Govt to start collecting VAT on donations in new law

Kampala, (UG):- Parliament has passed into law the Value Added Tax Amendment Bill 2024 giving Uganda Revenue Authority the mandate to collect VAT on donated goods or services given by an employer to an employee.

Government had earlier argued that employers had been abusing the provision of donation using it as an avenue to give free taxable goods to their employees without consideration but claim input credit for the goods supplied, arguing that this was an abuse of the law since URA on the other hand cannot recover output VAT. 

However, the Opposition minority report described such a move as inhumane, saying it would discourage companies from making donations.

Following the passing into law the Value Added Tax Amendment Bill 2024, Leader of Opposition and Nakawa West MP, Hon Joel Ssenyonyi asked the Government as to when it intends to address the concerns raised by traders on the need to lower the VAT rates from 18% to 16%, addressed given that this would have been the time for Government to remedy the situation, in order to avert future strikes within the business community.

“Not long ago, Gov’t told us there was going to be a meeting to harmonize but this House hasn’t been kept in the loop on what exactly is happening. Now the traders are going to assume that we have now responded to their concerns through this bill, which isn’t the truth,” Ssenyonyi said.

“Government needs to update us, did we just push the matter of the traders under the rug and we have to move on swiftly because the traders haven’t moved on and they said if these concerns aren’t addressed, they will protest again. I don’t know whether we want to continue having a back and forth because when they close their shops, the economy is affected,” he added.

“When traders reached out to us as Government and as leaders, we understand there were meetings scheduled with Executive, and they had critical concerns and the assumption they have been having is that is that this Bill (Value Added Tax Amendment Bill) is a remedy to their concerns, now, they are wondering the remedies that are exactly coming through because they had certain proposals like VAT lessened to 16%.”

In a related development, parliament has rejected the Government’s proposal to impose a penalty on withholding agents for failure to withhold tax on grounds that such a proposal shifts Uganda Revenue Authority’s mandate to the taxpayer, yet all URA registered taxpayers are required to issue EFRIS or invoices and this gives URA visibility of transactions by such tax Payers on grounds.

The Ministry of Finance had initially proposed that a withholding agent who fails to withhold tax in accordance with this Act shall be personally liable to pay to the Commissioner the amount of tax which has not been withheld, but the withholding agent is entitled to recover this amount from the person.

Last month thousands of traders,shut their shops in Kampala and other towns. The traders voiced multiple concerns, such as the need to suspend EFRIS and the need to increase the annual turnover threshold for enrollment from Shs150 million to at least Shs1bn as some of the reasons for the protest.

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They also argued that the current 18% VAT, applied repeatedly throughout transactions, results in double taxation, diminishing their competitiveness especially relative to Kenya, where the VAT is set at 16%.

Traders have also contested, the import duty rates on textiles and garments, currently standing at 3.0 and 3.5 USD per kilogramme respectively, as very high. They argue that these rates not only inflate business costs but also foster smuggling, leading to numerous uncleared containers at customs.

They also criticize the URA’s inconsistent valuation guidelines for imported and exported goods, which they say impede effective business planning and put them at a disadvantage compared to their regional peers.

In addition, traders also raised issues about the alleged unprofessional behaviour of URA enforcement officers and the steep interest rates, ranging from 17-36%, imposed on local businesses.

But on April 20 Traders called off their strike claiming a tentative victory following a meeting with President Yoweri Museveni.

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President Museveni agreed to delve deeper into the issues surrounding the Electronic Fiscal Receipting and Invoicing Solution (EFRIS) and to suspend related penalties for one month while further consultations are carried out.

The announcement marked the end, for now, of protests that erupted in opposition to the Uganda Revenue Authority’s (URA) push towards digital tax administration, aimed at enhancing tax collection.

URA executives argued that EFRIS, initially rolled out in 2021 targeting manufacturers and large businesses, is crucial for reducing tax evasion by ensuring accurate transaction records and the alignment of input and output tax, which would bolster the country’s tax-to-GDP ratio.

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