Parliament has passed into law Income Tax Amendment Bill 2023, approving the proposal to cap the period within which a company can make losses. It’s capped at seven years and the law takes effect on 1st July 2023 although Government had initially proposed to have the period capped at 5years.
The Minister of State for Finance (General Duties), Henry Musasizi asked Parliament to reconsider capping to five years the period within which any company can declare losses, saying the measure will raise Shs244Bn in revenue from the companies that have been abusing the provision to evade paying corporate tax.
Amos Kankunda, Chairperson Finance Committee while presenting the Committee’s report argued that allocating carry forward losses to tax payers indefinitely incentivizes them to over claim losses, hence enabling them to remain in an artificial loss-making position and the proposal will not affect any genuine business person because the law will allow 100% carry forward losses for 5 years and this is in addition to all the allowable deductions and capital deductions provided under Sections 25 to 33 of the Income Tax Act.
He also added that citizens have the benefit of the 10-year tax holiday under section 21 whose minimum requirement for citizens is an investment of Shs1Bn as compared to USD10m for non-citizens.
“The Committee noted that some businesses may find it difficult to pay taxes and remain operative even after five years, most especially capital-intensive businesses such as those in the oil and gas, telecom, and construction sectors. However, the Committee agrees that this measure should be reviewed in future. the capping carry-forward losses to five years be maintained in the Bill,” said Kankunda.
Nandala Mafabi (Budadiri West) warned Parliament against making laws that will be hard to administer, demonstrating to Parliament that a big capital investment of say Shs10Bn will take a long time to have this investment recovered and if such an investor is required to recover their funds within 5 years, it implies that on average the business should be making more that is Shs2Bn per year, wondering what type of business in Uganda brings in such money, saying not even smuggling can guarantee anyone such returns.
The Opposition in the minority report signed by Nandala and Muwanga Kivumbi (Butambala County) instead recommended to Government to professionalise URA rather than making a law to promote inefficiency
“Intensify back duty tax investigation, intensify the exchange of information as per the law passed to deal with cross border transactions. In a nutshell, tax losses can’t be taxed. The Ministry of Finance ill advised the President. You people are misadvising the president if you continue doing this, we are going to impeach you because this can be done better.,” said Mafabi.
Speaker Among wondered if Government was using Parliament to do the work that URA staff are paid to do noting, “Aren’t we starting to do work for URA, surveillance, monitoring? This should be their daily work, because you are doing tax administration, compliance, are we going to do that for URA? We don’t need a law for this.”
Henry Musasizi, Minsiter of State for Finance (General Duties) replied saying Government isn’t asking Parliament to help the Executive do work for URA but rather asking for laws to facilitate URA to collect the revenue that is collected.
It was Dickson Kateshumbwa (Sheema Municipality) that proposed a middle ground of having the period extended to 7years and not have the period counted retrospectively by Government, to which Minister Musasizi informed Parliament that the law will take effect 1st July 2023, meaning, it will only be applicable in July 2030.
This is the fourth time that Government is attempting to impose a loss making company, having attempted in 2019, 2020 and 2023 but in all occasions, Parliament had rejected and it took the intervention of President Museveni for lawmakers to oblige, albeit amidst protest from the Opposition who argued the tax goes against the international accounting principles to tax a loss.
