From guest author
For the past month, many of us have been handcuffed to our televisions or gadgets to watch the Olympics. Seeing our Olympians compete and later win medals was enjoyable.
As with most competitions, the winners are rewarded for their skills and commitment in cash or in kind. Once you talk about awards, income, benefits, etc., the tax officer will knock on your doorstep and ask for their share. Because our winners are top athletes, tax law recognizes them as professionals who, like you and me, are taxable.
The Ugandan Income Tax Act exempts an award that an athlete receives as a reward for winning or participating in a sports competition from income tax. Accordingly, the medals won, the cars that we lined up on the Kololo Airstrip and later handed over to the athletes, the cash prizes of the various donors and the lifelong monthly salary (subject to future changes to the tax law) will receive three Olympic medalists with no deduction of taxes. Not that many of us have been so lucky with the tax office. But as the holy book reminds us in Mark 12:17, “Give Caesar what belongs to Caesar and God what belongs to God”. We must therefore comply with the tax office.
As the excitement over the Olympic medals continues, we will see several companies or organizations working to promote the excellence of our winners, in cash or in kind. Some have already made their contribution. However, unlike the winners, whose awards are exempt from income tax, donations made by some companies may not necessarily be tax deductible if their company’s taxable business profit is determined at the end of the year. Accordingly, companies will likely pay 30 percent corporate tax on such a charitable donation. Because the tax law only allows a tax deduction for donations or gifts to an “exempt organization”. Simply put, an exempt organization is a non-profit organization that has issued an income tax exemption letter from the Uganda Revenue Authority (URA). To explain this, let’s assume you have registered as a non-governmental organization (NGO) in Nakaseke to look after orphans in the district. Their goal is not to make a profit, but to help orphans, however the NGO tries to do it. Your NGO is therefore a non-profit organization, but not necessarily a tax-exempt organization. What it exempts from income tax is a letter of approval from URA accepting your request to treat the organization as income tax exempt. Therefore, there is a risk that without this letter the donations / grant income will be taxable.
Accordingly, when making their donations to the winners, companies should consider the tax implications and the company’s overall corporate social responsibility (CSR) budget for such purposes. In this regard, the tax law offers companies a number of options for being tax-efficient. For example, companies with a sizeable CSR budget can set up a foundation to promote their CSR agenda. If this foundation is a tax-exempt organization, donations can be made to athletes and various CSR projects through this foundation with minimal tax loss.
Joshua Cheptegei recently launched a 100-day public fundraiser to raise Shs 1.7 billion for the completion of an athlete training center (which doubles as an athletics museum) in Kapchorwa. For Joshua and the rest of the athletes who have dreams similar to yours, you may also want to start a foundation as a tax-exempt organization. For example, the donations made by the founders to the foundation should be tax-deductible “in the hands” of the founders. The tax authorities give preference to athletes and other athletes when taxing their awards. Now it is up to you and me to make sure that we benefit from it too. Since we are waiting for the 2024 Olympic Games in Paris and other sports competitions, I hope that you structure your donations in such a way that your friendliness towards these athletes is also treated with favorable taxation.
Trevor L. Bwanika