The Stamp Duty Amendment Act 2014, has been amended by the Stamp Duty Amendment Act of 2020 (the "Amendment") with effect that from 1 July 2020. Debentures, equitable mortgages and further charges which previously incurred stamp duty ranging from 0.5% to 1% of the secured amount, will now incur nil stamp duty.

This is a much welcome incentive given the uncertainties and the financial burden occasioned on businesses by COVID-19 and is evidence of government's commitment to put in place initiatives to enable businesses recover from the effects of the pandemic.

In the Report of the Committee on Finance Planning and Economic Development on the Stamp Duty (Amendment) Bill, 2020 it was recommended that the exemption apply to debentures and mortgages because the Committee considered it unfair for a person already in financial difficulties to lose 0.5% of the loan amount to stamp duty.

Interestingly, however, the final amendment does not include a "legal mortgage" as one of the securities now exempt from stamp duty payment. The exemption would only apply to an equitable mortgage, which is an unregistered mortgage and "further charge" which is an instrument imposing a further charge on mortgaged property.

It is not clear whether legal mortgages was left out inadvertently or intentionally. The law as it currently reads will require a borrower to pay stamp duty at 0.5% of the secured amount on a newly created legal mortgage but not on additional security created on the same land to secure a further borrowing.

Given that the most popular security taken in Uganda is legal mortgages, the failure to apply the stamp duty exemption to legal mortgages dilutes the intention of making the cost of borrowing cheaper. Even where a debenture is taken as security, the security package will in most cases also include a legal mortgage.

It is also unusual that the exemption would extend to an equitable mortgage. Lenders are unlikely to take such security as it is not as effective and is much harder to enforce than a legal mortgage (registered mortgage). It does not appear credible at all that the government intends to signal a preference of equitable mortgages over legal mortgages.

The Amendment, in our view, has the effect of giving with one hand and taking with the other. We nonetheless look forward to seeing the Amendment achieve its intended purpose of boosting investment in Uganda and the ripple effect this will have on the growth and recovery of the economy.

Originally published by ENSafrica, July 2020

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