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RENEW’s Legal Corner: November 2021

By Tsegamlak Solomon, Mary Adoi, Lincoln Ford | Wed Oct 27 2021
RENEW’s Legal Corner is designed to keep you updated with the regulatory progress and changes happening throughout the different jurisdictions in which RENEW operates. This month has seen several regulatory changes in Ethiopia, Rwanda and Uganda. Below are the highlights:

The Capital Market Proclamation was Published in the Negarit Gazette
As part of the reform agenda, the Ethiopian Government aims to correct imbalances and safeguard macro-financial stability in the country. This includes making improvements to access to finance and the development of a capital market. Consequently, Parliament enacted the Capital Market Establishment Proclamation No. 1248/2021. After some wait since the enactment, the Proclamation was published in the Negarit Gazette this month. Here is our blog on the last draft proclamation.
The English Version of the New Commercial Code was Published
After the new commercial code was enacted by the Parliament in March 2021, everyone has been looking for the final and codified version. However, the new commercial code was only printed in Amharic and the English version was only published this month. Here is our blog on the changes introduced by the new commercial code.
The Council of Ministers Enacted an Amendment to the Income Tax Regulation
The Council of Ministers issued an amendment to the 2017 Income Tax Regulation on September 23, 2021. The amendment aimed to:
1. Clarify some of the provisions of the Income Tax Regulation for the purpose of applicability and to change certain provisions which have a negative implication on some economic activities; and  
2. Reduce some of the hurdles and increase the inflow of investments.
The major elements introduced include:
  • Depreciation in relation to capital goods leasing - The amendment allows depreciation for a business asset held under a hire-purchase agreement;
  • Depreciation in relation to buildings - There has been a misinterpretation of the income tax regulation on how depreciation is calculated in relation to buildings partially used as a business asset. The amendment clarifies this provision and states that it will not apply to buildings that are not completed.
  • Loss carry forward - The amendment also cleared a misunderstanding in the taxpaying community that is associated with loss carry forward. The amendment clarifies that no taxpayer is allowed to carry forward a loss of more than two terms and not beyond five years.
  • Foreign exchange loss - The tax regulation only allows deduction of foreign exchange loss from foreign exchange gain. However, most companies, other than banks, which have foreign exchange loss might not have foreign exchange gain. Hence, to rectify this, the revised proclamation divides capital gains loss into two categories:
    • If an entity incurred foreign exchange loss in relation to purchase of capital goods, the loss shall be added to the cost of the capital goods and be subjected to depreciation.
    • If the foreign exchange loss is not related to the purchase of capital goods, the loss will be considered as deductible for the tax period.
  • Calculating capital gains tax - Inflation adjustments are to be made in relation to transfer of shares and bonds while calculating capital gains tax. Under the income tax regulation, capital gains tax is calculated on disposal of either immovable property or shares and bonds. However, only disposal of immovable property was subject to inflation adjustment for the purpose of calculating capital gains tax. 
Companies are Now Mandated to Prove “Cash on Hand”
The Addis Ababa City Revenues Bureau issued a circular mandating companies to present evidence if they record “cash on hand” in their balance sheet. The main purpose of this is for the Revenue Bureau to identify if the cash on hand indicated on companies’ books exist at banks or on hand. The Bureau is ensuring that companies accurately record their financials and if for some reason a company can’t present evidence of a “cash on hand”, the Bureau will presume that the company has used the money off the books for backdoor business activities. In which case, the Bureau might charge a presumptive tax on the revenue that it could have received.

New Data Privacy Law Enacted
As of October 2021, companies and individuals in Rwanda have two years to comply with new personal data processing requirements, which protect an individual’s data and privacy. This new regulation requires an individual’s consent in order for their personal data to be collected and stored. It requires all companies and individuals to be able to prove that explicit consent was given when it comes to the collection and processing of personal data, and it requires all individuals whose data is collected to be made aware of how and where their information is being used. 
A key component of this new law is the ability for an individual to withdraw consent at any time and also for individuals to be able to request access to any personal data that a company may be storing. Once this law is enforced in 2023, there will be penalties for companies and individuals who are accessing, collecting and using personal data without consent. Learn more about these penalties and details about this new regulation here.

Implementation of Tax Compliance by the Uganda Revenue Authority (URA)
On November 1, 2019, the URA introduced the Digital Tax Solution/Stamps (DTS), and later introduced the Electronic Fiscal Receipting and Invoicing Solution (EFRIS) on January 1, 2021,  both aimed at improving business efficiency. A countrywide enforcement exercise was launched on November 1, 2021 which enforces the issuing of an e-invoice/e-receipt for goods and services provided by VAT-registered taxpayers. In addition, all gazetted products must bear a digital tax stamp.  Failure to issue an e-invoice/e-receipt or to use a digital tax stamp are now offenses punishable by law.
The Uganda Revenue Authority (URA) has recently been focusing on supermarkets that are not complying with issuing e-invoices and e-receipts. Learn more here
Photo by Imran Mazar
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