Private sector pushes for waiver, not deferral of PAYE

Workers at a fruit factory on June 14, 2019. Private sector players who first proposed a deferral of Pay As You Earn tax now want a total waiver. PHOTO BY RACHEL MABALA 

In Summary

• The Federation of Uganda Employers says although they suggested the deferral of PAYE to the government, they have since changed their mind because the impact of Covid-19 pandemic is biting hard.

By MISAIRI THEMBO KAHUNGU

Private sector players who first proposed a deferral of Pay As You Earn (PAYE) tax now want a total waiver saying the effects of coronavirus on the economy have turned out much more devastating than they has earlier projected.

President Museveni on Thursday said government will defer the payment of PAYE by private companies that have been hard-hit by the lockdown for nearly three months now.

But this means that the companies will then have to repay the deferred tax on top of what they will have to pay in the future, yet it remains uncertain whether the economy will return to vibrant health in the near future.

The President’s announcement comes much later after some regional governments made even more far-reaching pronouncements, waiving PAYE for low income groups in order to put more money in the hands of their citizens as the impact of the lockdown occasioned by coronavirus bites.

In Uganda, it remains unclear whether the individual employees will benefit from the PAYE deferrals, but initial indications are that the measure is meant to shore up the liquidity status of companies.

The deferral of PAYE was one of 11 measures that the President announced during the State-of-the-Nation Address, and they come as Ugandans are slowly returning to work following partial re-opening of the economy after more than two months of staying home.

PAYE is levied on salary income above the threshold of Shs130,000. Any salary income between Shs130,000 and Shs235,000 is charged 10 per cent; that between Shs235,000 and Shs410,000 is charged 20 per cent; whereas all salary income above Shs410,000 but below Shs10m is docked 30 per cent.

All salary income above Shs10m is charged 40 per cent.
The money is collected at source, by employers off workers’ salaries, and remitted to the Uganda Revenue Authority (URA) on a monthly basis.

Therefore, with the deferral announced by the President, URA will not compel the employers to make PAYE remittances until the end of September when the government is expected to review the circumstances under which the Covid-19 pandemic will have further affected the economy.

Nevertheless, Mr Museveni insists that Uganda, depending mostly on what he described as “real economy” that is majorly anchored on agriculture, will not be severely hit by the effects of the pandemic that two months ago put about half of the world population under lockdown.

With emphasis put on industrialisation, especially value addition to agricultural products in order to substitute importations of goods that are supposed to be produced locally, the government encourages more local investments by injecting Shs1 trillion in the Uganda Development Bank (UDB) to disburse low interest loans to small and medium scale enterprises (SMEs).

Questions over PAYE
The President, while talking about the mitigation measures for the economy, said Finance Minister Matia Kasaija will give more detailed information during the Financial Year 2020/2021 budget speech on Thursday.

With civil servants and private sector employees subjected to PAYE, it is not yet clear whether the deferral will only benefit the private sector or both. The details of the companies getting the PAYE deferral are also still scanty.

Mr Kasaija declined to comment on the matter and Finance Ministry’s Permanent Secretary/Secretary to the Treasury, Mr Keith Muhakanizi, would not provide details either.

Long in the making
The President had to announce the package himself after Speaker Rebecca Kadaga on Tuesday blocked the presentation by Mr Kasaija on grounds that government had taken long to table it despite a resolution in demand on April 2. She also said the package needed enough time for the MPs to debate it before it is finally rolled out.

Mr Douglas Opio, the executive director of Federation of Uganda Employers (FUE), said although they suggested the deferral of PAYE to the government, they have since changed their mind.

“We made the proposal in March when the lockdown had just been declared. No one thought Covid-19 spread in Uganda would take long depending on the response measures in place. But now, our view is that PAYE should be waived since no one has an idea of when the country will be free of this disease,” he said.

Sunday Monitor has seen a document FUE presented last week to the Parliament’s Committee on National Economy, in which they argued the case for the businesses that are hard hit by the effects of the pandemic.

Affected business
FUE told the MPs that their assessment of the impact of the pandemic indicates that more than 80 per cent of the businesses in Uganda have been adversely affected.

They listed the affected businesses as those dealing in tourism, hospitality, manufacturing, retail, labour export and administrative services.

“Employers are slowly running out of options to keep employees on the payroll. They are looking up to the government for support,” the statement reads in part.

Mr Opio said much as the employees will not access the money they have been paying for PAYE tax during the deferral, the measure the government has put in place is good for them as they are assured of retaining their jobs since the companies will temporarily save some money.

The chairman general of the National Organisation of Trade Unions (NOTU), Mr Usher Wilson Owere, said the deferral of PAYE remittance to the government will save jobs.

He said now, without PAYE going to URA, companies will have to retain all their workers as a bargaining chip.

“It will serve both the needs of the workers who wish to retain their jobs beyond the pandemic, and also the employer who needs enough money despite loss of income to pay the workers. To us as NOTU, we are going to follow-up on the pronouncement since it was made by the President,” Mr Owere said.

Rwanda, Kenya
The government of Rwanda waived PAYE for six months – from April to September – for teachers in private schools earning up to 150,000 Rwandan francs net salary (about Shs581,477 ).

The same waiver announced early March is also being applied for a period of three months from April to June for employees of companies operating in the tourism and hotel sector who earn up to 150,000 Rwandan francs net salary.

The Kenya government on March 25, in order to help the Kenyan economy survive the effects of Covid-19, announced 100 per cent tax relief for workers earning a gross income of up to KShs24,000 (about Shs836,034) per month.

The government also announced that it would provide additional disposable income of approximately KShs1,600 ( about Shs 55,735) per month to the most vulnerable groups in the society.

There was also reduction of the highest personal income tax rate (PAYE) from 30 per cent to 25 per cent.

Alternative view
Shs100,000 per month
During a press conference in which he delivered what he called a ‘‘State of the Peoples’ Government Address’’ on Wednesday, Opposition activist Kizza Besigye lambasted the government’s approach to mitigating the effects of Covid-19 on the economy.

Dr Besigye argued that with most of the private companies having closed business and sent workers home, the government needs to use the money being donated by international funders and local entities to give each household at least Shs100,000 per month for a period of six months.

He thinks this is a better option than distributing food to only 1.8 million people in Kampala, Wakiso and Mukono districts, leaving the rest of the poor population across the country in dire need.