Uganda: Tax Relief Measures in Response to COVID-19

The global outbreak of Covid-19 pandemic has ravaged the world and disrupted economies, not sparing Uganda. The rapid spread of the virus has posed massive health and economic challenges to everyone.

However, there have been several measures that have been implemented by the Government of Uganda to prevent the spread of Covid-19, leading to a shutdown of many of the economic activities in both domestic and international trade, such as closure of the international airport except for cargo, mandatory closure of non-essential businesses, compulsory stay at home of non-essential workers, among others.

More importantly, the greatest economic brunt of Covid-19 will be borne by the poor and low-income-earning segment of our population.

Therefore, the government's primary focus should be on providing income support, especially to the underprivileged segments such as daily wage workers, labourers, and the like.

For the taxpaying population, the government needs to boost household consumption expenditure to boost demand, for which tax measures that incentivize savings may be needed. Among businesses, the small and medium enterprises segment (SMEs) would be the hardest hit. This sector is also important from the perspective of job creation and retention of the existing jobs in this period.

Employing 80 per cent of employees in the private sector and contributing 20 per cent to the nation's GDP, this sector is a force to reckon with.

Accordingly, there should be an attempt to identify creative ways to mobilize additional tax and non-tax revenue, without in anyway burdening the taxpayers.

As government looks to make up for the shortfall in revenue, it may, in desperation, turn to excessive taxation which may have adverse effects to companies, including some going bankrupt. This is akin to killing the goose that lays the golden eggs. So, to ensure that long-term revenue does not suffer due to short-term considerations, taxpayer welfare is important.

The government has already announced certain tax relief measures such as extension of filing return dates. However, a crisis like this calls for bigger tax measures that can form part of the larger economic impetus, which government may provide to bring the economy back on track. The following measures may be considered on a short-term basis, say three to six months to enable the taxpayer withstand uncertainty in the economy.

1. The taxpayers can file tax returns within due date and there will be an option of paying the self-assessment tax after six months of filing the return.

2. Company profits are likely to significantly suffer, at least in the first two quarter of this fiscal year. Further owing to the prevailing economic uncertainty, companies are likely to find it extremely difficult to estimate their tax liability in the first two quarters of FY 2020/2021 hence government should waive the 20 per cent under provisioning penalty during FY 2020/21.

3. Advance tax payment schedule may be rationalised to mandate a payment of only 25 per cent of total taxes until December 2020 without payment of interest.

4. The application of rates of interest on delayed payment of advance or unpaid taxes could be lowered say to 0.5 per cent per month from the existing 2 per cent or suspend interest on late payments for the first 6 months of FY 2020-21.

5. As a one-off measure, the option of providing reduced corporate tax rates to companies may be explored. This can be proposed only for the corporates which have suffered a reduced turnover beyond a threshold (say 25 per cent to-30 per cent) during the FY 2020-21. Certain conditions may be attached to avail the same, such as no reduction in number of employees, no re-constriction of business by way of merger/de-merger, slump sale. Such incentives will aid the travel and tourism industry, which have been hard hit by the pandemic.

6. Short-term capital loss made by retail investors due recent stock market slump should be allowed to be set off from employment taxable income.

7. Value Added Tax (VAT) credits carry forward threshold could be increased from the current Shs 5 million to Shs 50 million. This will ease pressure on businesses as many would be exempted from the tax audit requirement for the current fiscal year.

8. Donations to Covid-19 National task Force should be allowed as a deduction over the next few years (say, within a span of three years) instead of just FY 2020-2021.

9. Suspension of tax debt recovery during Financial Year 2020/ 21. Tax administration may want to consider suspension of debt recovery, including suspension of the garnishing of bank accounts through URA's use of agency notices, asset seizures and sales.

Above all, it is pertinent to remember that the current situation is unprecedented in the history of mankind and, therefore, the above measures described give ideas on the best efforts to emulate in our country to suit our domestic settings. Also, international cooperation may be sought to analyse the best tax policy measures to update our policies to counter the economic crisis precipitated by Covid-19.

The author is a tax manager at Ernst & Young Certified Public Accountants of Uganda.

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