MPs okay tax on gifts
MPs during a plenary session recently. PHOTO/ FILE
What you need to know:
- Mr Ssemujju argued that the tax “will stop employers from incentivizing their staff” as they avoid to incur tax costs of unsold or donated goods.
Manufacturers and industries will be required to pay Value Added Tax (VAT) to government for all taxable goods or services given out to their employees as donations.
The new tax developments follow the passing of the Value Added Tax (Amendment) Bill 2024 by Parliament on Monday, where clause 5 of the Bill provides that any VAT registered employer intending to extend incentives in terms of donations to the employees will be required to account for the taxes collected from the donations.
Clause 5 of the Bill states that “the supply of goods or services by an employer who is taxable person to an employee, for no consideration shall be regarded as the supply of goods or services for consideration as part of the person’s business activities”
The tax amendments on donations were okayed by the majority report by the House committee of finance, but the same was rejected by the minority committee members led by the shadow Finance minister, Mr Ibrahim Ssemujju Nganda.
Mr Ssemujju argued that the tax “will stop employers from incentivizing their staff” as they avoid to incur tax costs of unsold or donated goods.
Although his argument received support from a number of legislators, including Batambala Woman MP, Ms Aisha Kabanda, it did not see the light of the day following the overwhelming rejection from several MPs, especially from the ruling National Resistance Movement (NRM) party who are the majority in the House.
“We all know salaries are de-motivators, the best way to motivate your staff is to find other ways, so I want to persuade colleagues to drop these taxes so that employers can give back to employees,” Ms Kabanda appealed to Parliament.
However, the majority MPs reasoned that tax free donations will open a complicated window for dodging taxes, through donation claims.
“The law is very clear about donations, whether it is taxable or exempted, unless we are saying that donations to employees become part and parcel to tax exemption. Employees get salary, now the moment you give your employee goods, under the law they are treated as benefits that are subjected to Pay As You Earn (PAYE),” Mr Nandala Mafabi (Budadiri County MP) said
Adding that “instead of donating VAT inclusive goods to the employees, employers must sell these goods and donate cash to employees.”
“For example, if someone receives 100 crates of Soda or Beer as donations, he or she is not going to consume it as a person, he might actually sell and compete with others who have paid taxes. So the fair way is to deal with it now by levying a tax,” Dickson Kateshumbwa, MP Sheema Municipality noted.
In common, the pro-gift tax legislators expressed fears that employers will go ahead to claim for their input VAT on goods that were donated to their employees, causing losses to the government.
“I support the committee position that VAT is taxed on all taxable supplies by a taxable person because this registered taxpayer has to claim for input tax, therefore they must account for the output tax on all their supplies,” Maxwell Akora (Maruzi County MP) said.
The development comes on the heels of public outcry over high taxes amid wasteful expenditure by government officials.
