Withholding tax should be scrapped because it hurts regional trade and makes lives of the common people difficult, traders and the civil society have said.
Prudence Sebahizi, the co-ordinator of the East African Community Civil Platform, said the tax is a burden to trade, and makes imported goods more expensive for the masses. Sebahizi also said most times customs officials impose the levy on the informal sector players who have low capacity of remitting it.
“Although withholding tax is supposed to be targeted at recognised importers, it is always directed at the informal sector, including those importing items for home consumption,” Sabahizi claimed.
The government charges traders and importers 25 per cent of the value of goods as withholding tax.
John Bosco Kalisa, programme manager TradeMark East Africa, said the charge increases the cost of doing business by huge margins.
“The revenue authorities in the region should scrap this tax and focus on strengthening tax compliancy because it discourages business,” he pointed out.
Of the five East Africa Community partner states, its only Rwanda and Uganda that still charge withholding tax.
Richard Tusabe, the Rwanda Revenue Authority (RRA) Deputy Commissioner General, argued that they charge withholding tax as a compliancy tool to avoid tax leakages.
“Because the informal sector is about 80 per cent of the total business community, it’s difficult to tell who is importing for trade and who is not. However, RRA is issuing tax compliancy certificates which are mapped on one’s tax identification number (TIN) once withholding tax has been levied. The charge is always added to one’s income tax at the end of the year through their TIN number,” Tusabe explained.
Tusabe, however, said the tax body charges 5 per cent withholding tax on imported goods and 15 per cent on domestic services.
He noted that RRA would review the tax after a conclusive study has been conducted.
“We are a listening institution, we will look into the matter when we receive your study findings,” Tusabe reassured the stakeholders.
Innocent Safari, the Ministry of East African Affairs permanent secretary, said partner states were currently pursing harmonisation of domestic taxes and excise duty, where “Rwandan traders could benefit”.
Last month, Dr. Richard Sezibera, the East African Community Secretary General, said they need to harmonise some domestic taxes because the community is fast-tracking free movement of goods and services within the region.
“This (free movement of goods and services) can only happen when taxes that hinder this movement have been harmonised,” Dr. Sezibera noted.