Kampala Central MP Muhammad Nsereko led the charge against the software proposal. Courtesy PhotoParliament has passed the Value Added Tax (Amendment) Bill 2026 into law after rejecting a government proposal to impose an 8-percent tax on imported software.An input tax credit will not be imposed on imported software, and therefore will not be deducted as earlier proposed.Input tax credit refers to the tax paid on purchases for the business, which can be claimed as a deduction at the time of paying tax on output tax.The move came after lawmakers warned that the levy would undermine the country’s ambitious Digital Uganda Vision and inflate costs across government systems and businesses.The decision followed the tabling of the Finance Committee’s report by Amos Kankunda, MP, Rwampara County, during a plenary sitting on Tuesday.The debate on the Bill was marked by sharp divisions, particularly over a parallel clause offering VAT input tax relief for large-scale hotel and tourism developments.The VAT Input tax exemption was suggested to spur investment in one of Uganda’s key foreign-exchange earners. MPS raised concerns over the high thresholds set for local and rural players.Kampala Central MP Muhammad Nsereko led the charge against the software proposal, arguing it would sabotage years of investment in 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 told the House.“This gadget is hardware; without software, this gadget is useless.”He cited the government’s own Integrated Financial Management Information System (IFMIS), a cornerstone of public financial management under the Digital Uganda Vision.“The biggest consumer of software transformational updates in this economy is the payment systems that we are using, the government payment system… IFMIS.”Nsereko warned that pre-existing contracts with software providers would be renegotiated, passing costs to taxpayers and Parliament itself, including secure audiovisual and cloud systems protecting parliamentary data.The ICT sector already contributes approximately 9 percent to Uganda’s GDP and employs over 2.3 million people, with annual growth averaging 14.8 percent, according to a recent Global System for Mobile Communications Association (GSMA) report.Minister of State for Finance Henry Musasizi ultimately conceded, agreeing to delete the clause.Speaker Anita Among put the matter to a vote, and MPs overwhelmingly supported dropping the software levy, preserving the principle that VAT should not become an embedded cost for VAT-registered businesses.The Bill’s most contentious element, Clause 4(a), amending Section 28 of the principal Value Added Tax Act (Cap. 349), survived but only after vigorous debate.It extends the window for claiming input tax credits on civil works, feasibility studies, design, construction services, and locally unavailable materials for hotel or tourism facilities.Qualifying investors must commit at least US$10 million (approximately Shs36.9 billion) for foreigners or US$5 million (about Shs18.4 billion) for Ugandans, with supplies occurring no more than two years before commissioning.Currently, developers can claim VAT only on costs incurred within six months before opening.The Ministry of Finance argued the change prevents VAT from becoming a sunk cost for long-gestation projects, which often take two years or more to build.“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,” Kankunda explained.The Finance Committee endorsed the foreign threshold but recommended lowering the local one to US$1.5 million (Shs5.5 billion). A minority report by Karim Masaba Mbale (Mbale Industrial Division) went further, proposing US$500,000 (Shs1.8 billion) for rural investments and US$1.5 million for urban ones, plus extending the 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.Budadiri West Constituent Representative, Nandala Mafabi, rejected the two-year limit outright. “We have to be careful what is urban and where the tourist attractions are… A person developing a hotel will not develop it in two years, but in five years. UGX 20 billion is a lot of money.The US$1.5 million is a modest investment; if you want the hotel business to grow… we need people to invest, not somebody to be in a hurry.”Musasizi defended the government position: “Support the threshold; we are looking at high-impact investment which can give us jobs and help us to propel the economy… We shouldn’t lose the whole objective of this proposal because we are looking at luxurious hotels. We don’t want this window to be abused.”Tourism directly contributes about 3.64 percent to GDP and employs roughly 1.56 million people (14.7 percent of total employment), with pre-COVID figures reaching 7.7 percent when indirect effects are included, per Uganda Tourism Satellite Account data.The sector remains a top foreign-exchange earner but has faced calls for lower barriers to unlock rural and community-based lodges.The amendments align with Uganda’s Vision 2040 and National Development Plan priorities, balancing revenue needs with sector-specific growth. The bill now awaits presidential assent and is expected to take effect in the 2026/27 financial year.-URNThe post Gov’t Forced To Drop Controversial Software Tax in New VAT Law appeared first on Business Focus.