Savers need smart NSSF reforms

Sunday August 25 2019


By Sebastian Murangira

Many Ugandans, especially those with interest in the NSSF, have been expressing differing opinions regarding the proposed amendments to the NSSF Act, which was enacted into law in 1985. Whereas the Bill contains good reforms, there is still much to be explained.

For instance, the architects of the Bill should have done savers a favour and made the Bill more comprehensive. As it is, the Bill leaves some aspects which makes it open to abuse should it be passed into law in its current form.

Mr Francis Kamulegeya, a charted tax adviser, weighed in on the Bill (see Daily Monitor of August 15) says he supports the NSSF Bill, 2019 without addition or subtraction. He explained how taxation will be carried out when the Bill becomes law vis-à-vis the structured levels of taxation as it is in the current law. He said a saver is subjected to taxation at three levels:
Level 1: When you contribute to the pension scheme as an employee (employee contributions).
Level 2: When the pension scheme invests your contributions to grow your fund (pension investment income).

Level 3: When you draw your pension and the accumulated savings income it has earned from the pension fund (pension income). And that the only time an employee is exempted from tax is at the time when one has retired and starts drawing income from his pension. Whereas it is okay for him to support the Bill in its current form, I find his support wanting given the quality of labour he (as a tax adviser) puts in only to explain the taxation aspects of the Bill. It is upon some of those aspects that I will highlight what is missing or unclear in the Bill that I hope Parliament will address their minds to.

In the Bill, proposal 19 seeks to amend Section 38 of the principle Act by exempting all contributions and income arising from the saver’s money and investment incomes, except if one withdraws from the Fund before attaining 60 years of age. However, here are some of the concerns neither the tax adviser nor the proponents of the Bill are addressing:

Our Income Tax Act exempts anybody whose income does not exceed Shs235,000. These people are charged PAYE at 0 per cent, but they contribute to NSSF. Will such people’s savings over the years accumulate to huge amounts with NSSF be taxed at the time of withdrawing should they wish to do so at the age of 55 years? What tax rate is going to be used?


Also, the Income Tax Act taxes any amount in excess of Shs120m annually (or Shs10m monthly) with an extra 10 per cent in addition to the 30 per cent. If my annual salary has never crossed the Shs120m (or Shs10m monthly) during my time of contributing, but at the time of withdrawing from the Fund, I am getting more than these thresholds, will I pay the extra 10 per cent in addition to the 30 per cent, if I chose to withdraw at 55 years of age? How will NSSF treat the money and interest accumulated during the current legal regime and those that will be accumulated during new legal regime? What tax regime will govern which funds?

These concerns bring out one feeling that the proponents of the Bill are only interested in increasing the age at which one can access their savings given that government through this Bill wants to start borrowing directly from the Fund.

Sebastian Murangira,