COVID 19 DONATIONS: IMPLICATIONS OF THE PROPOSED AMENDMENT

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By Charles Lutimba

On 4 June 2020, the Minister of Finance, Planning and Economic Development came up with an Income Tax (Amendment) (No. 2) Bill, 2020 with a commencement date of 1 July 2020 seeking to allow a deduction for a gift made to the Government during a year of income for purposes of facilitating the Government in the prevention, treatment and containment of the Covid-19 pandemic. Whereas this may be a welcome clarification for scores of persons that made donations to the National COVID19 Taskforce (Taskforce), it is useful to consider the discussion that may have prompted this proposed amendment and the implications of the same.

There has been a heated debate among tax professionals about the fate of donations that a multitude of Ugandans and Ugandan organisations made and are continuing to make to the Taskforce in the fight against COVID 19.  There have been divergent views as to whether such donations are tax allowable or not.

One school of thought has raised their argument from a more moralistic and humane perspective. Their reasoning being that it would defeat understanding and common sense for a person to volunteer to gift to the Taskforce during this period of the pandemic and for the Government to later deny such person tax deductions for the expended amounts. Such proponents have even gone further and justified their position by reconstructing the provisions of the Income Tax Act to their benefit by affirming that the Taskforce falls within the definition of exempt organisation and that donations need not necessarily be made to an exempt organisation to qualify for deductibility. This school of thought equally implored the argument on the role and importance of phraseology and phrasemes in aiding interpretation of tax law to put their point to rest.

The other school of thought believed that the donations were not tax allowable. This group has argued that in deriving the chargeable income, a person is granted the applicable deductions specified in the Income Tax Act Cap 340 (ITA) and that donations are tax deductible to the extent allowable by law. According to the ITA, a taxpayer is allowed to claim a tax deduction for charitable donations as long as the donation is made to a tax-exempt organization within Sec 2(bb)(i)(A) or (B)) and the maximum amount allowed as tax deductible is 5% of the taxpayer’s chargeable income for the year calculated before taking into account the donation.

The ITA provides that an exempt organization should be:

  • an amateur sporting association;
  • a religious, charitable or educational institution of a public character; or
  • ………..;
  • ………..; and

(ii) which has been issued with a written ruling by the Commissioner currently in force stating that it is an exempt organisation

(iii) none of the income or assets of which confers, or may confer, a private benefit on any person;……..

This school of thought avers that for the donations to be allowable one must not only donate to an exempt orgnaistion BUT such an organisaion should satisfy the provisions in sec 2bb(ii) and (iii). Satisfying the requirement under sec 2bb(i) (A) or (B) alone does not qualify the donation to be allowable since sec 2bb(ii) and (iii) are required to be read in conjunction with 2bb(i).

A classic position on the interpretation of tax laws was cited in Cape Brandy Syndicate v I.R.C.[1], where Court held that; “In a taxing statute one has to look merely at what is clearly said. There is no room for any intention. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can look fairly at the language used. If by any reasonable meaning of the words, it is possible to avoid the tax, then that meaning must be chosen. There is no scope for any inference or induction in constructing a taxing statute. There is no room for suppositions as to “spirit’ of the law or by way of “inference”. When the provision is reasonably open to only one meaning then it is not open to restrictive construction on the ground that the levy of tax, is oppressive, disproportionate, unreasonable or would cause hardship. There is no room for such speculation. The language must be explicit……”

Whereas donations to the Covid 19 Fund are indeed handy; streamlining the legal framework within which such donations are to be made was therefore necessary. Recognizing that charitable giving to a myriad of organizations and the Government would suffer in the current economic environment at a time when charitable support is of critical importance, several jurisdictions like South Africa, Malaysia, USA set up specific legislations with provisions to encourage charitable giving by providing for allowability of such donations for taxes purposes.

We will now proceed to examine the proposed Income Tax (Amendment) (No. 2) Bill, 2020 and note that the amendment:

  • Is ‘scope restricted’? Must the donations relate to the Covid 19 pandemic?

