Withholding VAT will come back in 2020 - PwC says

Sunday December 2 2018

Electronic transfers. Tighter revenue

Electronic transfers. Tighter revenue collection methods such as electronic tax registers are expected in future. PHOTO BY RACHEL MABALA 

By Christine Kasemiire

Kampala. PricewaterhouseCoopers (PwC) says the Withholding Value Added Tax amendment will resurrect in 2020.
Withholding VAT was among the 2018 tax amendments which after consistent resistance from the business community, was halted by the minister of finance pending further discussion with the stakeholders.

According to Ms Joanita Nakimuli, associate director tax PwC, tighter revenue collection methods are expected in the future.
“We know and believe it will come back, definitely not in 2019 but 2020. Withholding VAT will come back because the VAT (Withholding tax) 2018 regulations are still in force and Section 5 of the VAT Act is still intact,” she predicted urging businesses to work in associations in order to lobby government over new legislation.

Withholding VAT was halted citing issues of negative cash flow to businesses since the tax levy was expected to be withheld by designated withholding agents who would remit it to the Uganda Revenue Authority (URA).

Electronic Tax register
Ms Nakimuli said electronic tax registers will be coming in as efficient tax collection measures.
Electronic tax registers imply that machines will be given to all VAT eligible payers to issue receipts and take accountability of all purchases for easier tracking by URA.

Already happening in Kenya, research shows that the machines have improved VAT compliance and are expected in Uganda by 2020.

PwC was giving its forecast ahead of financial years 2019 and 2020 through a report dubbed, ‘Uganda Economic Outlook’. While comparing the years, the tax firm noted that 2018 has had some good performances.
While global economic growth was predicted for 3.8 per cent, Uganda is expected to be 6 per cent.


This growth, she said is expected to persevere all through 2020.

She highlighted increase in private sector credit to 10.5 per cent in June and boost in agricultural activity through increased value addition.

However, the dollar is predicted to rise which will further depreciate the shilling. The shilling this year has faced turbulences depreciating against the dollar to as high as Shs3,900.

The depreciation called for the central bank intervention to strengthen the shilling, culminating into restoration to between Shs3,700 and Shs3,800.

Movement of the dollar caused a reaction to fuel prices which increased to hit and surpass the Shs4,000 mark.

According to Ms Nakimuli, considering that global oil prices are at an average $80 (Shs299,180) per barrow, fuel prices are not expected to go back to the Shs3,000 range. They could increase or average between at Shs4,000.
Prices of agricultural products are intact, they say but the unpredictable nature of weather will determine the impact of the prices on inflation.

“If it (weather) remains this good, the impact on inflation will not be felt. But if it moves towards drought, we expect the impact of the price to affect inflation and the common man,” she anticipated.

However, Business monitor index predicts that inflation will average between 5.4- 5.8 per cent, which is beyond the target 5 per cent that Bank of Uganda aims at.
This, she said is attributed to higher oil prices and the depreciating shilling.

Uganda’s debt to Gross Domestic Product ratio currently at 44 per cent expected to rise to 47 per cent in 2022 because of borrowing for infrastructure financing.
In 2019, the Budget deficit is expected to rise to 2.9 per cent and 4.3 per cent in 2020, attributed to the increased government expenditure in infrastructure.

Death of middle income status dream
It is highly unlikely that we shall get there. We needed to have GDP per capita at 1026 and we are currently between 700 and 750,” Ms Joanita Nakimuli, associate director tax PwC said.
“It cannot be that in 2020 we shall have reached 1026, it is highly unlikely,” she predicted.
The target for middle income, she said might need a revision to 2025 or 2030.