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Gov’t Move To Tax Loss Making Companies Stopped Again

The desire by government to tax loss making companies has been rejected by Parliament’s Finance Committee for the second year running.

For the last two financial years, Government has been proposing to tax loss making companies, and the same proposal made its way in the 2020/2021 tax proposals but was flatly rejected again.

Instead MPs called on Uganda Revenue Authority (URA) to improve on its tax administration.

Clause 2 of the Income Tax Amendment Bill 2020 proposes to introduce a minimum tax rate to apply to taxpayers who declared tax liability for a consecutive period of five years is less than 0.5% of the gross income. 

In defending this tax, Minister of Finance, Matia Kasaija told the Finance Committee that the move followed discovery by Government that most taxpayers take advantage of the generous tax provisions or engage into aggressive tax planning not to pay tax.

However, the Finance Committee in its recommendations to Parliament noted that the 0.5% tax on turnover of companies that may be in a loss or near loss income position goes against the basic principle that income tax is charged on profit (not turn over).

The Committee further noted that as Uganda strives to industrialize, this proposal will discourage potential long term investments which may take 10 and more years without making taxable profits but with potential for growth and employment, especially real estate, industrial and agricultural projects.

MPs on Finance Committee also argued that since the (loss or near – loss) tax liability is arrived at after allowing the tax payer tax deduction and other tax incentives, the proposed tax may indirectly result into non-recognition of tax deductions recognized under other tax laws.

In order to curb any fictitious or incorrect tax declarations, the Committee cautioned URA to

strengthen its tax administrative measures to identify such tax payers.

“Uganda Revenue Authority should strengthen its capacity to conduct the right tax assessment for companies which consistently declare tax losses or declare a tax liability of an arithmetic average of less than 0.5% of the gross turnover,” noted the report in part. 

Additionally, the Committee also recommended to URA to consider a Public-Private Partnership (PPP) approach where URA partners with private tax experts licensed under strict regulations to conduct tax assessments on behalf of Government.

The Committee recommended that clause 2 be deleted, with Parliament set to take final decision on the matter. 

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