Small Scale TraderS Call for Reevaluation of 6 Percent Withholding Tax

Ugandan Small Traders Demand Reduction in Withholding Tax
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In the bustling streets of Kampala, small scale traders, numbering around 1,000, have raised their voices in protest. They’re urging the Uganda Revenue Authority (URA) to reconsider the contentious 6 percent withholding tax levied upon them. These traders, operating across various arcades in Kampala’s central business district, claim their attempts to engage with the tax authority and the Ministry of Finance, Planning, and Economic Development have been in vain.

Seeking Fair Taxation

These traders primarily function in areas like Kikuubo trading zone, St Balikudembe Market, Ham Enterprises, among others. Their primary demand is the revision of the 6 percent withholding tax, which they find burdensome. Mr. Ibrahim Bbosa, the Assistant Commissioner of Public and Corporate Affairs at URA, states that this tax serves the important purpose of encouraging informal traders to formalize their businesses.

Understanding the Tax

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According to Section 83(1) of the Income Tax Act (ITA) in Uganda, a 15 percent withholding tax is imposed on non-resident individuals receiving dividends, interest, royalties, rent, natural resource payments, or management charges from Ugandan sources. Additionally, a 6 percent withholding tax applies to imported goods and payments made by individual companies providing goods or services to government entities.

The Role of Withholding Agents

Another category subject to withholding tax is URA-designated withholding agents whose businesses exceed UGX 1 billion. This category includes large-scale wholesalers, retailers, and supermarkets. They are legally required to deduct a 6 percent withholding tax before making payments to small-scale wholesalers. This practice has sparked public outrage.

The Consequences for Small Traders

Small wholesale traders find this tax problematic because, when they supply goods to URA’s designated withholding tax agents, these agents deduct both Value Added Tax (VAT) and withholding tax before making payments. This often leaves small traders with losses.

For example, if a trader purchases a carton of soft drinks for Shs75,000 and sells it to a URA withholding agent for Shs77,000, they expect a profit of Shs200,000 before taxes. However, the agent first deducts 18 percent VAT, amounting to Shs1.1 million. This leaves Shs6.5 million, from which a 6 percent withholding tax of Shs390,000 is deducted. Consequently, the trader loses Shs200,000 in profit and an additional Shs190,000 of their capital.

Outcry and Appeals

Infuriated by this tax structure, traders have spoken out, with some even closing their businesses. They claim that URA has imposed this unfair tax for 15 months, despite meetings with the URA Commissioner General yielding no results. These traders now threaten to demonstrate and close their shops if the government does not revise this “unfavorable tax policy.”

Appeal for Presidential Intervention

Desperate for a solution, traders appeal to the President to intervene and save their businesses. Thadeus Musoke Nagenda, the Chairman of the Kampala Capital Traders Association (KACITA), states that they have tried to engage with the government on the issue, but progress has been slow.

Allegations of Selective Exemptions

Nagenda accuses URA of favoring big industry players over small traders, subjecting the latter to exorbitant taxes. URA denies this claim but acknowledges there is a problem with the withholding tax. Officials from URA and the Finance Ministry are planning to meet with traders to address these tax issues, including the unpopular 6 percent withholding tax.

Agents’ Complaints

Withholding tax agents also voice grievances, alleging that URA unfairly interferes with their accounts. They provide evidence of URA requesting banks to transfer funds, even after agents have paid their dues. This creates confusion and frustration.

Impacted Agents and Unfair Practices

Agents claim that URA’s actions lead to a reduction in their funds, with URA explaining that the money will be used to settle future obligations. This practice is viewed as unjust by affected agents, who report significant financial losses.

URA’s Perspective

Mr. Bbosa defends the withholding tax, stating it was designed to formalize the wide informal sector and encourage tax compliance. He advises traders to adhere to tax regulations but does not directly address the complaints from withholding tax agents.

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