October 3, 2018
Uganda revokes notice on VAT designation of tax withholding agents
On 20 September 2018, Uganda's Minister of Finance, Planning and Economic Development issued the Value Added Tax (Designation of Tax Withholding Agents) (Revocation) Notice, 2018 (Revocation Notice') which withdraws the earlier issued Value Added Tax (Designation of Tax Withholding Agents) Notice, 2018. The Revocation Notice, published in the Uganda Gazette on the 28 September 2018, effectively halts the operation of Value Added Tax (VAT) withholding in Uganda.
The Value Added Tax (Amendment) Act, 2018, that took effect on 1 July 2018, introduced among others, a new concept of VAT withholding that requires designated payers to withhold the VAT on payments they make to their suppliers and remit it to the Uganda Revenue Authority (URA).1
Section 5 (2) of the VAT Act, Cap. 349 (as amended) provides that; the Minister shall, by notice in the Gazette, designate persons who shall withhold VAT on a payment for a taxable supply and the persons designated shall remit to the Uganda Revenue Authority one hundred percent of the VAT payable.
Subsequently, on the 29 June 2018, the responsible Minister issued the Value Added Tax (Designation of Tax Withholding Agents) Notice, 2018 listing approximately 680 entities as the designated agents required to withhold VAT on payments they make to their suppliers and remit it to the URA.
The VAT withholding scheme presented compliance and enforcement challenges for taxpayers and the URA respectively. The challenges ranged from cash-flow constraints and additional tax compliance obligations, among others.
Following the noted challenges, the Minister issued the Revocation Notice which effectively withdraws the earlier issued the Value Added Tax (Designation of Tax Withholding Agents) Notice which had listed designated agents for purposes of VAT withholding.
Implications of the Revocation Notice
Revocation of the notice that provided for designated agents has made the VAT withholding scheme inactive. Without the list of designated agents, there are no known persons currently required to withhold VAT on the payments they make to their suppliers and remit it to the URA.
After the revocation on 20 September 2018, the earlier listed designated agents have no tax obligation to withhold the VAT component on the payments they make to their suppliers and remit it to the URA.
It is also important to emphasize that the law on VAT withholding still stands but is inactive because of the absence of designated payers. VAT withholding can only be operationalized again after the Minister again designates agents.
Accordingly, it is advisable that taxpayers whose VAT amounts were withheld during the time that the scheme was operational (1 July 2018 - 20 September 2018) ensure that these amounts are creditable VAT within their VAT returns in order to prevent double payment of taxes. The former designated agents should also stop the withholding of VAT from payments to their suppliers.
1 See EY Global Tax Alert, Uganda introduces VAT withholding, dated 9 August 2018.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Uganda), Kampala
Ernst & Young Advisory Services (Pty) Ltd., Africa ITS Leader, Johannesburg
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP, Pan African Tax Desk, New York
PDF version of Tax Alert 2018-1956