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.
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
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