MPs push for tax waivers to rescue struggling SMEs

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Uganda lawmakers have called for urgent tax waivers to support struggling businesses, warning that new tax reforms could leave out existing but compliant enterprises.

Members of Parliament sitting on the Finance Committee have asked the Ministry of Finance to reconsider its proposal for a three-year income tax holiday for startups registered after July 1, 2025, warning that the measure risks sidelining struggling businesses that have already shown compliance.

The committee, chaired by Amos Kankunda (Rwampara), expressed concern during a meeting on Wednesday with finance ministry officials led by Minister of State for Finance, Henry Musasizi. The officials had appeared to discuss the issues regarding the tax bills for 2025.



The tax amendment bills for 2025 include the Income Tax (Amendment) (No.2) Bill, the Excise Duty (Amendment) (No.2) Bill, the Value Added Tax (Amendment) Bill, the Tax Procedures Code (Amendment) Bill, the Stamp Duty (Amendment) Bill, the Hides and Skins (Export Duty) (Amendment) Bill, and the External Trade (Amendment) Bill.

The proposed tax exemption by the ministry is seen as a bold intervention to boost youth-led entrepreneurship, increase business survival rates, and improve access to capital. But legislators argued that limiting the waiver to only businesses registered after July 2025 would exclude struggling enterprises that have operated for years and remained tax compliant despite financial hardship.

“Why are we leaving behind those who have been struggling and trying to remain compliant?” Kankunda questioned, urging the ministry to expand the incentive’s scope retrospectively to include more businesses.

Charles Mua, the Assistant Commissioner for Business Policy at the Uganda Revenue Authority (URA), however, warned against retrospective application of the tax holiday, citing practical and legal complications.

“There are challenges that come with retrospectivity,” Mua explained. “For instance, businesses that have paid taxes and were not making losses would demand refunds, which is not sustainable. On the other hand, loss-making businesses would be unable to carry forward their losses after the three years, and they wouldn't benefit from the exemption.”

Mua further referenced Section 22 of the Income Tax Act, which stipulates that only expenditures incurred in generating taxable income can be deducted. “Losses incurred by businesses during periods when they are exempt from tax won’t qualify as deductible,” he clarified. “This could worsen the situation for the very businesses we want to support.”

Still, MPs were not convinced, with Kankunda urging URA to consider companies’ tax compliance history rather than just their registration dates.

Dickson Kateshumbwa (Sheema Municipality) criticised URA’s rigid stance, asking why the issue of carry-forward losses was being treated as an obstacle when it could be addressed through clear legal provisions.

“We need to see a performance analysis of businesses below the sh500m turnover mark over the last few years. That would inform our decision. We risk passing a law that benefits a few startups while excluding many businesses already employing young people and supporting farmers.”

Kateshumbwa added that legislation without adequate data risks backfiring. “We should avoid enacting a law that creates expectations and leads to mass registration by new companies while offering no relief to older, still-struggling businesses.”

Mua reiterated that extending the exemption retrospectively could result in both administrative and legal dilemmas, especially if exempt businesses attempt to claim deductions for losses despite not having generated taxable income. “It would go against the principle of gross income as defined under the Income Tax Act,” he said.

IFRIS Penalties

A discussion also arose around the penalties imposed by the Electronic Fiscal Receipting and Invoicing System (IFRIS), which the government introduced to enhance transparency in tax collection.

Currently, non-compliance with IFRIS attracts a flat penalty of sh6m per invoice, although a provision that has drawn heavy criticism from small and medium-sized enterprises (SMEs), which argue that such penalties are punitive and disproportionate.

In response to this outcry, the Ministry of Finance proposed an amendment that would tie the penalty to the amount of tax evaded, specifically, twice the value of the unpaid tax.

“This change introduces proportionality to the system,” said Minister Musasizi. “IFRIS is here to stay, and we shall continue using it to collect revenue efficiently.”

Committee Chair Kankunda, however, sought clarity on whether there would be a ceiling to the proposed penalty formula. “If someone’s default, for example, leads to a sh100m tax loss, doubling it makes the penalty sh200m. Is there a limit?”

Karim Masaba (Industrial Division) supported a proportional approach but emphasised fairness. “A business that fails to issue a receipt worth sh1m should not face the same penalty as one that fails to issue for sh100m. We need to be fair to our people.”

Kateshumbwa echoed similar concerns, urging the ministry to ensure that any amendments passed are practical and implementable. “We don’t oppose IFRIS or the penalties, but they must be enforceable and equitable.”

Catherine Donovan Kyokunda, the URA Commissioner for Legal Services and Board Affairs, defended the new penalty structure. “Previously, even for a sh10,000 default, a business would incur a sh6m penalty. Under the proposed system, it would be 18% of the sh10,000, times two, which is much more reasonable.”

She added that the revised penalties would encourage compliance, especially among larger taxpayers. “For high-value defaults, it will be costlier to default than to comply. This model has worked well in other countries like Rwanda.”