Recently, Finance Minister Matia Kasaija presented the tax revenue measures for financial year 2019/20. These are expected to increase revenue by 0.5 percentage points of GDP. However, Ms Regina Navuga, an expert on trade and taxation issues, also the programme head under Financing for Development at Tax Justice, told Prosper magazine’s Ismail Musa Ladu that the tax proposals should be realigned to achieve their purpose. Below are the excerpts:
You are always critical of tax proposals. Isn’t there anything good about them?
That is not entirely true. For example, we support the amendment of Section 5 of the Income Tax Act that requires a person earning from rental income to pay tax for each property separately. We also support the amendment of Section 25 of the Income Tax Act to exclude financial institutions and insurance services from those that have a cap on the interest that can be deducted while computing tax payable. This is because it will increase access to credit, improve transparency, accountability and good governance among businesses.
However, there should be a specific Act on Islamic banking that empowers the minister to either vary or waiver the tax imposed.
We also think the amendment of Section 38 to impose a tax of 0.5 per cent of the total turnover for a tax payer who carries forward losses consecutively for seven years is commendable. But we want it reduced to five years. This is because tax losses are not necessarily business losses. Some of these companies make profits but because of the many statutory deductions and abuses of these privileges, taxpayers reduce their chargeable income to negative.
What proposals give you sleepless nights?
There are couple of them. For example, the amendment of Section 135B (3) which requires local authorities, government institutions or regulatory bodies to only issue licences or any form of authorisation for purposes of conducting any business in Uganda, to only persons with Tax Identification Numbers (TINs).
Interestingly, the provision does not provide repercussions for any licences issued without a TIN. We also note that local authorities, government institutions or regulatory bodies do not have the capacity and infrastructure to verify the authenticity of Tax Identification Numbers submitted by applicants for licences. And most citizens have limited knowledge not only on how to acquire a TIN but also on filing tax returns. More still, there is limited access to internet services across the country hence limiting citizens’ access to URA portals.
Why are you unhappy with the government’s move to tax diversification of business in the same premise?
The problem with the Amendment of Part III of the Principle Act to streamline provision on Registration of manufacturers to conform to other provisions of the Act on the same is in Sub section (14) which requires a registered person to only use the premises solely for the purpose for which they are registered. This is restrictive in terms of freedom and diversification of entrepreneurship. It limits diversity in terms of creativity in business and contravenes Article 40(2) of the Constitution of Uganda of 1995 as amended. “A citizen has a right to carry on any lawful profession, trade or business.”
What is the impact of reducing excise duty on sin goods?
The Amendment of Schedule 2 to the Principal Act item 5(a) by reducing the excise duty on non-alcoholic beverages not including fruit or vegetable juice from 12 per cent or Shs200 whichever is higher to 11 percent or Shs185 per litre, whichever is higher, is an issue for us.
Look, non-alcoholic beverages such as soda, energy drinks and non-fruit juices are sin goods which with increased consumption, could negatively affect the health of the consumer. Furthermore, the reduction in the tax will lead to a tremendous loss in government revenue. We recommend that the current rate 12 per cent or Shs200 whichever is higher should be maintained.
On The Tax Procedure Code Act…
This amendment seeks to require the minister to pay tax arising from the commitment made by government to pay tax on behalf of a person or owing from Government as counterpart funding for aid funded projects. We have noted that this provision is not specific on the tax heads that can be paid for by government. In the past, government has paid taxes on behalf of these companies including Pay as You Earn that is not a tax for these companies but for their employees.
Furthermore, the provision allows for a waiver on all unpaid taxes by government, which will cost the government an enormous amount of revenue in form of unpaid taxes.
In May 2017, the budget parliamentary committee refused to grant the Ministry of Finance a supplementary budget of Shs47.7 billion to pay tax on behalf of private companies. Additionally, in May 2018 parliament rejected a clause in the Tax Procedures Code Bill which sought to give the minister powers to grant tax exemptions to some companies. Therefore, the re-instatement of a provision to waive tax arrears and pay on behalf of companies compromises these decisions by parliament.
What is your view about East Africans being treated as Ugandan and accruing all tax benefits due to a Ugandan?
The definition of a citizen as a natural person who is a citizen of a partner state of East African Community; or a company or a body of persons incorporated under the laws of a partner state of the East African Community in which at least 51 per cent of the shares are held by a person who is a citizen of a partner state of East African Community need further clarity.
The proposed amendment widens the meaning of a citizen to include natural persons and companies within the six countries of the EAC. Despite the fact that this is in the EAC spirit of federation, it would create a situation of more preference to the EAC partner states citizen at the expense of the Ugandan citizen in as much as the latter is equally a partner state citizen.
It also clashes with ongoing government policies like Buy Uganda Build Uganda and the promotion of local content. Therefore, it is likely to open up Ugandans to unnecessary competition from their East African neighbours. Yet the conditions for investment by Ugandans in other EAC partner states are not favorauble. It therefore makes no sense to keep an open door policy for other citizens of EAC partner states while we suffocate home grown enterprises.