Tax measures: Capping losses and e-receipting

Beginning next financial year, which is less than two months away, companies and businesses that have been in operation for seven years will be required to pay taxes even when they are making losses.
This is part of the raft of proposals contained in the tax Amendment Bills of 2018, which also seeks to compel businesses into issuing electronic receipts and invoices through gadgets linked to the Uganda Revenue Authority monitoring systems.
According to the Bill, currently before Parliament, a taxpayer who has carried forward losses for seven years will be compelled by law to pay some tax.

The law will compel loss making companies to pay a 0.5 per cent tax on gross turnover for the period after seven years.
The proposal, however, controversial it might be, has supporters and in fact, according Tax Justice Alliance Uganda, the years should be reduced to five instead of the proposed seven.

In a recent meeting with the Parliamentary Committee on Finance, Nelly Busingye Mugisha, who represented civil society, argued that the proposal will improve revenue collection and facilitate investment.
“The proposal to cap the period over which a tax payer can carry forward losses will curb perpetual declaration of losses,” a statement from Tax Justice Alliance, a membership group that brings together Seatini-Uganda, Uganda Debt Network, Oxfam, ActionAid Uganda and Civil Society Budget Advocacy Group, reads in part.

According to the statement, civil society organisations believe that the “proposed seven years is too long and the 0.5 per cent rate is too low”.
Thus, they suggest that the period be reduced to five years and the tax rate increased to 1 per cent.
They also propose that a mechanism to verify losses by an external person is put in place so as to prevent perpetual declaration of losses by companies.
Government, they add, should also develop a schedule with an estimated period within which return on investment must be realised.

This, they say, will enable URA to assess the viability of businesses which have continuously declared losses but have remained operational.
Muhammed Ssempijja, a tax partner and country leader at EY, says Uganda has been generous for long and the capping is something that is already happening in elsewhere.

However, he says, on the flip side this move may discourage some investors because in most cases companies have little options when it comes to loss making.
“Investors will be thinking twice before investing here because they wouldn’t want to be on the wrong side of the law, particularly those who want to be around for a long haul,” he says.

According to Ssempijja, the spirit and the intention of the proposed law is in good faith but is wary of its repercussion.
Unlike Ssempijja, Albert Beine, the Global Taxation Services managing director, thinks this is a bad move that might boomerang.
“Our economic environment here is not that vibrant yet. This means that you can make losses for more than seven years before starting to register profits. So it makes no sense to tax such a business,” he says.
As way forward, he says, URA should instead carry out an audit to determine whether the company is making loses or not instead of taxing them.

While submitting before the Parliamentary Committee on Finance recently, Francis Kamulegeya, the PwC Uganda country senior partner, argued that the proposals is more of a one-size-fits-all yet in reality the situation is quite complex.
His argument was supported by a document that PwC submitted to the committee seeking for clarity on the 0.5 per cent tax proposal and later alone which years of income the amendment will apply to.
The document also suggested that some exception be considered for parastatals that provide public goods or services.
Apart from the tax proposals, the Bill proposes that taxpayers issue e-invoice or e-receipt through an electronic device linked to the centralised invoicing and receipting system at URA.

The Bill also tasks the commissioner to specify taxpayers who will by law be required to issue e-invoices or e-receipts which shall be linked to the centralised invoicing and receipting system authenticated by URA.
This according to Beine, means that selected companies, most of which will be medium and large corporations, will be asked to install receipting and invoicing devices that operate simultaneously with the URA systems.
In other words URA will have a record of all receipts and invoices issued by selected companies.
These records will be used for tax assessment and enforcing compliance.

Such a system, Beine says, already operates in different countries and for companies that have no records of tax evasion and compliance issues, this shouldn’t be a problem.
However, Beine fears that the implementation of this project could be derailed by corruption.
“The real problem will emerge during procurement and supplies. Do not be surprised if the person who ends up supplying this device does not do the right job because of procurement related corruption,” says.

REVENUE
The Minister of Finance developed and presented the tax revenue measures for 2018/19 contained in the; Income Tax (Amendment) Bill, 2018, Excise Duty (Amendment) Bill 2018, Value Added Tax (Amendment) Bill 2018, Stamp Duty (Amendment) Bill, 2018 and The Traffic and Road Safety Act 1998 (Amendment) Bill, 2018.

In the 2018/19 financial year, domestic revenue is projected at slightly at above Shs16 trillion, of which Shs418b is non-tax revenue.
This amounts to about 53 per cent of the total resource envelope which has been estimated at Shs30 trillion to finance the budget under the theme: “Industrialization for job creation and shared prosperity.”

However, given past trends there has been a variance between the revenue projections and actual collection.
In 2016/17 financial year net revenue collections amounted to Shs12 trillion registering a shortfall of Shs500b.
Therefore, in order to cover up the shortfalls, government has had to greatly rely on external and domestic debt which currently stands at 27 per cent of GDP.

It is thus important that the country generates as much revenue as it can domestically in order to reduce the debt burden and be able to finance its own development.
However, in the quest to mobilise revenue domestically, government should do it in a fair and just way, according to the Tax Justice Uganda.
Some of the aforementioned proposals are meant to generate the much-needed revenue, but the question being asked is can the government have its cake and it.