Following the announcement on the proposed National Social Security Fund (NSSF) Amendment Bill 2019, there has been public uproar on the proposal to tax savers’ savings.
Under the current tax regime, the 5% contribution is subjected to a Tax Tax Exempt(TTE) arrangement where members’ contributions are taxed at deduction from payroll; NSSF income is taxed while being earned, but members are exempted from tax.
However, under the proposed arrangement also termed as Exempt Exempt Tax (EET), the 5% members’ contributions and NSSF income earned will not be taxed but members’ benefits will be taxed as a lump sum at the point of withdrawal.
Speaking during a media dialogue at Serena Hotel in Kampala on Thursday 15th August 2019, NSSF Managing Director, Richard Byarugaba (in featured photo) equated it to taxing harvests other than seeds compared to the current regime where seeds of a farmer are taxed before harvest which may reduce the seeds planted.
“If you tax seeds you are reducing on the seeds to get out of the land but if you are a taxman, you would rather tax the harvest than seeds because you would both benefit more out of the latter,” Byarugaba said.
The NSSF boss said under the proposed bill, the seeds(5% contribution) and actual annual harvest (NSSF income from investing) will be exempted from taxes but the final harvest (members benefits) will be taxed.
“By the new regime, the taxing body (URA) will get a higher return in form of taxes and the member will also get more out of their savings,” Byarugaba said.
He added that under the new law, the saver will be exempt from paying the tax if he withdraws his savings at 60 years rather than the mandatory 55 years.
Martin Wandera, the Director in charge of Labour, Employment & Occupational Safety & Health at the Ministry of Gender Labour and Social Development said the bill proposes to make it compulsory for all workers including those in the informal sector to make contributions (save) and also allow voluntary contribution for workers in formal and informal sectors.
“The bill is about social security and will expand coverage, enhance efficiency in management and improve benefits all these intended to benefit workers,” Wandera said.
“Even someone employed at a farm will clock 60 years and retire. By opening it to everyone, we are trying to ensure many people save and benefit out of their savings when they retire,” he added.
He said the current NSSF Act was locking out people who are self- employed or are working in the informal sector but noted under the proposed bill, all these will be eligible to contribute to the mandatory saving and on retirement, they have something to retire home with.
On Wednesday, the National Social Security Fund Amendment Bill, 2019 was tabled before parliament for its first reading but has since attracted a backlash from members of the public especially on specific provisions.
By Drake Nyamugabwa