Private sector players who first suggested a Pay As You Earn (PAYE) tax deferment now want a complete waiver claiming that the effects of coronavirus on the economy have turned out to be much more destructive than they had previously expected.
President Museveni said on Thursday that the government will defer payment of PAYE by private firms that have been hit hard by the lockdown for almost three months.
But this means that the companies will then have to pay the deferred tax in addition to what they will have to pay in the future, yet it remains uncertain whether the economy will return in the near future to vibrant health.
The announcement of the President comes much later after some regional governments made even more far-reaching pronouncements, waiving PAYE for low-income groups to put more money into their citizens’ hands as the impact of the coronavirus lockdown bites.
Whether the individual employees will benefit from the PAYE deferrals remains unclear in Uganda, but initial indications are that the measure is intended to strengthen the liquidity status of companies.
PAYE’s deferral was one of 11 measures announced by the President during the State-of-the-Nation Address, and it comes as Ugandans slowly return to work after a partial reopening of the economy after more than two months of staying home.
PAYE is levied on salary revenue above the Shs130,000 threshold. Any salary income between Shs130,000 and Shs235,000 is charged 10 per cent; that is charged 20 per cent between Shs235,000 and Shs410,000; whereas all salary income above Shs410,000 but below Shs10 m is docked 30 per cent.
All salary earnings above Shs10 m are charged 40 per cent.
The money is collected at source, from wages and salaries by employers, and remitted monthly to the Uganda Revenue Authority (URA).
Therefore, with the President’s declaration of a deferral, URA will not require employers to make PAYE remittances until the end of September when the government is scheduled to review the circumstances in which the Covid-19 pandemic would have further affected the economy.
Nevertheless, Mr Museveni insists that Uganda will not be seriously hit by the effects of the pandemic that, two months ago, brought about half of the world ‘s population under lockdown, relying mostly on what he described as “real economy,” which is largely anchored in agriculture.
With emphasis on industrialisation, particularly value-added agricultural products to replace local-produced imports of goods, the government encourages more local investment by injecting Shs1 trillion into the Uganda Development Bank (UDB) to disburse low-interest loans to small and medium-sized enterprises ( SMEs).
The President, while talking about the economy’s mitigation measures, said Finance Minister Matia Kasaija would provide more comprehensive details on Thursday during the budgetary speech for the 2020/2021 financial year.
With civil servants and employees of the private sector subject to PAYE, it is still not clear if the deferment would only favor the private sector, or both. Also, the specifics of the businesses that earn the PAYE deferral are still scanty.
Mr Kasaija refused to comment on the matter and the Permanent Secretary / Treasury Secretary of the Ministry of Finance, Mr Keith Muhakanizi, would not give specifics either.
The President had to announce the package himself after Speaker Rebecca Kadaga blocked Mr Kasaija ‘s presentation on Tuesday on the grounds that it had taken a long time for the government to table it following a demanding resolution on April 2. She also said the package needed enough time for MPs to discuss it before it finally gets rolling out.
Mr Douglas Opio, the executive director of the Uganda Employers Federation (FUE), said that while they proposed that PAYE be referred to the government, they have since changed their minds.
“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.
In a paper FUE submitted to the Parliament’s National Economy Committee last week, in which they made the case for companies that are hard hit by the pandemic impacts.
FUE told the MPs that their estimate of the pandemic ‘s effects indicates that more than 80 per cent of Uganda ‘s businesses were adversely affected.
The companies concerned were listed as those dealing in tourism , hospitality, manufacturing , retail, labor 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 that since the employees will not have access to the money they paid for the PAYE tax during the deferment, the measure that the government has put in place is good for them as they are assured of retaining their jobs because the companies will save some money temporarily.
Mr Usher Wilson Owere, chairman general of the National Organization of Trade Unions (NOTU), said the government’s deferral of PAYE’s remittance will save jobs.
He said now, businesses will have to keep all of their employees as a bargaining chip without PAYE going to URA.
“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 ‘s government waived PAYE for six months – from April to September – for private school teachers earning up to a net salary of up to 150,000 Rwandan francs (about Shs581,477).
The same waiver announced early March is also being applied for employees of companies operating in the tourism and hotel sector who earn up to 150,000 Rwandan francs net salary for a period of three months from April to June.
The Kenyan government on March 25 announced 100 percent tax relief for workers earning a gross income of up to KShs24,000 (about Shs836,034) per month to help the Kenyan economy survive the effects of Covid-19.
The government also declared it would provide the most disadvantaged groups in society with additional disposable income of about KShs1,600 (about Shs 55,735) per month.
The highest personal income tax rate (PAYE) was also reduced from 30 per cent to 25 per cent.
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 the government needs to use the money donated by foreign funders and local organisations to give each household at least Shs100,000 per month for a period of six months, with most private businesses having closed the business and sent staff home.
He thinks this is a better choice than supplying food to only 1.8 million people in the districts of Kampala, Wakiso and Mukono, leaving the majority of the country’s impoverished population in desperate need.
