Parliament Gives Gov't go Ahead to Start Taxing Gifts and Donations

The new legislation mandates that manufacturers and industries must remit Value Added Tax (VAT) to the government for all taxable goods or services provided to their employees as donations. This legislative change, enacted through the Value Added Tax (Amendment) Bill 2024, specifically emphasizes that VAT-registered employers intending to offer incentives in the form of donations to employees are obligated to report and pay taxes on the donations.

According to Clause 5 of the Bill, any supply of goods or services by a taxable employer to an employee without consideration is deemed as part of the employer's business activities and subject to VAT. While the majority report from the House committee of finance supported these tax adjustments on donations, the minority committee members, led by the shadow Finance minister, Mr. Ibrahim Ssemujju Nganda, opposed them.

Mr. Ssemujju argued that such taxation would discourage employers from providing incentives to their staff, as they would seek to avoid the tax burden on unsold or donated goods. Despite support for his argument from legislators like Batambala Woman MP, Ms. Aisha Kabanda, the proposal faced overwhelming rejection from MPs, particularly from the ruling National Resistance Movement (NRM) party, which holds the majority in the House.

Ms. Kabanda appealed to Parliament, stressing that salaries alone are demotivating, and encouraging alternative methods of motivation is crucial. However, the majority of MPs contended that tax-free donations could lead to tax evasion through donation claims.

According to Mr. Nandala Mafabi, MP for Budadiri County, donations to employees are considered benefits subject to Pay As You Earn (PAYE), and instead of donating VAT-inclusive goods, employers should sell the goods and donate cash to employees. Similarly, Dickson Kateshumbwa, MP for Sheema Municipality, emphasized the potential unfair competition that could arise if employees were to sell donated goods.

Proponents of taxing gifts expressed concerns that employers might claim input VAT on goods donated to employees, resulting in losses to the government. Maxwell Akora, MP for Maruzi County, supported the committee's stance, emphasizing that VAT should be applied to all taxable supplies to ensure that registered taxpayers account for both input and output taxes.

This legislative development occurs amid public outcry over high taxes juxtaposed with perceived wasteful expenditure by government officials.