Tax deferment: Will it really help taxpayers?

Tuesday June 23 2020

The Finance Minister proposed deferring payment

The Finance Minister proposed deferring payment of April, May & June 2020 Pay As You Earn until September 2020. PHOTO | COURTESY 

By Albert Beine

In his Budget Speech read on June 11, Finance Minister Matia Kasaija proposed a number of tax measures to address the short term emergency liquidity requirements of businesses as a result of the Covid-19 pandemic.

Among the measures proposed were that the Minister would defer payment of Corporate Income Tax or Presumptive tax for Corporations and Small, Medium Enterprises (SMEs) until September 2020 for tax compliant businesses with a turnover of less than Shs500 million per annum.

The Minister also proposed deferring payment of April, May & June 2020 Pay As You Earn (PAYE until September 2020.
For both deferments above, no interest or penalties would accumulate on these amounts during this period.

Tax deferment
But what is tax deferment?
Tax deferment or tax deferral as a tax relief refers to instances where a taxpayer can delay paying taxes to some future period. In theory, the net taxes payable should remain the same since it is only the due date of payment that is postponed.

Depending on the goal of deferment, taxes can sometimes be deferred indefinitely, or may be taxed at a lower rate in the future.

Taxpayers should not confuse a tax deferral with a tax waiver. While a tax waiver is a remission in whole or part of the tax payable by the taxpayer, a tax deferral is a postponement of due date of payment of tax. That means that tax will still be paid at a future date.

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Who will benefit from these tax deferrals?
The reading of the Tax Procedures Code (Amendment) Bill, 2020 indicates that the object is to defer payment of income tax for companies and other persons involved in manufacturing, tourism, horticulture and floricultural sectors whose turnover is less than Shs500 million; to defer payment of Pay As You Earn(PAYE) and to waive interest on tax arrears.

The above Bill raises a number of issues;
First, if indeed the object of the tax relief is to address the effects of covid-19 pandemic on businesses, then Government should allow all businesses to enjoy this relief. The Covid-19 pandemic has inflicted havoc on all businesses across all sectors and giving such a tax relief to a few selected ones will not achieve anything.

Secondly, the three months of deferment to September 30, 2020 is not sufficient. With the uncertainty of Covid-19 and businesses struggling to remain a float, a six months deferment would give businesses time to boost their cash flows hence ensuring business continuity.

Extending period
Alternatively, the Commissioner of Uganda Revenue Authority should be given mandate to extend the deferral period to quickly respond and save businesses that have been severely hit.

Thirdly, Covid-19 has substantially affected all business whether small, medium or large.
Why then would the Minister grant the tax relief only to businesses whose turnover is less than Shs500 million?

For the businesses to feel the impact of such a tax relief, a threshold of Shs500 million should be removed.

While the tax measures proposed are welcome to address the short term emergency liquidity requirements of businesses as a result of Covid-19 pandemic, they may not achieve a lot if passed in their current form. A few adjustments as highlighted above could give businesses a huge boost, ensure business continuity and secure the economy.

The author is the chief executive officer of Global Taxation Services Ltd.

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