David Wandera, the Absa Bank Uganda Head of Financial Markets
Tax rates for investors are generally high, the Absa Africa Financial Markets Index 2020 indicates.
The report, which analyses the financial markets in 23 African countries to aid their development and maturity ranked Uganda 15th among countries with a conducive tax environment for investors.
Absa, in partnership with OMFIF, conducted extensive quantitative research using data from central banks, securities exchanges and international financial institutions to come up with the report.
According to the report, Uganda charges a 15% withholding tax on income from interest and dividends earned from listed firms.
Tanzania and Ethiopia score highly for their low rates of withholding tax on income from interest and dividends, with the former improving its score by levying a lower rate of withholding tax on dividends paid out by listed firms.
“In Tanzania, the rate of withholding tax falls to 5% for dividends from listed firms compared to 10% for unlisted firms. Mozambique has taken a similar approach. Dividends from listed firms are subject to a 10% withholding tax rather than the unlisted rate of 20%. Ethiopia has a low withholding tax rate of 10% on dividends and has the sixth-highest number of tax treaties in the index with 18,” the report reads in part.
In East Africa, the breakdown is as follows;
| Interest | Dividends | Tax treaties | Notable discounts and tax incentives | |
| Uganda | 15 | 15 | 9 | 10% rate on long-term government bonds rate on listed firms’ dividends to resident individuals is 10%. |
| Kenya | 15 | 15 | 14 | 5% on dividends paid to residents. |
| Rwanda | 15 | 10 | 13 | 5% on dividends paid by listed firms to EAC residents. |
| Tanzania | 10 | 5 | 9 | 5% for listed company dividends, 10% for unlisted. |
The Absa Africa Financial Markets Index highlights economies with the most supportive environment for effective markets. The aim is to show present positions, as well as how economies can improve market frameworks to bolster investor access and sustainable
growth.
The index assesses countries based on six pillars: market depth; access to foreign exchange; market transparency, tax and regulatory environment; capacity of local investors; macroeconomic opportunity; and enforceability of financial contracts, collateral positions and insolvency frameworks.
Overall, Uganda’s economy remained resilient, maintaining the 10th position after scoring 52% in 2020, the same score the country received in 2019.
According to David Wandera, the Absa Bank Uganda Head of Financial Markets, the reduction in withholding tax rates for 10-year Treasury Bonds and above has significantly contributed to an increase in secondary market activity for these bonds. Such initiatives, in addition to an increase in the number of tax treaties with other countries, would significantly increase investor participation in the economy and also increase Uganda’s ranking in the pillar which measures tax and regulatory environment.
Currently, Uganda has a small number of double taxation treaties – 9 – compared to the top 3 countries, which have over 40. The rolling out of the new primary dealer system in October 2020 has increased the secondary markets bill and bond activity by about 400% for October to December 2020, compared to the same period in 2019.
It is hoped that the country’s new primary dealer system will spur bond market activity.
