, they will be able to increase penetration.