Saccos irked by continued levy of withholding tax

The Uganda Cooperative Savings and Credit Union (UCSCU), the apex body of savings and credit cooperatives in Uganda, has raised concerns over recent demands from the Taxman.

The Uganda Revenue Authority (URA) has continued withholding tax on interest and dividends paid to members despite the government last year indicating it was irregular taxation.

The Saccos apex body says the charges is  causing significant distress.

"From July 1, 2017, Saccos have not been paying income tax on their surplus," Ms Jalia Lukumu, board chairperson of UCSCU, said.

"Wost of the Saccos have inadvertently been deducting and remitting withholding tax on interest and dividends paid to members which continued to be a big pain to members and the Union."

Established in 1972 and regulated under the Cooperative Societies Act, UCSCU aims to develop and support Saccos throughout Uganda.

In a major win for Saccos, they were granted a 10-year income tax exemption starting from July 1, 2017, to June 30, 2027.

This exemption was intended to help Saccos build institutional capital and improve services for their members.

However, despite this exemption, Saccos have continued to deduct and remit .

In a move to address this issue, UCSCU engaged with the government to waive the withholding tax paid by members on their dividends and interest.

On October 10, 2023, the Permanent Secretary/Secretary to the Treasury sought guidance from the Attorney General's Chambers regarding the tax treatment of Sacco income.

The Attorney General's advice, delivered on December 28, 2023, confirmed that Sacco income and their members' income are tax-exempt under the doctrine of mutuality.

This guidance was communicated to the Commissioner General of URA on January 19, 2024.

Despite the Attorney General's binding guidance, URA regional heads began sending communications demanding Saccos to withhold and remit tax on dividends and interest.

UCSCU responded by writing to the Commissioner General of URA on May 6, 2024, urging compliance with the Attorney General's advice.

However, UCSCU has learned that URA regional heads have continued to issue assessments, third-party agency notices, and have even frozen the bank accounts of some Saccos.

"As a result of URA's illegal actions, SACCOs and their members have been subjected to unnecessary inconvenience and financial distress," UCSCU noted.

The Union warned that if these actions are not stopped, they will cause irreparable damage to the Sacco sector.

To counter these actions, UCSCU has sought the intervention of the Tax Appeals Tribunal.

They body appealed to Saccos "not to willingly pay the taxes from which they were exempted, to continue reserving funds saved from income tax exemption, and to remain calm but vigilant."

It remains to be seen how the Tax Appeals Tribunal will rule on this matter, but the UCSCU’s stance is clear: the tax exemption granted in 2017 must be honored to protect the financial stability and growth of SACCOs in Uganda.

URA publicist Robert Kalumba said they cannot comment on the issue that is before Tax Appeals Tribunal.