Parliament has passed into law the Value Added Tax Amendment Bill & approved a proposal in Clause 5 of the Bill giving Gov’t powers to collect VAT on donated goods or services given by an employer to an employee.
Gov’t had argued that employers had been abusing the provision by 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.
The Opposition in the minority report had described such a move as inhumane, saying it would discourage companies from making donations.
MPs also approved the increasing the threshold for claiming for refund of overpaid tax from Shs5,000,000) to Shs10M. Gov’t had proposed the threshold to be increased to Shs50M.
Parliament rejected the Shs50M threshold proposed by Gov’t on grounds noting that increasing the threshold to such an amount will have the effect of incapacitating Small and Medium Enterprises (SME’s) from claiming for the overpaid tax, which will negatively affect their business. In the proposal, refunds below Shs10m shall be automatically carried forward to offset the output for the next financial year.
Government’s proposal to impose a penalty on withholding agent for failure to withhold tax has been rejected by Parliament on grounds that such a proposal shifts URA’s mandate to the tax payer on account of failure to withhold tax, yet all URA registered tax payers 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.
However, following the passing into law the Value Added Tax Amendment Bill 2024, Leader of Opposition, Joel Ssenyonyi asked Government when the concerns raised by traders on the need to lower the VAT rates from 18% to 16% and other issues would be 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.
“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 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%,” said Ssenyonyi.
“To date though, Government hasn’t given us an update not long ago, they told us there was going to be a meeting to harmonise but this House hasn’t been kept on 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. So maybe Government needs to update us, did we just push the matter of the traders under rug and we have moved 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,” added Ssenyonyi.
Henry Musasizi, Minister of State for Finance in response said, “It is true, there are a number of concerns raised on tax administration by the traders specifically surrounding the use of EFRIS, we have had a number of engagements at various stages and tomorrow at 11, we will be engaging with the traders. The President is going to respond to all the issues which the traders had raised.”
