So, a business asset may include, among others, furniture, land, computers, motor vehicles or a financial contract. As stated above, any payments made for the purchase of an asset owned by a partnership or a company are automatically subject to withholding tax.
However, where a resident person purchases a business asset from a taxable person other than a partnership or a company, say for example from an individual or a trust, it is pertinent to ascertain whether the asset is used or held ready for use or for sale in a business.
On the other hand, a business is any trade, profession, vocation or adventure in the nature of trade other than employment. So a business would include among others, a hardware store, carpentry shop, supermarket or consultancy firm.
Therefore, should one purchase a business whether from a resident individual, company, partnership or trust, one is required to withhold tax on the gross payment paid. The withholding tax is charged at rate of 6 per cent and it should be withheld at the point of making the payment, whether cash or in kind for the business or business asset.
In case the payment is made in instalments, the withholding agent should withhold 6 per cent on each installment paid. Upon withholding the tax, the withholding tax agent must file a withholding tax return indicating the details of the payee (seller), gross amount paid for the business or business asset, the date of payment, nature of payment, the tax rate and the amount withheld.
This return is to be filed not later than the fifteenth day of the month following the month in which the payment was made. Should the purchaser intentionally or unintentionally fail to file the return by the due date, he or she will be liable to pay a penalty for late filing.
As tempting as it maybe to use the withheld money for personal use, it is necessary to remember that as a withholding tax agent, one holds that money in trust for the Government of Uganda.
In other words, it is not one’s money and so upon filing the return, one ought to remit the withheld amount to Uganda Revenue Authority by the fifteenth day of the month following the month in which the purchase price was paid.
As always, failure to remit tax by the due date attracts a penalty and its first cousin, interest and trust these two to cause a business as formidable and seemingly indestructible as the Titanic to sink. Upon filing the withholding tax return, the withholding tax agent is obliged to generate and deliver a tax credit certificate to the payee.
However, in Uganda it is survival for the fittest so most likely the agent may not deliver the tax credit certificate and so the payee may have to follow up with the latter to obtain it. In some instances, a purchaser may buy a business or a business asset from a withholding tax exempt person in which case the latter need not withhold the said 6% from the gross payment made for the purchase.
However, it is not a matter of assuming or relying on hearsay, the purchaser ought to diligently ascertain that the seller’s name appears on the withholding tax exemption list for that particular period.
It is pertinent to note that the tax withheld is not a final tax and so its payment does not extinguish the parties’ tax obligation(s) regarding the said transaction.
For instance if the transaction relates to the sale of land as a business asset, the fact that the purchaser withheld 6 per cent on the gross payment of the purchase price neither extinguishes his or her obligation to pay stamp duty nor the seller’s obligation to report and remit capital gains tax if any.
This tax is merely an advance tax payment for the payee (seller) of the business or business asset and it may only be used to reduce the latter’s income tax liability.
While filing the final income tax return which is generally due to be filed not later than six months after the end of that year of income, the payee ought to indicate details of the withholding tax agent, gross amount paid to the payee and the date of payment, the tax credit certificate number, and the tax credit to be able to utilise that credit to reduce its income tax liability for that year of income.
Therefore, tax payers should at all times keep record of the tax withheld to ensure among others that the evidence of tax paid is readily available in case of any tax audits or credit claims and also to avoid claiming the credit more than once.
The law specifically requires tax payers to retain records for five years of income following the year of income to which the records relate. With that said and as we ask government to help us during these unprecedented tough times, let us also help ourselves by complying with the law(s).
After all we joyfully voted for the parties who passed these laws. So let us respect our votes by withholding tax on gross payments made for a business or business asset, filing the tax return and remitting the tax on time.
