URA weighs SACCO tax refund
An agreement is now expected with remedies that include tax credits and refunds
KAMPALA, September 13, 2024 – There is hope that an interminable tax dispute pitting local Savings and Credit Cooperative Organisations [SACCOs] against the Uganda Revenue Authority [URA] is approaching resolution. The dispute, which centers around the collection of withholding tax on the dividends SACCOs distribute to members, despite a tax exemption on the incomes of SACCOs, is before the Tax Appeals Tribunal.
An agreement is now expected with remedies that include tax credits and refunds, Stephen Bongonzya, the CEO of Uganda Cooperatives Savings and Credit Union Limited [UCSCU], which is the apex body of SACCOs in the country revealed, during a Coop Talks X Space discussion convened by the Cooperator magazine.
Bongonzya said a Tax Appeals Tribunal also ruled in the SACCOs’ favour, calling on the URA to stop charging withholding tax on the SACCO members’ dividends.
He noted that one of the remedial measures under consideration is that the future tax liabilities of the SACCOs will be offset against what they have paid to URA, adding that some SACCOs could be refunded in two months, while others could wait 6 months to a year to be refunded by URA.
Despite UCSCU’s advice to SACCOs not to pay the withholding tax, some went on to pay, which Bongonzya attributed to the nascent nature of the SACCO sector where members are not conversant with government policies on taxation.
Contributing to the debate, Jane Amuge Okello, Operations Director at the Uhuru Institute for Social Development [TUI], a social business enterprise that works with cooperatives in Uganda, said refunding the money to the SACCOs is a relief, given that URA has issued agency notices against the bank accounts of certain SACCOs.
While calling for the education of SACCOs on tax matters, and financial management, Amuge revealed that there is ignorance on taxation. “There is need for members’ education particularly on tax matters,” she said.
The CEO of TUI Leonard Okello emphasised the significance of the 10 year tax holiday saying it has had a positive impact on the growth of the SACCOs. If the government is to extend the tax holiday beyond 2027, Okello urged SACCOs to show how they have used the profit/surpluses, citing the example of Bugisu Cooperative Union which offers scholarships for tertiary education.
Okello said TUI’s assessment of the impact of the 10-year income tax exemption granted to SACCOs in Uganda indicates that it enabled growth in SACCO portfolio, diversification of SACCO financial products, subsidising loan products interest rates, longer grace periods, improve market competitiveness, and investment in the community. He said lessons from countries like South Korea, and Thailand highlight a need for a specific tax regime for the cooperative movement in order for it to play an instrumental role in promoting equitable development.
Currently cooperatives in Uganda are subject to a number of taxes including corporation tax of 30 percent, 15 percent withholding tax on dividends, withholding tax on interest on members’ deposits, and stamp duty of Shs 5,000 on every loan agreement exceeding Shs 3 million.
“Because cooperatives majorly generate their incomes from their membership, levying withholding taxes on members’ dividends after corporation tax would be double taxation,” cooperators argue.
On his part, Harrison Kaziro, an Agricultural and Development Economist, said government benefits less by overtaxing SACCOs rather, the aim should be to leave members with enough savings to spend on consumption. However, he said SACCOs must ensure that profits go back to members, and SACCOS should offer affordable credit to members so that they are able to spend on consumption.
Additionally, the panelists on the Coop Talks X Space discussion agreed that SACCOs struggle with recording keeping, stating that capacity building is needed if they are to be in the good books of URA.
They agreed that an extension of the tax holiday beyond June 30, 2027, is only possible if cooperatives present records tracking their businesses.
The tax dispute hinged on whether the tax exemption on SACCO income enshrined in the Income Tax Amendment Act 2017 extended to when SACCOs subsequently distribute this income to members as dividends.
Hosted by Chris Kayonga, Editor of the Cooperator Magazine , the online discussion focused on the cover story of the latest edition of the magazine entitled, URA halts withholding tax: Will SACCOs be refunded? It was attended by cooperators, policymakers, academicians, politicians, journalists and entrepreneurs among others.
https://thecooperator.news/ura-mtn-tax-row-just-one-of-several-others/
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