Government's tax penalty proposal rejected

The Finance Committee of Parliament has recommended an increase in the threshold for claiming a refund of overpaid tax from Shs5,000,000 to Shs10 million.

This decision was made after rejecting the government's earlier proposal to raise the threshold to Shs50 million.

According to Amos Kankunda, the Chairperson of Parliament's Finance Committee, increasing the threshold would negatively impact Small and Medium Enterprises (SMEs) by limiting their ability to claim overpaid tax refunds.

"The Committee observed that this is intended to reduce the number of taxpayers claiming for refunds. Refunds below Shs10m shall be automatically carried forward to offset the output for the next financial year,” said Kankunda.

The Finance Committee has also rejected the government's proposal to impose a penalty for failure to withhold tax.

They argue that such a measure would shift the responsibility of the Uganda Revenue Authority (URA) to the withholding agent, which goes against the provisions of the Value Added Tax Act.

The government's proposal aimed to hold the withholding agent personally liable for paying the Commissioner the amount of tax that was not withheld. However, the withholding agent would have the right to recover this amount from the person.

Kankunda highlights that the proposed provision would require a withholding tax agent to remit 6% of the withheld VAT, which is not accounted for in the VAT input returns.

"It also implies assuring URA of a minimum of 60/o of any VAT received or withheld by an agent. This is not accounted for in the VAT input returns and disadvantages the supplier," said Kankunda

The committee believes that this proposal places the burden of tax withholding on the taxpayer instead of URA.

Additionally, all URA-registered taxpayers are required to issue EFRIS or invoices, providing URA with visibility of their transactions.

In defence of the proposal, the Ministry of Finance argues that there is currently no law compelling designated withholding tax agents to withhold VAT.

Therefore, this amendment aims to compel withholding agents to withhold or face the inconvenience of paying for the taxpayers and seeking reimbursement.

Ibrahim Ssemujju, MP for Kira Municipality, questions the government's assertion that the proposed tax measures in the Value Added Tax Amendment Bill 2024 would generate Shs74Bn in revenue

He argues that there was no study conducted to support this claim.

Ssemujju also raises concerns about the perception of overtaxation with little to show for it in terms of social services.

"The certificate doesn’t show the overall impact of the new tax proposals on the economy. Moreover, Parliament recommended that in addition, every bill should be accompanied by stand-alone evaluation or regulatory impact assessment,” noted Ssemujju.

He mentions the deterioration of roads and the perception that leaders are enjoying luxury at the expense of taxpayers. He criticizes Parliament's approval of a supplementary budget that included a substantial amount gifted to Mathias Magoola. He calls for a comprehensive evaluation or regulatory impact assessment to accompany every bill.

Ssemujju proposes that the government introduce new taxes every five years instead of annually to restore confidence and create stability in taxation. He suggests addressing leakage (corruption) and utilizing savings to finance the budget before considering new tax measures.

Nathan Nandala Mafabi, MP for Budadiri West, supports the idea of a Tax Policy to ensure predictability in taxes. He criticizes the lack of a tax policy, which leads to sudden changes in taxes without sufficient time for preparation.

Mafabi believes this creates inefficiencies in the Uganda Revenue Authority (URA) and suggests that instead of enforcing tax collection, URA relies on Parliament to pass laws while they sit back.