By Bazira Henry Mugisha
COVID-19 Pandemic become a reality for Uganda at the threshold of 2020. In March 2020, government begun to put in place measures to control the spread of the pandemic in the country. All cross-border travel, except cargo was suspended, movement of public and private vehicles was ordered halted and non- essential businesses and government agencies order to close down with a 7pm to 6.30am countrywide curfew imposed. These measures culminated into a 5-6 months lockdown that has had and continues to have far reaching consequences on the social and economic out-turn of the country.
Citizens endure d the lockdown with the hope that the leaders would use the lockdown period to prepare the country to battle the effects/impacts of the pandemic including strengthening the health system and offering relief actions towards the recovery of the economy once the lockdown was lifted.
It is clear that many sectors of the economy have and will continue to suffer negative impacts of the lockdown and will need COVID-19 relief measures for the medium-to-long-term to enable them recover from the impacts. In response, government during the budget speech for FY2020/21 suggested a number of measures to address the emerging COVID-19 related challenges that include:
Deferring payment of Corporate Income Tax (CIT) or Presumptive Tax for corporations, small and medium enterprises (SMEs);
Deferring payment of PAYE by sectors affected;
Waiving interest on tax arrears (principle, interest & penalties); and
Offering Tax deductions to taxpayers on donations made towards COVID-19 responses
The above proposals were translated in the Income Tax (Amendment) (N0.2) Bill; the Value Added Tax (Amendment) (No. 2) Bill; the Excise Duty (Amendment) (No. 2) Bill; and the Tax Procedures Code (Amendment) Bill for the year 2020/21. While these proposals were welcome suggestions, the bills in which they are enshrined have all not yet been passed into law by Parliament. For example, the second Tax Procedures Code Bill 2020/21 introduces a waiver of all outstanding interests and penalties owed by any taxpayer as at 30th June 2020. This waiver was intended to ease the burden on taxpayers for tax liabilities borne during the lockdown.
The waiver was also in line with the recommendations by the International Monetary Fund (IMF), the Organization for Economic Co-operation and Development
(OECD) and African Tax Administration Forum (ATAF) for COVID-19 response. The Tax Procedures Code Bill further provides for deferring Corporate Income Tax for businesses in tourism, horticulture, floriculture and education sub-sectors – a measure intended to offer cash-flow relief for the sub-sectors that were hardest hit by COVID-19 and the lockdown measures.
Furthermore, the bill provides for deferment of Pay-As-You-Earn (PAYE) tax until the 30th of September 2020. This promise was intended to allow employers delay paying PAYE and have some cash available to their disposal – a measure considered by government as an interest free loan to employers.
However, the bill has not yet been passed into law and as a consequence businesses that were negatively affected by the lockdown will still have to pay taxes for the months during lockdown when there was no business. Also the period deferred by the bill has since expired rendering the proposals/promises useless. URA will continue to enforce the existing law as if lockdown never happened.
The promise to waive all outstanding interest and penalties on tax liabilities as at 30 th June 2020 has also created a wrong impression among the public that all tax liabilities up to 30 th June have been waived or
removed, which is not the case. The waiver is only referring to interest and penalties chargeable on tax owed by a taxpayer from the time (March 2020) measure to contain COVID-19 spread started up until 30 th June 2020 – any tax liability thereafter shall be subjected to interest and penalties.
The apparent proposed application of Corporate Income Tax relief for selected businesses (i.e. tourism, manufacturing, and floriculture & education) without considering other businesses is not healthy for the economy.
Personally, I see the deferment of CIT and PAYE only as a measure to cure the legal challenge that URA would face making tax claims and enforcing interest and penalties on uncollected tax and to safeguard businesses from tax claims for a lockdown period when they were not doing any business. It is not and would not be an interest free loan from government in the real sense of the word, because there was no money earned by many businesses during lockdown.
Also, the businesses will have to pay the tax due for the lockdown months post lockdown and COVID-19 pandemic without exception.
Now that the bills have not been passed into law, they remain useless promise. However, if they are passed, government (URA) will have to create public awareness on the actual meaning of the deferments
and waivers and their implications on businesses. Also, the period for which the provisions will apply will have to be revised.
It is interesting to note that when Members of Parliament were fighting for their own tax relief in 2016, they were unstoppable force. One cannot help, but admire the tenacity that they displayed then when they unanimously stood up to the President to pass the provisions in the Incomes Tax Amendment Act 2016 which exempted a greater part of their earnings from income tax.
But, when it comes to passing tax relief that benefits the rest of Ugandans, they are slow and uninterested. Moreover, Parliament is breaching Section 14(1) of the Public Finance Management Act of 2015 which requires Parliament to consider and approve any new tax laws by the 31 st of May of each year. This is now October and the proposed laws have not yet even been passed.
Mr. Bazira Henry Mugisha Executive Director Water Governance Institute (WGI) and Member of the Tax Justice Alliance, Uganda