Parliament has rejected a proposal by President Yoweri Museveni to impose an income tax on companies that consistently report losses for a period of five years.

MPs on Wednesday rejected the proposal arguing that it would hurt businesses.

In the Income Tax Amendment Bill 2020, which was presented to the House in April by the finance ministry, the Government had proposed to impose a 0.5% tax on the gross income of companies that report losses for five years.

The President declined to assent to the Bill and returned it to Parliament, demanding MPs reconsider their position and approve the proposal to have the companies reporting losses for long, taxed.

The Speaker of Parliament, Rebecca Kadaga, referred the Bill back to the committee on finance to revisit it, while considering the President's concerns.

For the last two financial years, the Government has been attempting to impose a corporation tax on companies that report losses for a long period of time, but Parliament has been rejecting it on the grounds that the tax is only charged on companies making profits.

The Government suspects there are many companies that keep evading taxes by hiding behind claims of failure to make profits.

In his explanation to Parliament, the President said this was one of the measures to generate revenue from taxpayers who have colossal turnover, but because of the generous deductions in the Income Tax Act, they use them to defeat collection of revenue.

President Museveni also informed Parliament that such a tax is not peculiar to Uganda, as the US, Tanzania, Kenya and Rwanda have similar taxes.

In the report presented to Parliament by the committee chairperson, Henry Musasizi, they recommended that Parliament approves the Bill the way the President wanted it.

Musasizi argued that since the House had rejected most of the tax proposals the Government had presented at the time of passing the 2020/2021 national budget, the committee found it necessary to approve the President's proposals to help raise tax revenue of sh178b.

"Many prominent companies are dodging taxes by reporting losses. All these big hotels you see in Kampala are reporting losses. Is it true that all these companies are not making profits? That is why Government wants to tax their income," Musasizi explained.

The state minister for planning, David Bahati, also made efforts to persuade the MPs by assuring them that the 0.5% tax would not be taxing losses, but taxing the gross income of the companies.

The Budadiri West MP, Nandala Mafabi, who is an accountant by profession and a former staff of Uganda Revenue Authority, argued that the internationally accepted canons of taxation require that income tax is charged on what is left after removing expenses and, therefore, cannot be imposed on companies that are making losses.

Dokolo Woman MP Cecilia Ogwal said: "It is surprising that instead of bailing out our companies which have been greatly hit by COVID-19, the Government wants to worsen their situation by imposing more taxes on them."

Parliament's budget committee chairperson Amos Lugoloobi, who is also the MP for Ntenjeru North in Kayunga district, said: "What needs to be done is to strengthen tax administrative measures such as digital stamps and investigations. If we allow this tax, companies will collapse and we shall lose jobs."