Centum Real Estate paid a Sh341.8 million tax charge in the financial year ended March 2022 after a law change in Uganda reversed a tax credit of Sh113.13 million that the company had enjoyed in the period.
The subsidiary of listed Centum Investment Company was forced to restate its net losses for the period to Sh486.9 million from Sh31.96 million reported previously due to the tax credit reversal on its Uganda investment known as Pearl Marina.
Under Uganda’s income tax laws, businesses are allowed tax deductions against interest costs on the debt incurred towards the generation of income.
Should this interest exceed 30 percent of gross earnings, they are allowed to carry forward the excess to the next financial year towards offsetting tax.
A law change introduced last year, however, capped the carry-forward period at three years, meaning the firm had to make a post-audit adjustment for forfeited interest relating to the 2019 financial year.
“The increase in taxation is because of Pearl Marina which we consolidated into Centum RE. By the close of the 2022 financial year, there was an amendment in Uganda’s tax laws which had not been operationalised. The restated numbers now reflect the impact of the law change,” said Centum RE managing director Kenneth Mbae.
“The purpose of this adjustment is to account for the forfeited interest which was restricted in the 2019 financial year. Due to the company’s inability to utilise the deduction for this amount in subsequent periods, the forfeited interest is now considered permanent.”
In the 2021 financial year, a tax credit of Sh377.6 million had helped Centum RE post a net profit of Sh650.4 million.
For the year ending March 2023, the company made a net profit of Sh174 million, reversing the restated net loss of Sh486.9 million recorded the year before.
The return to profitability was largely helped by unrealised gains in its real estate assets more than quadrupling to Sh2.1 billion from Sh513 million.
Centum RE attributed the gains to extensive infrastructural investments within its land banks and accelerated development activity by third-party developers.
The company is selling both land and the properties it is developing in Kenya and Uganda.
Its revenue from the sale of residential units rose to Sh1.9 billion in the 12 months to March from Sh1.8 billion the previous year.
