Mixed reactions over new withholding VAT proposal

Thursday April 18 2019

A woman hands over cash. In October, Finance minister Matia Kasaija recalled withholding VAT after recurring disagreements between manufacturers, Private Sector Foundation and the tax body. PHOTO BY RACHEL MABALA

Kampala- Private sector players have welcomed the new withholding Value Added Tax (VAT) proposal embedded in the VAT amendments of 2019/2020.

Government has reintroduced withholding VAT with changes particularly in the percentage of tax to be withheld.
According to the new proposals, government has dropped the percentage of taxable value that designated agents should withhold from suppliers from 18 per cent to 6 per cent.

“A person designated under subsection 2 shall remit to the Uganda Revenue Authority (URA), six per cent of the taxable value ..,” it reads in part.

The proposed law, however, maintains the minister’s powers to designate agents to withhold VAT on payment of taxable supplies.
The new proposal also excludes known compliant tax payers.

In October, Finance minister Matia Kasaija recalled withholding VAT after recurring disagreements between manufacturers, private sector and the tax body citing challenges in implementation.

The old measure required designated withholding agents to retain all the 18 per cent of VAT charged by suppliers.
Raised as concerns by the private sector, was that the tax measure would constrain business cash flow since monies would need to be remitted to URA earlier than the payment period of suppliers which can go over three months.


While appreciating that the new proposals have incorporated suggestions by the private sector, Mr Francis Kisirinya, deputy executive director, Private sector foundation Uganda, said fears of added administrative costs involved especially for designated withholding agents have not been addressed.

“As much as there are all these specific improvements, we are concerned about the administrative burden. A designated withholding VAT agent, paying a supplier that is not exempt will be doing two payments,” he said.
Therefore, withholding agents would need to remit both VAT which is paid on the 15th of every month and later at the end of the month, for other taxes.

Civil Society Organisations have agreed with the new proposal to ensure compliance in remitting VAT, which has, for long been, evaded.

However, Ms Grace Namugambe, programme officer, Southern and Eastern African Trade, Information and Negotiations Institute (SEATINI) notes that it is key to ensure government agencies listed as designated withholding agents comply with the new tax measure.
It remains to be seen how government will streamline the tax refund process which experts said could affect implementation of the new tax measure.