Corporate taxes collected for the first six months of the financial year reached Ush376.92 billion ($129 million) compared with Ush37.85 billion ($12.9 million) remitted for the same period during 2013/14, the Uganda Revenue Authority (URA) said.
While banks benefited from improved loan recoveries and interest in government securities, resurgent revenues for leading telecommunications firms equally boosted corporate taxes during the first six months of 2014/15, sources said.
Though a spike in bad loans during 2013 directly increased loan loss expenses and credit default provisions eroded industry profits, aggressive credit recovery measures adopted by several banks yielded substantial interest incomes, insiders said.
READ: Banks record fall in number of bad loans, growth in personal lending
Bank of Uganda data shows non-performing loans (NPLs) rose from 4.2 per cent in December 2012 to six per cent in December 2013 amid widespread credit default by individual borrowers and businesses affected by weak economic activity.
Furthermore, NPLs averaged 5-6 per cent during the first quarter of 2014, reflecting the negative spillover effects of rising default rates on the trade and commerce and construction sectors.
Besides strong gains from loan recovery efforts, rising interest rates pegged to government securities dating back to September 2014 similarly boosted banks’ profits, with many lenders investing heavily in Treasury bills and bonds so as to consolidate high returns from these assets.
Substantial incomes generated from this asset class partly offset the effects of the slow credit growth experienced last year, analysts claim.
Yields recorded on the one-year Treasury bill rose to 15.6 per cent last week while yields on the two-year Treasury-bond increased to 16.2 per cent, according to market trading reports issued by Stanbic Bank Uganda. Yields recorded on the five-year Treasury bond similarly edged up to 14.3 per cent during the same period.
So far, analysts are betting on results posted by Stanbic Uganda in 2014 alongside impressive numbers recorded by some of its peers ahead of this year’s reporting season, which begins next month.
READ: Ugandan banks to maintain growth
“Stanbic Bank’s profits before tax are projected at Ush135 billion ($46.3 million) at the end of December 2014; this development reflects a new record in its earnings history. This outcome is mainly attributed to substantial gains from high yields earned on government securities, stronger credit recovery rates and sharp declines in credit related fraud experienced in its operations,” said a financial analyst at Stanbic Uganda.
The lender, Uganda’s largest by assets, declared Ush109 billion ($37.4 million) in profits before tax in 2013 compared with Ush130 billion ($44.6 million) recorded in the previous year.
“The quality of banks’ loan books improved considerably in the second half of 2014 while lending picked up in some sectors. Operating costs-however, remained challenge particularly IT expenses.
Though most banks are yet to release audited accounts for last year, we expect double-digit growth in profits and bigger gains from restructuring activities done in 2014,” noted Fabian Kasi, vice chairman of the Uganda Bankers Association.
Whereas URA officials claim the telecommunications industry contributed significantly to corporation taxes between July and December 2014, analysts have raised doubts about its performance.
“The telecommunications sector did not perform as well as the banks due to modest consumer spending patterns coupled with tax compliance related challenges faced by some players,” observed Stephen Kaboyo, a financial analyst and chairman at Uganda Telecom Ltd.
However, tax experts are pessimistic about this year’s projections, citing a potential backlash from a weakened shilling in coming months.
“The impact of a surging dollar could weigh heavily on company performance during the first six months of 2015. Gains from new tax measures announced in June 2014 will also be fully realised in the middle of the year as URA digs deeper for new revenue streams in previously untapped areas,” said Plaxeda Namirimu, tax director at PwC Uganda.
Notable recovery from investment-related losses suffered by some local firms also partly boosted corporation tax returns.
“Big players in the telecommunications sector contributed significantly to corporation taxes at the end of December 2014.”
“Profits among these players were driven by completion of large infrastructure expansion projects undertaken in 2013 while new taxpayers enrolled under the joint enforcement programme implemented with Kampala Capital City Authority and the Uganda Registration Services Bureau also yielded substantial collections,” explained Henry Saka, URA Commissioner for Domestic Taxes.
The East African
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