The Lower House yesterday passed a draft income tax law that seeks to extend tax incentives to companies that sell their shares on the country’s capital market and discourage transfer of earnings abroad.
Once published in the official gazette, the new legislation will replace the existing law no.16/2005 of 18/08/2005 on direct income taxes, which the Minister of State in charge of Economic Planning, Uzziel Ndagijimana, said needed updating.
“The intention is to promote savings and strengthen our capital market,” he said after the MPs had voted to pass the bill. “It will also ensure that companies don’t make money and transfer it abroad without paying taxes.”
Ndagijimana said the draft tax income law will boost the country’s capital market by increasing activity on the local bourse and encourage companies to register to sell their shares.
While for other companies the corporate income tax rate is thirty per cent, the proposed law says that newly listed companies on capital market shall be taxed for a period of five years at a smaller rate depending on the amount of shares sold to the public.
Companies will pay income tax at 20 per cent if they sell at least 40 per cent of their shares to the public, 25 per cent if they sell 30-40 per cent of their shares to the public, while corporate income tax will be 28 per cent if companies sell at least 20 per cent of their shares to the public.
“There weren’t many companies listing on the capital market and we thought we needed to provide an incentive so that more companies can come onboard,” the minister said.
To limit companies’ tax avoidance through donations and other transfers of property, the legislation makes free transfers of immovable assets by businesses taxable unless it’s a very small donation to a not-for-profit organisation.
Companies’ donations have hence been made part of non-deductible expenses from taxable income, save for donations given to non-profit making organisations the value of which does not exceed one per cent of their annual turnover.
“The idea is to help companies meet their corporate social responsibility without necessarily encroaching on their taxable income,” Ndagijimana explained.
In line with preventing international tax fraud, the proposed law also prevents local companies that are subsidiaries of multinationals from transferring most of their earnings to their parent companies in head-fee and declare that they didn’t make enough money to pay more in taxes.
The proposed legislation, passed by MPs yesterday, governs four types of taxes on income, including personal income tax, corporate income tax, withholding tax, and capital gain tax.