Experts have raised concerns about the potential negative impact of this proposal on business operations within the country, especially for businesses reliant on loans obtained from banks and other financial institutions. They warn that the measure could escalate the costs associated with raising capital and loan recovery.

Additionally, the proposed tax amendment would increase the tax compliance responsibilities of banks. They would now be required to register for VAT, issue tax invoices, and submit monthly VAT returns, which were previously exempted due to their involvement in VAT-exempt supplies.

Despite these concerns, the Uganda Bankers Association (UBA) remains optimistic that the proposed amendment will be dropped. They have received assurances from the Uganda Revenue Authority (URA) that the tax proposal was incorrectly framed. These assurances were provided during a meeting between representatives of the UBA and URA at Parliament.

Mr. Wilbrod Owor, the executive director of UBA, expressed optimism about the outcome of the meeting. He mentioned that URA officials had acknowledged the concerns raised and promised to provide clarification regarding VAT on auctions.

However, Mr. Ibrahim Bbosa, the URA assistant commissioner for Public and Corporate Affairs, stated that the meeting was ongoing, and a substantive response would be provided later. The government’s tax policy strategy aims to expand the tax base, improve tax adherence, and optimize administrative efficacy.

The proposed amendment, outlined in Section 5(1)(ab) of the Value Added Tax (Amendment) Bill, 2024, seeks to establish a new group responsible for VAT payments. Specifically, individuals who receive proceeds from auctions would be liable for VAT payments.

If approved by Parliament, this amendment would shift the VAT payment obligation for goods acquired through auctions from auctioneers to entities such as banks and judgment creditors. Previously, the VAT Act was amended in 2023 to clarify that auctioneers are responsible for VAT payments during the auction process.

Legal experts and tax professionals have cautioned that this measure could have far-reaching consequences beyond revenue generation. They anticipate that financial institutions like banks will pass on the burden of the 18 percent VAT to borrowers, leading to an increase in non-performing loans.

Lawyer Bruce Musinguzi from Kampala Associated Advocates (KAA) highlighted the potential impact on taxpayers and loan recovery processes. He emphasized that the proposed amendment could discourage loan repayment and burden already distressed taxpayers.

The proposed change in the VAT Act has drawn attention to the broader issue of aligning tax laws with the nature of financial services. Legal experts argue that taxing auction proceeds contradicts exemptions already granted to financial institutions under the law.

Source: The Ankole Times