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Last updated on July 14th, 2021 at 12:38 pm
On COVID donations and their tax deductibility, I [have already] observed that a gift or donation made by a taxpayer to the Task Force established by Government is tax deductible up to a maximum of 5% of the taxpayer’s taxable profit for a given year of income.
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I also observed that the Task Force falls within the definition of exempt organisation and that the donation need not necessarily be made to an exempt organisation for it to qualify for deductibility. I opined that it is sufficient for the donation to have been made to a company, organisation or institution that serves a charitable, religious or educational purpose of a public character; and that the Task Force, by whatever name or description, satisfies the organisational and operational tests prescribed in Section 2 (bb)(i)(B) and as designated by Section 34(1) of the Income Tax Act.
My position has not changed. I will be waiting to assist any taxpayer in their objection against any action by Uganda Revenue Authority (URA) to disallow the cost or value of the gifts donated to the Task Force towards aiding the fight against COVID-19. Many commentators [have] argued otherwise and they are entitled to their view based on their ‘alternative facts.’
Since then, several tax alerts and opinions from reputable tax professionals who were provoked by my observations, have been shared with me. Most of them argue, to the contrary, that the Government or the Task Force is not an exempt organisation and therefore the donations do not qualify for a deduction. They base their assertion, just like I do, on the provisions of Section 34 and 2 (bb) of the Income Tax Act.
My ‘Alternative Facts’
Many commentators do not seem to appreciate the role and importance of phraseology that originates from legislation yet in the process of statutory construction, every aspect of the law must be considered.
Phraseology forms an integral part of legal language and challenges in construing Phraseological patterns in the context of the law as a whole can form a major obstacle in understanding the meaning of a provision. In other words, the true meaning of a provision can only be achieved through familiarizing oneself with the legal framework, and this requires not only linguistic but also knowledge of the law. Where phrasemes exist in a law, a word-for-word interpretation strategy often leads to an incorrect interpretation. This is because phrasemes are applied in the law to produce certain identified acts.
Gaining an in-depth understanding of phraseology in a statute can be a challenging task since it is only after analysing the law as a whole that linguistic patterns become visible. The Tullow-Heritage Arbitration case is a good example.
In statutory drafting, the choice and positioning of language elements to express legal substance in texts, including the use of specific word patterns and routine expressions, constitute an important linguistic feature pertaining to the drafting style.
Anyone who has bothered to research into the phraseology used in the tax laws will agree with me that the nature of the phraseological patterns or phrasemes used to construct certain provisions help to shed light on the legal constructs behind the provisions.
To support my view point, let me share three phrasemes used under different provisions of the Income Tax Act and inquire whether, by reading them, you can discern from the use of specific word patterns, the legal substance in the texts:
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Section 34(1) provides:
A person is allowed a deduction for a gift made during a year of income to an organisation within Section 2(bb)(i)(A) or (B) of the definition of “exempt organisation”.
WOULD THE INTERPRETATION BE DIFFERENT IF IT STATED…
A person is allowed a deduction for a gift made during a year of income to an organisation within the definition of “exempt organisation” in Section 2(bb)(i)(A) or (B).
Section 21(1)(f)(i) provides:
The following amounts are exempt from tax….The income of an exempt organisation, other than property income, except rent received by an exempt organisation in respect of immovable property and the rent is used by the lessor exclusively for the activities of the organisation specified in paragraph (bb)(i) of the definition of “exempt organisation” in Section 2.
WOULD THE INTERPRETATION BE DIFFERENT IF IT STATED…
The following amounts are exempt from tax….The income of an exempt organisation, other than property income, except rent received by an exempt organisation in respect of immovable property and the rent is used by the lessor exclusively for the activities of the organisation specified in the definition of “exempt organisation” in paragraph (bb)(i) of Section 2.
Section 119(5)(e) provides:
This section does not apply to… importations by organisations within the definition of “exempt organisation” in Section 2(bb)(i)(B).
WOULD THE INTERPRETATION BE DIFFERENT IF IT STATED…
This section does not apply to… importations by organisations within Section 2(bb)(i)(B) of the definition of “exempt organisation”.
NB: If you do not see any difference in the above comparisons, this article is not meant for you. Wait for the next one!
For comments and inquiries about this Article contact Mr Joseph Okuja on jokuja@libraconsultantsug.com
Mr Joseph Okuja is a Tax Director at Libra Tax and Legal Consultants.