The provision may not apply to any other catastrophe or pandemic that may arise over time. Whereas we are faced with covid-19 today, we may be faced with another, potentially worse, pandemic in future. It would be counterproductive if the Government had to provide an amendment every time the world experienced a pandemic. The amendments should have been construed in manner that does not tie the relief to a specified named event (Covid-19). The amendments could have been structured in manner that would allow application to other similar unpredictable events for example a natural catastrophe like earth quakes, floods etc which may call for public donations. Otherwise in the event of occurrence of, say a landslide, the donating organisations will need to consider provisions of section 34(1) (2) and (3) of the ITA when making the donations.  Section 34(1) – (3) requires the donations should be made to an exempt organization (within sec 2bb(A) or (B)) and should not be more that 5% of the organization’s chargeable income. The new amendment is less restrictive compared to the provisions of Section 34(1) (2) and (3).

  • Is ‘purpose restricted’? Must the donations relate to particular Covid 19 purposes?

Any donation to be allowable for tax purposes should be specifically intended to facilitate Government in the prevention, treatment and containment of the pandemic. Although, this stem has been given a wider construction, the implication is that a donation must be made to aid Government in fulfillment of the outlined purposes. Key concerns however, are:

  • If the donation is in cash form how should the donating person prove to the tax body that the donation met the purpose restriction of the statute?
  • Does the person who donate need to specify the purpose to which its donation should be tied to?
  • If one tied their donation to procurement of specified goods or services, say food handouts to communities affected by containment measures, would this be allowable?
  • If ones donation is tied to giving psychosocial support to victims of the pandemic and or their relatives would this pass the test?

Remember, whereas the purpose seems to concentrate on measures that directly calm the pandemic, some persons may be willing to gift in order to manage the post covid-19 disruptions in society.

  • Is ‘recipient restricted’? Must the donations be given to Government only?

The donations must only be made to the Government. Incidentally, whereas the word Government is used over 122 times in the domestic tax laws, it is not defined anywhere. The debate will thus linger around whether Government is system or institutions in operation, a group of people in charge, or a process in use. This restriction further resounds Government’s intention to spearhead distributions of Covid-19 related relief. If an organization donated to say a Religious community, such donations will not fall under the ambit of the new amendment (section 34(1A) but will be considered under 34(1), (2) and (3) and remember the later section is somehow restrictive.

  • Delinks from the requirement to donate to an exempt organization?

Unlike section 34(1) whose interpretation and application are considered in conjunction with section 2(bb)(i)(A) or (B), the new amendment will require no such extension. That is the amendment is very independent.

  • Has no restriction on amount donated?

The provisions in section 34(2) and (3) are such that the amount allowable for the donation shall not exceed five per cent of the person’s chargeable income. The new amendment is not linked to section 34(2) and (3) and therefore, in principle one can donate to Government beyond the cap set under section 34(3).

  • Has an effective date of 1 July 2020?

The proposed amendment carries a commencement date of 1 July 2020. The general principles in designing commencement clauses are that they must provide: certainty about when legislation is in force; and adequate public notice of the commencement of legislation. The practical context of a particular legislation or those most affected by it will equally be a matter of consideration in setting a commencement date. However, based on the proposed commencement date, the implication is that all gifts that may have been donated before the coming into force of this amendment will at least from the construction of the Bill be non-allowable. Was this the intention of the amendment? If not, could it have been wise to clearly provide for a special treatment for gifts donated before the coming into force of the Bill or would the amendment have been an ex post facto enactment, that is one which is intended to apply to events that occurred before its enactment?

Donating is critical to proper functioning of society. It is what makes society more just, humane and pleasant. It is an emotive issue, but it cannot be based on a knee-jerk reaction. For persons that have or intend to donate during this pandemic, there is need to fully appreciate the implications the new amendment brings on board as the amendment seems to be scope, purpose and recipient restricted.


[1](1 KB 64, 71):

CPA Charles Lutimba is the Manager – Standards & Technical Support at the Institute of Certified Public Accountants Of Uganda


[1] 62 HARV. L. REV. 616 (1949).

[2] (1 KB 64, 71):

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