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The Government could start taxing loss-making entities this financial year if Cabinet buys into the recently passed Income Tax (Amendment) Bill 2023.

“If His Excellency the President assents to the Bill, we are ready to immediately start implementing the measures,” Uganda Revenue Authority (URA) supervisor planning and policy Cedric Job Osuret says.

Osuret says as well as increasing government revenue to finance state projects, the measure is expected to help clamp down on tax avoidance. 

Under the current law, a company can only pay tax on income if they have made a profit.

However, according to Osuret, some firms, using ‘clever tax consultants’ are able to create a perpetual sense of loss-making, even when they are making huge profits. This, according to him, has resulted in the Government losing revenue through this practice. 

“Some [foreign] firms purport to bring in machinery or even money as loans from abroad and then increase their loss margins under the guise that they are paying interest on those loans back home,” he says, adding that most of such firms are in the construction and mining industry.

He says they have been able to make some of the detections of manipulation of profits while scrutinising documents used in the filing of returns.  

Osuret made the revelation during the training of journalists in Kampala on Thursday on Illicit financial flows (IFFs).

The training, which was conducted by Advocates Coalition for Development and Environment (ACODE) in conjunction with FIA, the Uganda Revenue Authority and the Uganda Registration Services Bureau (URSB), is intended to help the media report competently on IFFs.

 If President Museveni assents to the Bill, it will be the 1oth to become law this year.

At 13.9 percent, Uganda’s tax-to-GDP ratio is the lowest in the East African region, according to reports.

The tax-to-GDP ratio is a measure of a nation's tax revenue relative to the size of its economy as measured by gross domestic product (GDP).

About the Bill

Parliament imposed a tax on companies reporting losses for more than seven years with 50 per cent of the losses carried forward now being subject to tax in new amendments to the Income Tax Act.

During plenary on Tuesday, July 11, 2023, Members of Parliament created a middle ground of seven years abandoning the Government’s earlier suggestion to tax losses carried forward in five years.

MPs added Section 38(5) (a) of the Income Tax Act which imposed the tax.

“Notwithstanding the provisions of this section, a taxpayer who after a period of seven years of income carries forward assessed losses shall only be allowed a deduction of 50 per cent of the loss carried forward at the beginning of the following year of income in determining the taxpayer’s chargeable income in the subsequent years of income,” it reads.