MP Nandala Writes Minority Report on Taxing Loss Making Businesses

In his minority report accessed by Uganda Radio Network-URN on the Income Tax (Amendment) Bill, 2019, Nandala opposes the 0.5 percent tax on loss-making businesses after the seventh year.
Budadiri West MP Nathan Nandala Mafabi (on the right) with Kachumbala County MP Patrick Isiagi during a recent Finance Committee meeting over new taxes.
The Budadiri West Member of Parliament, Nathan Nandala Mafabi has disagreed with the Parliament’s Finance Committee on taxing loss-making businesses.  

In his minority report accessed by Uganda Radio Network-URN on the Income Tax (Amendment) Bill, 2019, Nandala opposes the 0.5 percent tax on loss-making businesses after the seventh year. 

Government in its new proposed tax measures to parliament seeks to amend Section 38 of the Income Tax Act by inserting a new subsection requiring a taxpayer who has carried forward assessed losses for a consecutive period of seven years of income to pay a rate of 0.5 percent tax on gross turnover for the period after seven years. 

State Minister for Finance in-charge of Planning, David Bahati while defending the tax proposal said it is intended to limit revenue loss that occurs when a business that is making profit takes advantage of an assessed loss to avoid paying revenue for years. 

He says the new tax proposal is aimed at dealing with such schemes with the aim of raising 13 billion Shillings out of the total 860 billion revenue targeted in the coming financial year 2019/2020. 

Now, the report by the majority legislators sitting on the Finance Committee Chaired by Henry Musasizi agrees with the government proposal saying it will enhance progressivity and productivity of the income tax regime and limit the abuse of indefinite carry forward losses. 

However, MP Nandala disagrees with the government proposal which was also rejected last year.

“If this provision is passed, companies that are genuinely making losses will be taxed.

  Companies that are making losses should not be penalized for making losses. Companies incur losses as a result of business costs as well as investment allowances provided by government in the tax law. To allow a business expense as well as capital allowances a tax deduction and later seek to tax a person/business to which the allowance was given is contradictory and a disincentive for investment promotion,” reads part of Nandala’s minority report. 

Nandala further argues that despite carrying forward losses, these companies employ Ugandans and other nationals who are paying Pay as You Earn- PAYE and indirect taxes such as Value Added Tax. 

He warned that is the 0.5 percent tax on turnover is imposed; some of the companies may be forced out of business. 

“This will discourage further investment and loss of employment. World over average gross profit is 1.5 percent to 2 percent of turnover before other expenses. Therefore a tax of 0.5 percent on turnover is on the higher side. This does not qualify to be income tax since there is no taxable income, unless we are creating an Act called Loss Tax Act. Evasion of tax is done mostly with tax payers under declaring profits,” Nandala explains. 

He recommends that Uganda Revenue Authority (URA) should instead intensify audits and investigations to discover those tax payers evading taxes but not charge a tax of 0.5 percent on turnover. 

Parliament is scheduled to debate the two reports on Thursday and come up with a decision on the proposed tax.

Uganda Revenue Authority-URA this week named 817 companies that have been declaring losses since 2017 to avoid paying taxes. 

Among these is Munyonyo Commonwealth Resort Limited which declared a loss on 48.6 billion Shillings in 2017, National Water and Sewerage Corporation Shillings 293 billion in 2018, Bank of Africa Shillings 56.1 billion, Uganda Electricity Transmission Company Limited Shillings 85.9 billion, Rosebud Limited Shillings 14.8 billion, National Social Security Fund (NSSF) Shillings 889.8 billion, Imperial Group of Hotels Limited Shillings 19.3 billion, United Bank for Africa (Uganda) Limited Shillings 93.8 billion and Uganda Electricity Generation Company Limited Shillings 137.3 billion among others.  

Others are Roofings Rolling Mills Limited which declared a loss of Shillings 209.2 billion in 2017, Hotel Africana Limited Shillings 527.9 million, Peacock Paints Limited Shillings 737.4 million, Microfinance Support Centre Limited Shillings 5.3 billion, Sports View Hotel Ltd Shillings 1.1 billion, Abacus Parenteral Drugs Limited Shillings 30.1 billion, Kasese Cobalt Company Limited Shillings 97 billion, Mweya Safari Lodge Ltd Shillings 6.5 billion, Uganda Wildlife Authority Shillings 14.9 billion, Cementers Limited Shillings 824.4 billion, Barclays Bank (U) Ltd Shillings 17 billion, Airtel Uganda Limited Shillings 28.2 billion, DFCU Limited Shillings 4.7 billion, Oscar Industries Shillings 7.4 billion and Watoto Childcare Ministries Shillings 51.1 billion.  

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