MPs reject proposal to tax loss reporting companies

A proposal to tax companies reporting losses after a period of seven years has been rejected by Parliament.

The proposal was contained in clause 6 of the Income Tax (Amendment) Bill passed on Tuesday, 07 May 2019 but a proposal to delete the clause sailed following its intense criticism.

Finance State Minister , Hon David Bahati had argued that far from frustrating investment, the proposal was not only in tandem with international and regional best practices, but also was critical in eliminating under-declarations and fraud.

“The rationale for this tax is that the companies reporting losses are not necessarily non-profitable,” he said.

He also blamed the companies for exhausting their profits on ‘gold planting’; a term he said is generic for acquisition of assets, construction of goods and other ostentatious expenditure not necessarily relevant in the production chain.

The rejection of the proposal now downs the revenue by shs40 billion which was anticipated to be drawn from the measure.

In his defense of the tax measure, Finance Committee Chairperson, Hon Henry Musasizi said companies are using an existing lacuna in the law to evade taxes.

“We have a list of the companies which belong to that category [of reporting losses]…they are suspected to be producing two sets of accounts, one for the management and another for the tax body,” he said.

But MP Muhammad Kivumbi (DP, Butambala) who successfully proposed the deletion, challenged the proposition that Uganda Revenue Authority (URA) lacks the basic competence to detect or avert such alleged false accounting.

“Last year, we enhanced the capacity of Uganda Revenue Authority by shs90 billion so that they can have the capacity to expand the tax base. Therefore, the argument that the Chair fronts does not stand,” said Kivumbi.

Last week, the Committee on Finance debated the proposal, but couldn’t agree on a joint position, forcing a Minority Report, which carried the day in the end.

Budget Committee Chairperson, Hon Amos Lugoloobi said the proposal would destroy prospects for investment.

“The policy he is introducing is going to frustrate reinvestment; he is looking at taxes today and not tomorrow…these investors can go to other countries…do you even know how hard it is to attract investors?” Lugoloobi said then.

The Bill also lowered the threshold for local investors seeking to get incentives from US$2 million to US$1 million.

This is in contrast with the foreign investors, who will have to marshal US$10 million to qualify for the incentive.

Proposed by MP Muhammad Nsereko (IND, Kampala Central), the legislation, if assented to by the President, is intended to incentivize local investors.