The Uganda Revenue Authority (URA) continues to insist on imposing withholding tax on dividends and interest earned from Savings and Credit Cooperative Organizations (SACCOs) members’ savings, despite contrary advice from the Attorney General, the chief legal advisor to the government.
The Income Tax Amendment Act of 2017 was introduced to exempt SACCOs from such taxes, aiming to promote savings within the informal sector and enhance financial inclusion and economic productivity. This exemption is valid until June 30, 2027, after which SACCO income is set to be subject to a 30% corporate income tax and applicable withholding taxes.
Despite this, URA’s regional offices have persistently demanded these taxes from SACCOs and their members. For instance, on May 21, 2024, URA’s Manager for the South West Region, Mugisha Richard Nkunya, directed the OMIPA Cooperative Savings and Credit Society in Isingiro town to remit withheld taxes on dividends and interest, citing Sections 117(1) and 118 of the Income Tax Act.
This directive was issued even though Permanent Secretary and Secretary to the Treasury Ramathan Ggoobi, following the Attorney General’s guidance, advised URA Commissioner General John Musinguzi Rujoki against taxing SACCO dividends and interests. The Attorney General’s advice emphasized the doctrine of mutuality, which stipulates that all contributors to a common fund must equally participate in any surplus, and that such distributions are exempt under Section 21(1)(ad) of the Income Tax Act.
Despite the Attorney General’s clear guidance, URA has not aligned its practices accordingly. This has led the Uganda Cooperative Savings and Credit Union (UCSCU), the umbrella body for SACCOs, to urge its members not to comply with URA’s tax demands. UCSCU has even engaged legal counsel to ensure URA adheres to the Attorney General’s advice and withdraws any tax enforcement actions.
UCSCU CEO Dr. Sylivester Ndiroramukama highlighted the adverse impact of URA’s actions on SACCO operations, noting that the tax exemption has allowed SACCOs to invest in infrastructure and technology, significantly benefiting their members. UCSCU is advocating for the extension of this tax exemption beyond 2027 to continue supporting SACCO growth and financial stability.
Despite these efforts, URA remains resolute in its tax collection, causing substantial financial strain and operational disruption for SACCOs across Uganda. This raises the question: why does URA continue to ignore the Attorney General’s advice and impose taxes that legally should not apply to SACCOs? The resolution of this legal and administrative conflict will significantly impact the future of SACCOs and their contribution to Uganda’s financial inclusion and economic growth. This move whereas in the short run will lead to a marginal revenue increase for URA but will dampen the saving and collective resource mobilisation spirit that this country or even the whole East African region has developed.
Many opin that SACCO contributions are monies from sources which are already taxed, therefore taxing it is excessive taxation which is one of the biggest problems in this country.
