Listed food processor Unga Group is fighting off a tax claim on an asset transfer worth hundreds of millions of shillings it completed last year in Uganda through a subsidiary.
Unga discloses in the latest annual report that Uganda Revenue Authority (URA) is demanding tax on the deal in which its Uganda subsidiary, Unga Millers, formed a joint venture with Nutreco International B.V a long-term supplier of the Nairobi Securities Exchange-listed firm.
Unga has not specified the amount being sought but says URA wants value-added tax (VAT) on proceeds amounting to Sh444 million together with corporate tax on the gain amounting to Sh433 million.
The Unga Millers and Nutreco deal led to the formation of a new venture company called Tunga Nutrition (Uganda) Limited into which Unga Millers transferred its assets in exchange for a 50 percent stake. Unga Millers valued its contribution at Sh704.1 million at the start of July last year.
Unga Group says it had not anticipated any tax liability based on the understanding that the transfer of business assets is not subject to VAT as it does not fall within the ambit of a taxable supply.
The group also says it does not think corporate tax was applicable on the basis that the transaction qualifies for rollover relief applicable to transactions between related parties.
But URA holds a different view on the applicability of both the VAT and corporate tax, leading to the dispute.
“The group has since appealed the decision of the URA, which was not favourable and the matter is before the Tax Appeals Tribunal. Based on professional advice received, management believes they have a strong case to defend their position,” says Unga.
The group has not therefore made any provision on the URA tax claim on the deal that birthed Tunga (Uganda) Nutrition.
The tax claim comes amid the Uganda unit having posted a net loss of Sh52.35 million in the 12 months ended June 2023 compared with Sh8.95 million net profit in the preceding similar period.
The Tunga (Uganda) Nutrition deal was executed at the same time with the formation of Tunga (Kenya) Nutrition, in a deal that involved Unga Farm Care (EA) Limited a Kenya-based subsidiary of Unga Group.
Unga Farm contributed its fish feed plant and business to the new venture, valuing its contribution at Sh654.2 million at the start of July last year.
Tunga Nutrition Uganda uses Unga Millers’ once-dormant flour mill in Kampala as a modern plant for animal feeds and concentrates. Its products are sold under both Trouw Nutrition’s Hendrix and Unga’s Fugo Brands.
Unga Group posted a Sh959.3 million net loss in the financial year ended June, reversing a Sh311.3 million net profit posted a year earlier.
