Examining the effect of capital gains tax on real estate development in Uganda. ‘Case study: Nalumunye Wakiso District’

Abstract

Taxation of property transfer has become an issue of great concern in Uganda since it has significant fiscal and economic implication to the government. Most government problems are associated with the budget deficit since cash flows have a narrow tax base. Capital Gains Tax is the tax chargeable on the gains that accrue to an individual or a company on the transfer of property situated in Uganda. The rate of the tax is 30 per cent on the capital gains made on the sale of the property. The main objective of the study was to examine the relationship between the capital gains taxes and the reduction in real estate development. The main determinants of the reduction in real estate development were the lock in and capitalization effect. The high capital gains tax rates have continued to reduce the desire of the sellers from selling property on fear of falling in losses. The reason for people being reluctant to sell their property was the increase in transfer costs which led to reduced net gains from the sale of the properties. High priced properties were found to discourage buying decisions, most buyers attributed this to the high taxation rates they forecasted in the future and so they were offering low prices for on sale properties. It is recommended that the rates for CGT to be reduced. Reduced rate for CGT will reduce the negative effects of CGT on real estate development hence increased economic growth.