Executive Summary
On the 22 January 2020, Uganda’s Minister of Finance Planning and Economic Development, by the powers conferred upon him under section 5(2) of the Value Added Tax Act, issued a notice cited as the Value Added Tax (Designation of Tax Withholding Agents) Notice, 2020.
The Notice followed an amendment of the VAT Act in 2019 providing for VAT withholding at a rate of 6% of the taxable value under section 5(2a). The Uganda Revenue Authority (URA) recently announced the 1,025 designated agents who must comply with the law to avoid penalties. This Alert highlights the implications of this notice and obligations placed on appointed agents.
Detailed Discussion
Brief background
The VAT Amendment Act, 2018 introduced a new requirement for designated persons to withhold 100% of the VAT charged on payments made for taxable supplies by a designated VAT withholding agent and remit the same to the URA.
The Minister of Finance, Planning and Economic Development issued a Gazette notice that listed 680 entities that were obliged to withhold VAT, effective 1 July 2018.
On 28 September 2018, the Minister in exercise of the powers conferred upon him by section 5(2) of the VAT Act issued a revocation notice of the Value Added Tax (Designation of Tax Withholding Agents) Notice, 2018.
The current law
The VAT Amendment Act of 2019 reintroduced VAT withholding but at a reduced rate, i.e., 18% of the taxable value to 6% of the taxable value. Whereas the law took effect at the time, no list was gazetted by the Minister to identify who would be the designated agents.
A designated withholding agent for VAT purposes is required to withhold and remit 6% of the taxable value on making payment for taxable supplies.
The 6% VAT withheld shall be recognized as a payment in the subsequent VAT return of the taxpayer from which the tax is withheld.
The VAT withholding does not apply to a taxable person who, to the Commissioner General’s satisfaction, has regularly complied with the obligations imposed on him or her or the entity by the VAT Act.
A designated person shall withhold VAT where a person is tax registered or where a person who is not registered but who is required to be registered, makes a supply for an amount equivalent to UGX 37,500,000.
On 20 January 2020, the Minister issued a notice cited as The Value Added Tax (Designation of Tax Withholding Agents) Notice, 2020 listing a total of 1,025 designated agents. The notice was subsequently gazetted on 29 May 2020 in the Uganda Gazette. However, the gazette only came to public knowledge in September 2021 and the URA did not publish any notice informing the taxpayers as has always been the custom.
All the listed agents are therefore required to withhold 6% of the taxable value while making payment for taxable supplies except where a person has been exempted.
It must also be noted that VAT withholding is accounted for in the VAT returns, as there is a specific provision to cover designated agents. This is different from the withholding tax under income tax which is accounted for in withholding tax returns.
It is therefore imperative that the designated agents comply with the provisions of the law for withholding VAT and remitting the same to the URA to avoid subsequent penalties.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Uganda), Kampala
Muhammed Ssempijja
Allan Mugisha
Hamza M Ssali
Maria Ruhinda
Vanessa Mbekeka
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
