Budget statement was a bold move to widen the tax base Stakeholders say there is need for the government to improve funding for district trade. Stakeholders say there is need for the government to improve funding for district trade. Stakeholders say there is need for the government to improve funding for district trade. Stakeholders say there is need for the government to improve funding for district trade.

Stakeholders say there is need for the government to improve funding for district trade.

By Francis Kamulegeya

Posted  Tuesday, June 25  2013 at  01:00

A range of new tax measures were announced in the 2013/14 Budget most of which sought to widen the tax base.


One of these new measures is the proposed widening of the scope of withholding tax agents so as to bring more taxpayers into the tax net.

This means that more businesses are going to be appointed as withholding tax agents so as to collect tax on behalf of URA.


These businesses will be required to withhold tax of 6 per cent on every payment they make to their suppliers, as long as those suppliers are not exempt from withholding tax.

This means that if you are a small business supplying say stationery to PwC, the company would have to withhold 6 per cent of the amounts paid for supplies.

Likewise if you are a farmer supplying potatoes or chicken to one of the big hotels, the hotel will be required to withhold tax 6 per cent on the amount you pay you in respect of your supplies.

For example if you supply goods worth Shs100 million to a business appointed by URA as a withholding tax agent, it will deduct Shs6 million off the amounts payable to you and therefore pay you Shs94 million.

The Shs6 million will thus be paid over to URA on your behalf. Withholding tax is an advance tax, and not a final tax, which is offset against the final tax bill when filing for tax returns with URA.

Unfortunately most small businesses do not file their tax returns with URA, thus the withholding tax of 6 per cent becomes a cost to them, which shouldn’t be the case.

If the profit margin of your business is less than 20 per cent and you are not filing your tax returns with URA, the 6 per cent results into losses, which affects a business’ profitability as well as the future of the business.

The income tax rate for all businesses in Uganda is 30 per cent. This means that every business is required to pay a tax of 30 per cent on the profits they make. Therefore if your business’ turnover is say Shs100 million and your profit margin is 20 per cent, this means that you should be making profits of Shs20 million on every Shs100 million of sales.

The tax you would have to pay on your profit of Shs20 million at the income tax rate of 30 per cent is Shs6 million.

On the other hand, if your profit margin is less than 20 per cent, then the 6 per cent withholding tax deducted from your gross sales will result into your business overpaying tax.

Some traders go around the 6 per cent withholding tax cost by grossing up their prices by the 6 per cent tax so that instead of charging Shs100 million they charge Shs106 million.

This means that when 6 per cent is deducted from the Shs106 million charged, they end up with a net of Shs100 million. This may work for you in the short term but it is not sustainable, as it may make your services or supplies more expensive than your competition.


The best way to avoid the 6 per cent being a cost to your business is by ensuring that your business is properly registered with URA and you file your tax returns as required by the tax law.