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Parliament is session recently. Courtesy photo

Taxes on SACCOs Dropped as MPs Pass Income Tax Bill

During Thursday plenary that was debating the Income Tax (Amendment) Bill, 2018 that was tabled by finance minister in April, MPs passed the Bill, but rejected some of tax proposal that among others included taxing SACCOs
posted onMay 24, 2018
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By Max Patrick Ocaido

PARLIAMENT. Members of Parliament have overwhelmingly rejected government’s proposal to impose 30% levy on Savings and Credit Cooperative Societies (SACCOs).

During Thursday plenary that was debating the Income Tax (Amendment) Bill, 2018 that was tabled by finance minister in April, MPs passed the Bill, but rejected some of the tax proposals that among others included taxing SACCOs.

The Bill proposed to repeal section 21[1] that was introduced in 2017 to exempt SACCOs from paying income tax up to June 30, 2027.

During the debate, MPs argued that SACCOs have not yet matured to be taxed and that taxes will gradually disintegrate SACCOS and discourage people.  

“SACCOS are used as shock absorbers and help fill the gaps left behind by banks. So, we need to give SACCOs time to mature so that at a certain threshold, then government could consider taxing them,” Kamusiime Pentagon (Butemba County) said.

Soroti Municipality MP Hebert Ariko argued that taxing SACCOs will defeat the very objective of SACCOs and will also reduce money in circulation.

In its report, Parliament’s Finance Committee headed by Chairperson Henry Musasizi recommended that government should first conduct a study on the effect of exemption of taxes on SACCOs before reintroducing the tax.

Before passing the Bill, MPs also rejected government’s proposal to tax a company that has carried forward losses for a consecutive period of seven years. 

MPs opposed State minister for Planning, David Bahati’s proposal that tax should be charged on gross turnover for companies declaring losses for 10 consecutive years instead of 5 years as it is the case in the Bill.

“The moment we tax losses then it ceases to be income tax, but rather loss tax. We need to strengthen URA through their investigation units to investigate bank transactions in a bid to establish if a company is making losses or not,” Nandala Mafabi (Budadiri West) said.

“It is unfair to say a tax payer who has consistently incurred losses for 7 consecutive years should pay 0.5% tax. A tax is only paid when profit is made. We can’t use the inefficiency of URA as an excuse to tax companies that make losses. This under declaration of losses or profits by companies is as a result of the poor performance of URA, so the tax body should have the capacity to do better in audit,” James Kakooza (Kabula County) said.

In a defence, State minister for Planning, David Bahati said that the proposal is not to tax loss making companies but rather turnover.

“The tax we are proposing is on turnover not losses, the point we are trying to point out is that if you are not making profits for 5years then what are you still doing in business?” Bahati said.

The Bill as passed will now empower the Minister to make regulations for tax accounting for Islamic financial transactions and to provide for taxation of income arising from change of ownership of a business.

The new law will also exempt from tax the income of a developer of an industrial park or free zone whose investment capital is at least $200m for a period of 10 years from the date of commencement of construction and also exempt from tax the income of an operator in an industrial park or free zone or other business outside the industrial park or free zone whose investment capital is at least $30m in the case of a foreigner or $10m in the case of a Ugandan citizen for five years from the date of commencement of business.

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