Uganda: Employees Can Enjoy Withholding Tax Refunds

Last Updated: 7 October 2019
Article by Steven K. Mugisha

In my early twenties when I left the university getting a decent job was not as hard as it is today. Most of my classmates had already signed on jobs even before the date of the last examination. The elders who heard the good news that I had started working for a prestigious international bank came to talk to me out of any temptations of buying a car before building a house. I was convinced after the talks that I would never ever buy a car after-all it was such a very bad thing.

That was not for long though because after drawing inspiration from my sister's husband, by our first graduation anniversary, I was driving a 1990s' blue-black VolksWagen Jetta GTI with the option to open the roof.

Just like my girlfriend's six or so housemates who for long called me Mr. VW without knowing what actually it meant, I must confess that up to now I have also never understood the meaning of the term "GTI" despite posing that my first car was a GTI.

On its way into the country, I got a chance to study the importation documents and something that read "WHT 6%" caught my eye. My clearing agent told me that it was something known as withholding tax which is payable but also claimable. Well I do not think I understood what he meant then.

When I later discovered the finance and tax world I learned that withholding tax is part of income tax but only collected by the revenue authorities in advance on certain transactions. It is a credit available to the taxpayer to be utilised in reducing any income tax liability.

This is not new though, to well established businesses that hire accomplished accountants, tax and legal advisors as these entities claim this tax paid in advance. The group therefore that has kept me awake the last 2 nights or so are the people who pay withholding tax at importation of personal items like cars yet their sole source of income is employment.

Just like myself more than one and a half decades ago when I imported the Jetta-GTI, there are many people especially the employed who pay withholding tax but do not know that they are entitled to a claim and subsequently a cash refund from the URA in this regard.

The good news is that our friends who are in gainful employment, whose employers deduct and declare their right amounts of PAYE (Pay As You Earn) tax should have no difficulty in getting a cash refund of the withholding tax suffered at importation of for example motor vehicles; as long as these individuals have only employment and no other source of income.

Our tax laws exempt these individuals from filing income tax returns. The same tax laws however pose a restriction period of five (5) years within which to apply for the withholding tax refunds. Interestingly though, simple interest at a rate of 2% per month is also available for claim. The interest counter starts from the time when you apply for refund to when it is actually paid.

In the middle of this very good news however, accessing these withholding tax refunds needs very clean hands, transparency, full declaration and disclosure. It is common among our people for someone to buy a motorcar at a price 100 times his monthly salary. The URA are aware that we are in the world where we enjoy limitless corruption, some softeners, bribes and kickbacks.

They are also aware that we buy and sell property, we have rentals and that we do other businesses here and there from which income may not be declared. So anyone who seeks withholding tax refunds on grounds of having only employment income, the explanation advanced to the commissioner general must add-up.

Remember that some years back the URA issued guidelines requiring anyone attempting to transfer into their name, any property or motor vehicles above certain values to explain income sources and show proof of payment of income tax or else pay on the spot 30% of the value being transferred. Whereas some sections of the public regarded this as a new tax on property and cars, it was only an enforcement measure to check under-declaration of income. We should not be surprised therefore that applications for withholding tax refunds are placed right in this same very stringent sieve.

Just like those individuals with only employment income, employees with other income sources can also make a claim for credit and possibly a cash refund of withholding tax only that they have the extra duty of filing an income tax return.

In conclusion therefore, neglecting to fill an application form for a refund of withholding tax in whatever case is the same as paying unnecessary extra tax. To my friends with employment as the only income source, a cash refund is assured on condition that the application form is filled and submitted with clean hands and within the right timelines.

In the new year 2019, the information we will submit to claim a cash refund must tally-up because the taxman says that "if it is not making sense it is not true".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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