Parliament on Tuesday passed the Value Added Tax (Amendment) Bill, 2026, into law after rejecting a government proposal to impose an 8 per cent tax on imported software. The Input tax credit refers to tax paid on business purchases, which can be claimed as a deduction when paying output tax. The decision followed warnings from lawmakers that the proposed levy would undermine the country’s Digital Uganda Vision and increase costs for both government systems and private businesses. The move came after the finance committee’s report was tabled by Amos Kankunda, MP for Rwampara County, during a plenary sitting on Tuesday. Debate on the Bill was marked by sharp divisions, particularly over a separate clause offering VAT input tax relief for large-scale hotel and tourism developments. The proposed input tax exemption was intended to stimulate investment in one of Uganda’s key foreign exchange-earning sectors. However, MPs raised concerns over the high thresholds set for local and rural investors. Outgoing Kampala Central MP Muhammad Nsereko led opposition to the software tax proposal, arguing it would undermine 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 said. “This gadget is hardware; without software, this gadget is useless.” He cited the government’s Integrated Financial Management Information System (IFMIS), a key component 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,” he said. Nsereko warned that existing contracts with software providers would have to be renegotiated, potentially increasing costs for taxpayers and institutions such as Parliament, which rely on secure digital systems. The ICT sector contributes about 9 per cent to Uganda’s GDP and employs over 2.3 million people, with an annual growth rate of approximately 14.8 per cent, according to a Global System for Mobile Communications Association (GSMA) report. Minister of state for Finance Henry Musasizi later conceded and agreed to withdraw the clause. Speaker Anita Among put the matter to a vote, and MPs overwhelmingly supported its removal, maintaining the principle that VAT should not become an embedded cost for VAT-registered businesses. Speaker Anita AmongThe Bill’s most contentious provision, Clause 4(a), amending Section 28 of the principal VAT Act (Cap. 349), was retained after extensive debate. The amendment extends the period within which developers can claim input tax credits on civil works, feasibility studies, design, construction services, and locally unavailable materials for hotel and tourism facilities. Under the new provision, qualifying investors must commit at least $10 million (approximately Shs 36.9 billion) for foreign investors or $5 million (about Shs 18.4 billion) for Ugandan investors, with eligible supplies made no more than two years before commissioning. Currently, developers can only claim VAT on costs incurred within six months before project completion. The ministry of Finance argued that the change would prevent VAT from becoming a sunk cost for projects that typically take longer to complete. “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 supported the foreign investment threshold but recommended reducing the local threshold to $1.5 million (Shs 5.5 billion). A minority report by Mbale Industrial Division MP Karim Masaba proposed lowering it further to $500,000 (Shs 1.8 billion) for rural investments and 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 MP Nandala Mafabi also criticised the two-year limit, saying many hotel projects take longer to complete and require more flexible timelines. Musasizi, however, defended the government’s position, emphasising the need to attract high-impact investments capable of generating employment and driving economic growth. Tourism contributes about 3.64 per cent to Uganda’s GDP and employs approximately 1.56 million people, or 14.7 per cent of the workforce, according to Uganda Tourism Satellite Account data. The Bill now awaits presidential assent and is expected to take effect in the 2026/27 financial year.The post Parliament drops proposed tax on imported software, passes VAT Amendment Bill appeared first on The Observer.