What you need to know:
- Traders and agents want URA to reconsider the 6 percent withholding tax and also handle related issues.
At least 1,000 small-scale wholesale traders in Kampala have asked Uganda Revenue Authority (URA) to revise the six percent withholding tax imposed on them.
The traders who operate in different arcades in the central business district including Kikuubo trading area, St Balikudembe Market, Ham Enterprises, among others, said they have tried engaging the tax body and Ministry of Finance, Planning and Economic Development in vain.
Mr Ibrahim Bbosa, URA’s assistant commissioner of public and corporate affairs, said the tax under contestation is being charged by the tax body, with a major aim of ensuring informal traders legalise their businesses.
According to Section 83(1) of the Income Tax Act (ITA), a 15 percent withholding tax is imposed on every non-resident person who derives any dividend, interest, royalty, rent, natural resource payment, or management charge from sources in Uganda.
The same Act stipulates that a six percent withholding tax is also charged on the importation of goods into the country and similarly on receipt of payment made by individual companies supplying government entities.
Another category that withholds taxes and later remits to URA are the URA designated withholding agents who run businesses exceeding Shs1 billion, the majority of whom are large-scale wholesalers, retailers, and supermarkets.
This category of people transact directly with the small-scale wholesalers and are by law supposed to deduct a six percent withholding tax before making payments to the latter, which has caused a public outcry.
How it works
The tax, according to the traders is problematic in the way that when a small wholesale trader supplies goods to the URA’s designated withholding tax agent, the latter will first deduct the Value Added Tax (VAT) and withholding tax before paying them, which leaves them in losses.
Last week, a trader who preferred anonymity, explained using the example of a ‘wholesale trader X’ who buys a carton of a soft drink at Shs75,000, and sells the same carton at shs77,000 to a URA ‘withholding agent Y’.
For easier computation, the trader used a sample of 100 cartons which cost Shs7.5 million. Trader X will then supply the 100 cartons to URA withholding tax agent Y at Shs7.7 million. This indicates that Trader X will expect a profit of Shs200,000 before taxes.
But before the payments are remitted, Agent Y will first deduct VAT which is charged at 18 percent, which according to the trader’s computation is Shs1.1 million.
This indicates that the six percent withholding tax must be deducted from the remaining Shs6.5m after an initial Shs1.1m VAT and according to the trader’s computation, six percent of Shs6.5m is Shs390,000.
A Shs390,000 withholding tax is an implication that Trader X’s expected Shs200,000 profits from the 100 cartons of the soft drink have been taken by URA and in addition, Shs190,000 of his capital was also taken.
“This is just a sample of one product but this is done on all the products we supply them as long as the transaction is beyond Shs1 million, we are forcefully obliged to pay. We are suffering, the majority of our peers have closed businesses,” said an angry trader and tax consultant who spoke on condition of anonymity for fear of being victimised.
The trader added: “URA has been imposing that unfair tax on us for 15 months. We have even met with the URA commissioner general, but nothing has been done.”
The traders have now vowed to demonstrate and close their shops if the government does not revise “this unfavourable tax policy,”
“We appeal to the President to intervene and save the situation otherwise our businesses will vanish,” another trader said.
Mr Thadeus Musoke Nagenda, the chairman of the Kampala Capital Traders Association (KACITA, told this publication that they have tried to engage the government over the issue but in vain.
“URA acknowledges that there is a problem with this tax but their reaction is too slow. After the pressure we exerted on them, the URA commissioner general held a meeting with us in May and promised to look into the issue but he has not done anything,” he said.
Mr Nagenda also accused the tax body of implementing selective exemptions by considering big industry players at the cost of small ones whom he said are “charged all sorts of exorbitant taxes”, a claim Mr Bbosa denied.
Mr Nagenda said URA and the Finance ministry officials are planning to meet traders to find solutions to numerous tax problems including the unpopular six percent withholding tax.
The withholding tax agents also accused URA of encroaching on their accounts in an unfair manner.
The agents, who requested not to be named in order to speak freely, provided documentary evidence to back up their claims.
One of the agents said he was supposed to remit slightly over Shs400,000 to URA before the end of August which he did on August 25, through Uganda Finance Trust Bank.
But URA, according to documents seen by this publication on August 28, wrote to all this agent’s banks asking them to transfer the money to the URA account, claiming they were not paid.
In the August 29 letter, URA Third party Agency Notice seen by this publication, the Commissioner of Domestic Taxes, Ms Suzan Muzungyo Chelangat, asked the managing director of the United Bank of Africa to transfer the funds the agent had earlier paid to their account.
“A person making a payment in accordance with this notice is treated as acting under the authority of the taxpayer and of all other persons concerned and is indemnified in respect of the payment despite any provisions to the contrary in any written law, contract, or agreement,” the notice reads in part.
The notice added: “Where you are unable to fully comply with this notice by reason of unavailability of monies owing to or held for the taxpayer, you are required to notify the Commissioner in writing within five days of receipt of this notice and attach a bank statement, statement of account or any proof of unavailability of the monies, for the period the notice is in force.”
Another agent said that they lost more than Shs52 million in a similar manner.
“The problem is that all banks that receive this notice reduce the money and when you go for it, URA tells you that it will be used to settle your future obligations, this is very unfair,” the affected agent said.
Other agents said that small-scale wholesalers have stopped supplying goods, which is hindering their businesses.
Mr Bbosa said: “That has always been the argument [and] it can be debated [here and] there [but] there is a window out which people usually ignore. You can always apply for withholding tax exemption and all it requires for somebody is clearance for compliance,” he said.
“The withholding tax was put in place to narrow the very wide informal sector that we deal with because people in the informal sector who are supplying formal businesses carry a high risk of non-compliance of not paying taxes on their income,” he added.
Mr Bbosa urged traders to be tax compliant. He, however, did not respond to complaints of withholding tax agents.