PWC Rejects Proposal Requiring Landlords to File Separate Returns for Properties

PricewaterhouseCoopers has appealed to parliament to reject government’s proposal that seeks to compel landlords and companies with more than one property to declare income from each asset separately.

Francis Kamulegeya, the PWC Senior Partner told parliament’s Finance Committee that there was need to avoid introducing administrative measures that impose huge tax compliance burden on taxpayers and property investors in the country.

Kamulegeya appeared before the committee chaired by Rubanda East MP Henry Musasizi together with PWC Senior Manager Trevor Lukanga Bwanika to respond to new tax proposals formally presented to MPs by State Minister for Finance in-charge of Planning David Bahati. 

Government seeks to collect 860 billion shillings from the different tax measures in the coming financial year 2019/2020.

The new property proposal that seems to be an attempt by authorities to catch landlords, who have been hiding behind making losses to evade taxes, is among a raft of new tax measures in the Income Tax (Amendment) Bill, 2019. Under this new measure, government envisages to collect 7 billion shillings. 

If approved by parliament, the new proposal will come into effect on July 1st 2019, the commencement of the new financial year. The current arrangement is that an individual or company sums up all the monies earned from rent in different properties. If it doesn’t go above Shillings 2.8 million threshold after deducting 20 per cent allowable expenses, the property is exempted from taxes.  

For those whose earning is above the threshold, their rental income is taxed at 20 per cent for individuals and 30 per cent for corporate companies.

Now government suggests that each property’s income to be filed independently with PWC remarking that the justification is that ‘’landlords are deducting expenditure incurred in putting up a new building...’’ thereby paying little or no tax.

Kamulegeya critiqued the proposal saying it does not deal with the perceived problem of deducting expenditure incurred when constructing buildings. 

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He added that the proposed tax measure will distort taxation of companies involved in rental property by forcing them to treat each property as if it is separate business. 

Kamulegeya says that the government proposal increases the cost of compliance on companies involved in the rental of commercial property and may lead to arbitrary apportionment of expenses between properties owned by the same company.

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Kamulegeya asked legislators not to support the tax proposal. 

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Bwanika advised that tax policies should be simple saying that the more complex the tax laws, the greater the costs for government to administer them hence an increase in the compliance costs of taxpayers which is likely to result into low revenue collects.