By Mwesigwa Onesmus
Withholding taxes are supposed to be the easiest tax to collect in that, the taxing body say in this case, Uganda Revenue Authority (URA) will pick a taxpayer whose transactions it has full oversight of and designate that taxpayer, also called the withholder, to do the collection work and then remit the money to URA.
The simplest forms of withholding tax are those in respect of importation, payments by government, government agencies and persons designated as withholders.
Because it is generally simple to collect and therefore the cost of collection is low, it has always been an easy tool for raising revenue, sometimes referred to as expanding the tax base. There has therefore been the persistent temptation to keep expanding the scope of withholding taxes.
As earlier indicated, the oldest withholding taxes have been in respect of imports, payments from government and payments to nonresidents.
Since 2002, there has been at least a new type of withholding tax every two years. The novel withholding taxes include those on professional fees, winnings of betting and gaming, insurance premiums, agricultural supplies, commission paid by telecom service providers and most controversially a withholding tax on purchase of an asset.
Generally, the withholder of the taxes was required to file a return by the 15th day of the month following the month in which the tax was collected. If there was no tax to withhold then there was no need to file a return for withholding tax.
Come 2020 and the law was amended by introducing section 130(5) of the Income Tax Act which provides that;
A withholding agent who makes a payment subject to withholding tax under sections 83 to 86 and 117 to 119 shall furnish a return of withholding tax for every month in the Form specified by the commissioner not later than fifteen days after the end of every month to which withholding tax relates.
Whereas prior to the introduction of section 130(5) it was clear that when there is no withholding tax deducted there is no need for a tax return (section 123), it is not clear what the introduction of the provision would be if not to make the return regular.
In case the return is to be filed regularly then it would simply be a tedious chore for those who may have just one transaction or less per year.
In case the return is not required except when a withholding tax is due, then one wonders why the amendment was introduced. But such is the nature of most Ugandan laws, no explanatory notes, no background. A taxpayer simply has to figure it out for him or herself or else pay the price.
The provision is ambiguous in the sense that, on the one part, it demands furnishing of a return every month and on the other part, it demands filling of a return within fifteen days at the end of every month to which the withholding tax relates.
Even if we were to take the latter interpretation, section 130 of the Income tax Act is for business information returns that have to be filed once every year; that is, within sixty days after the end of every year of income in which the payment is made.
If the intention had been to make the returns regularly and monthly, the stand-alone provisions would have sufficed as almost all the other sub-sections under section 130 are clear.
There is also the issue of whether the commissioner has provided for the format of the returns either by regulation or in the portal.
One of the known canons of good tax regime is certainty. Therefore, the Income Tax (Amendment) Act, 2020 introducing section 130(5) creates more ambiguity than it solves in the withholding tax regime and its high time the Uganda Revenue authority came out to clarify the issues as highlighted.
The author is an advocate at Birungyi, Barata & Associates