Agri Exim Ltd v URA (TAT 54 of 2022) – Initial Allowance for Industrial Buildings Under the Income Tax Act of Uganda

Agri Exim Ltd procured warehouses and an office building previously owned by Lexman Ltd for USD 3.595 million, renovated them, and installed machinery for the production of sunflower, soya, and other agricultural goods. The company claimed initial allowances under Section 27A of the Income Tax Act. URA disallowed the claim on the basis that the buildings were not new industrial buildings and were previously used solely as warehouses.

The Applicant’s case was that Section 27A of the Income Tax Act allows initial allowances when a taxpayer places an industrial building into service for the first time, irrespective of prior ownership, and provided extensive evidence of renovations, installation of machinery, and compliance certificates.

URA’s position was that the Applicant did not provide any proof to show that manufacturing commenced when the building was purchased, and that the building did not meet the statutory requirements of an industrial building.

The issue for determination was whether the Applicant was entitled to claim initial allowances on the renovated buildings. The Tribunal held that the Applicant had indeed converted the structures into industrial buildings and satisfied both statutory conditions for initial allowances, i.e industrial use and first-time placement in service by the taxpayer.

This ruling clarifies that renovated and repurposed buildings can qualify for initial allowances and provides valuable precedent for taxpayers investing in converting existing structures into industrial facilities.

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