The requirement to withhold Value Added Tax (VAT) by persons designated under Legal Notice No.12 of 2018 (The Value Added Tax (Designation of Tax Witholding Agents) Notice, 2018) has been revoked.
The concept of withholding VAT was introduced for the first time in Uganda under the VAT (Amendment) Act 2018, which amended section 5 of the principal Act (VAT Act Cap 349). This amendment was operationalized by Legal Notice No. 12 of 2018 which appointed a total of 690 persons as VAT withholding agents required to withhold 100% of the VAT charged by suppliers. The Notice was published in the Uganda Gazette on 29 June, 2018 and immediately sparked wide spread denunciation and criticism from the business community in Uganda, as well as other stakeholders for the challenges associated with its implementation.
On 28th September, 2018, the Value Added Tax (Designation of Tax Witholding Agents) (Revocation) Notice, 2018 which revoked the earlier Notice (No. 12 of 2018) was published in the Gazette.
The effect of the new Notice is to revoke the requirement to withhold VAT effective 28 September, 2018, the date when the Notice was published and gained force of law. In principle, the persons designated may still be required to account for withholding VAT for the period before the Notice was revoked, to wit, between 1st July – 28 September, 2018.
It is also important to note that the new Notice does not eliminate the concept of withholding VAT introduced under the principal Act. The Government could therefore still refine the operationalization of the concept and reintroduce it in the future.
Withholding Tax on Payments for Agricultural Supplies
The Uganda Revenue Authority (URA) has defined the meaning of Agricultural Supplies for purposes of withholding tax on payments for agricultural supplies under a Public Notice published in the New Vision newspaper on 15th October, 2018.
The requirement to withhold tax on agricultural supplies was introduced under section 118E of the Incorme Tax (Amendment) Act 2018, which was later operationalized by Legal Notice No. 13 of 2018 (The Income Tax (Designation of Payers) Notice, 2018). Under the 2 laws, a tax payer is required to withhold 1% from all gross payments above UGX 1,000,000 made in respect of agricultural supplies.
Neither the Act, nor the Legal Notice define what qualifies as agricultural supplies. According to the Uganda Revenue Authority (URA)’s Public Notice, however, agricultural supplies have been defined broadly to include supply of not only crops and livestock or livestock products, but also horticultural, aquacultural, floricultural, viticultural and silvicultural products among other supplies. The definition however, expressly excludes all processed agricultural products.
The legal force of this Notice is debatable and we anticipate that its’ application could be subjected to challenge, especially considering that the tax laws provide separate avenues for the Revenue Authority to publish their interpretation of the law.