Parliament finally passes tax amendment bill

Parliament has finally passed the Income Tax (Amendment) (No.2) Bill, 2023, removing the final obstacle to the Islamic banking and financing.

The Bill was deferred from Tuesday this week after it emerged that the committee of finance, planning and economic development had introduced new clauses away from the original proposal by the finance ministry.

On Thursday, there were contentions regarding the wording of the provisions for money accrued out of business. Muslim legislators prevailed with their wish to have words “return on investment” replaced by “mark-up.”

Return on investment is a simple ratio that divides the net profit (or loss) from an investment by its cost while mark-up is an increase in the price of something.

If the Bill is assented to by President Museveni, it will provide for equivalent tax treatment of Islamic financial and Takaful business as related to conventional financial services or insurance business.

The Bill also provides for the payment of the excess of the return on investment in the bond to the bond holder under Islamic financial business for each payment period.

Additionally, the Bill also suggests that “a resident partner in a partnership arrangement under an Islamic financial business shall withhold tax or interest sourced in Uganda accruing to a non-resident partner in accordance with section 83 (2) of this Act."

Under section 92A the Bill states that “a manager of a takaful business shall furnish a return or income for each year of income not later than six months after the end of that year on behalf of the participants, in each group in the takaful business."

“A resident person who pays management fees, agency fees in case of Islamic financial business, or professional fees to a resident person shall withhold tax on the gross amount of the payment at the rate prescribed in Part VIII of the Third Schedule to this Act," part of the Bill states.

Section 163A, which is a new introduction to the principal Act, deals with the issue of re-characterisation of arrangements under the Islamic financial business.

“The Commissioner shall comply with Shari'ah principles in re-characterising an arrangement under Islamic financial business not provided for under this Act,” it states.

Muwanga Kivumbi, the Butambala County Member of Parliament said the Bill had been long overdue noting that “the final hurdle with the income tax has been handled.”

“We know the back and forth of the so many centres of power in the country. They may feel some level of discomfort with Islamic banking but it is not for Muslims only,” he observed.

According to Kivumbi, the legislation will also benefit the poorest people by bridging the gap created by higher borrowing interest rates in government schemes such as the microfinance support centre.

Bugiri Municipality MP Asumani Hassan Basalirwa expects the law to attract more financing to the country, especially when Uganda is facing aid cut threats from Western powers over the anti-homosexuality law.

“With this system, we are able to accommodate the shocks that may be caused by the aid cuts by these people who want us to use wrong addresses (homosexuality) in our country,” he noted on Thursday.

On his part, Kalungu West lawmaker Joseph Gonzaga Sewungu hoped the president signs it for the benefit of the masses.