Lawyers from Uganda Law Society have warned Parliament from enacting a law seeking to punish loss making companies, saying such a move would be detrimental to even Government agencies that would fall victim to such a law.
Currently, there is no limitation on the number of years or amount of loss that a loss making tax payer can enjoy as a tax deduction for income tax purposes. This prompted the Ministry of Finance to attempt for the third time to introduce a limitation for a tax payer who after a period of five years of income carries forward assesses losses shall not be allowed a deduction of 50% of the loss in the subsequent years of income.
However, ULS rejected the proposal arguing that allowing companies to carry forward losses without any restrictions provides tax relief to investors who require an extended period to become profitable.
Cephas Birungyi a partners at Birungyi, Barata & Associates said there are hardly any companies that become profitable within five years.
“This Committee has rejected this proposal twice before, and it was rejected on genuine basis but again if you look at the practical side. Look at the government companies that are trending, look at Uganda Clays, Uganda Airline is making losses so you just say we are stopping you for what reasons? I think the emphasis should be on doing the right thing, if you are the auditors, find out that some body is forging papers, there are enough penalties,” Birungyi said.
The December 2022 Auditor Generals’ report indicated that out of the 18 parastatals, 8 made losses in 2021/2022 among which include; Uganda Electricity Distribution Company Limited whose loses rose from Shs85M to a hooping Shs10.904Bn in a single year, and the same trend was witnesses in Uganda National Oil Company Limited whose losses grew from Shs1.355Bn in 2020/2021 to Shs34.717Bn in 2021/2022.
Uganda Broadcasting Corporation (UBC) losses also grew from Shs9.345Bn to Shs19.320Bn, Civil Aviation Authority losses also more than doubled from Shs10.827Bn to Shs27.757Bn, Uganda Railways Corporation losses also grew from Shs32.328 to Shs 7.796 and Uganda National Airlines Company Limited which has been making losses since its revival emerged as the top loss making parastatals, with losses from Shs265.909 to Shs 164.601Bn.
Rebecca Nambi, Chairperson Uganda Law Society’s Tax and Revenue Cluster, urged Parliament’s Finance Committee to conduct a study around, which would prove that not all businesses are hiding behind losses not to pay tax, but rather establish that there are purely deserving businesses that need more than 5years to make profits.
“I think we should enable or push URA to have resources to audit these companies. There are mechanisms for you to determine whether a loss is genuine or not and this isn’t denying the loss. You have the mandate, powers and authority to go in and audit genuine losses, and also carry forward losses as opposed to unfairly denying business the benefit of their losses,” she said.
In April 2020, Parliament rejected the proposal by Government to amend Clause 2 of the Income Tax Amendment Bill 2020 to introduce a minimum tax rate to apply to taxpayers whose declared tax liability for a consecutive period of five years is less than 0.5% of the gross income.
Minister of Finance, Matia Kasaija argued 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 a that income tax is charged on profit (not turn over).
Parliament rejected the proposal on grounds that the move goes against Uganda’s industrialization drive and will likely 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.
Parliament instead cautioned Government to strengthen Uganda Revenue Authority’s capacity to conduct the right tax assessment for companies which consistently declare tax losses or declare a tax liability.
