The general rule for allowing expenditure for tax purpose is if they are revenue in nature and incurred wholly and exclusively in the production of income. Expenditure which is allowable under the Income Tax Act includes: –
Expenditure incurred in starting up a business to produce income included in gross income (restricted to only non-recurring preliminary costs) or in the initial public offering at the stock market shall be allowed a deduction of an amount equal to 25% of the amount of the expenditure in the year of income in which the expenditure was incurred and in the following three years of income in which the business is carried on by the person.
There is a new requirement for any person who buys goods above Ushs. 5 million must have a TIN lest the expenditure is disallowed against the reporting taxpayer (S.22 of ITA)
8 The section about allowable deductions was extracted from Section 33 (1), Section 30 (1), Section 34 (3) of the Income Tax Act amended 2017.
Non allowable deductions9
Expenditure which is not wholly and exclusively incurred in the production of income and expenditure which is of a capital nature is disallowed. Expenditure which is specifically disallowed includes:
9 The Non allowable deductions were extracted from section 24 (1), 22(3) (d), 22 (2),(a), (b),(d) (e),(f),(h),(i),(k),(l),(c) of the Income Tax Act as amended 2017.
Tax allowances on capital expenditure are available against business income to companies and individuals. The allowances which can be claimed in respect of capital expenditure are; Industrial building allowance; Wear and tear deductions; and Farm works allowance;
Industrial building allowance
IBA at an annual rate of 5% is allowed on capital expenditure incurred on the construction of an industrial building which is used by the person during the year in the production of income included in gross income. The allowance is on a straight line and prorate basis. An industrial building is defined to include a building which is wholly or partly used or held ready for use by a person for manufacturing, research and development into new improved methods of manufacture, mining, an approved hotel business, approved hospital or approved commercial building10.
10 Extracted from section 2 (jj) of the Income Tax Act as amended 2017.
Wear and tear deductions
Wear and tear allowances are calculated by applying the rate of depreciation for that class against the written down Value of a pool on a reducing balance basis. There are four wear and tear classes;
|1||Computers and data handling equipment||40%|
|2||Automobiles; buses and mini-buses with a seating capacity of less than 30 passengers; goods vehicles with a load capacity of less than 7 tonnes; construction and earth moving equipment||35%|
|3||Buses with a seating capacity of 30 or more passengers; goods vehicles designed to carry or pull loads of 7 tonnes or more; specialized trucks; tractors; trailers and trailer-mounted containers; plant and machinery used in farming, manufacturing or mining operations.||30%|
|4||Rail cars, locomotives and equipment; vessels, barges, tugs and similar water transportation equipment; aircraft; specialized public utility plant, equipment and machinery; office furniture, fixtures and equipment; any depreciable asset not included in another class11.||20%|
11 Extracted from sections 27, 28, 29 sixth schedule part 1 of the Income Tax Act as amended 2017.
Farm works are defined to include, fences, dips, drains, water and electricity supply works, labour quarters and any other immovable buildings necessary for the proper operation of the farm. Depreciable assets used in production of farming income are depreciated under class 3 through the ordinary Wear and Tear. Farm houses are excluded.