The Legal Framework Of Withholding Tax (Wht) Compliance Among The Construction Companies In Kampala

ABSTRACT

The study aimed at examining the legal Framework ofWithholding tax (WHT} Compliance among

the Construction Companies in Kampala. The objectives of the study were; to analyze the

Formulation of Tax Policy in Uganda, to examine the Uganda's tax legal regime and institutional

framework's implications on construction companies, to evaluate the impact of laws on Withholding tax of construction companies in Uganda and to fmd out recommendations for the improvement of the Withholding tax of construction companies in Uganda. A few books and scholarly writings have been written on the legal framework of withholding tax (WHT) compliance among the construction companies in Kampala, quite a number of foreign published literature has - been made available for example in libraries like Kampala International University Library and Uganda National Library. In order to achieve the objectives of this study, the researcher used an exploratory research design in which both qualitative and quantitative aspects were observed. This method was purposely selected because it focused on perceptions, facts, and feelings where through interview, the research questions designed required illustrative and analytical clarifications. This was through use of guided interviews containing short and clear statements which sought to generate information on major variables of this study. It was revealed that URA has fairly curbed noncompliance with WHT and the said measures already being applied by URA include; sensitization of the public, encouraging voluntary tax compliance, empowering local authorities, automating the process of tax credit certificate, and less of publishing detailed list of transactions liable to WHT, publishing list of tax defaulters, fming tax defaulters, reprimanding tax defaulters, and pursuing legal actions against tax defaulters. The study recommended regular tax audits in particular for withholding tax by URA to trigger most of the companies and other eligible taxpayers or payees to comply with paying or withholding expected taxes and the remitted to URA

TABLE OF CONTENTS

DECLARATION ........................................................................................................................... ii

APPROVAL ................................................................................................................................. iii

DEDICATION .............................................................................................................................. iv

ACKNOWLEDGEMENTS ......................................................................................................... v

ABSTRACT .................................................................................................................................. ix

CHAPTER ONE ........................................................................................................................... I

1.1 Introduction ............................................................................................................................... I

1.2 Background of the study ........................................................................................................... I

1.3 Problem Statement .................................................................................................................... 5

1.4 Objectives of the Study ............................................................................................................. 6

1.5 Justification of the Study .......................................................................................................... 6

16 Scope of the Study ..................................................................................................................... 7

1. 7 Significance of the Study .......................................................................................................... 7

1.8 Literature review ....................................................................................................................... 8

1.9 Methodology of Research ......................................................................................................... 8

1.10 Synopsis of Chapters ............................................................................................................... 9

CHAPTER TWO ........................................................................................................................ I 0

2.0 Introduction ............................................................................................................................. 10

2.1.1 TheRoleofParliament ........................................................................................................ IO

2.1.2 The Role of the Executive .................................................................................................... I 0

2.2 Withholding tax on goods and services .................................................................................. 11

2.2.1 Withholding tax on imports ................................................................................................. 12

2.2.3 Withholding tax on professional fees .................................................................................. 12

2.2.4 Withholding tax on interest payments ................................................................................. 13

2.2.5 Withholding tax on dividends .............................................................................................. 13

2.2.6 Withholding tax on international payments ......................................................................... 13

2.2. 7 Withholding on payments to non-residential entertainers or sports persons .................... 13

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2.2.8 Withholding tax on payments to contractors or professionals ............................................. 14

2.3 Challenges Faced with Compliance with WHT and in Administration ................................. 14

CHAPTER THREE .................................................................................................................... 17

UGANDA'S TAX LEGAL REGIME AND INSTITUTIONAL ............................................ 17

FRAMEWORK'S IMPLICATIONS ON CONSTRUCTION COMPANIES ...................... l7

3.0 Introduction ............................................................................................................................. 17

3.1 The Income Tax Act Cap 340 ................................................................................•................ 17

3.1.1 Tax Avoidance and Evasion ................................................................................................ 17

3 .1.2 The Self-Assessment Regime .............................................................................................. 18

3.2 International Tax related components ...................................................................................... 20

3.2.1 Transfer Pricing ................................................................................................................... 20

3 .2.2 Source Rules ........................................................................................................................ 22

3.2.3 Thin Capitalization rules ..................................................................................................... 23

3 .2.4 Double Taxation Treaties .................................................................................................... 23

3.3 Institutional Frameworks to address, tax avoidance and tax evasion ..................................... 24

3.3.1 The Banking Sector .............................................................................................................. 24

3.3.2 The Finance Intelligence Authority .................................................................................... 25

3.3.4 Other Institutions ................................................................................................................. 26

CHAPTER FOUR ....................................................................................................................... 28

The Laws on Withholding Tax of Construction Companies

························································ 28

4.1 The 1995 Constitution ofUganda ........................................................................................... 28

4.2 The Value Added Tax Act.. .................................................................................................... 29

4.3 The Law on Withholding Tax Analyzed ................................................................................ 34

CHAPTER FIVE ........................................................................................................................ 38

The Recommendations for the Improvement of the Withholding Tax········································· 38

5.1 Training ................................................................................................................................... 38

5.2 Publishing detailed list of transactions liable to WHT ........................................................... 38

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CHAPTER SIX ........................................................................................................................... 39

DISCUSSION, SUMMARY, CONCLUSIONS AND RECOMMENDATIONS .................. 39

6.0 Introduction ............................................................................................................................. 39

6.1 Discussions of Major Findings ............................................................................................... 39

6.2 Summary of Study Findings ................................................................................................... 40

6.3 Conclusions ........................................................................................ , .................................... 41

6.4 Recommendations to the Study .............................................................................................. 41

6.4.1 Carrying out WHT audits every year ................................................................................... 41

6.4.2 Specifying a list of transactions where WHT is applicable ................................................. 42

6.4.3 Ease the procedure of claiming for WHT refund ................................................................. 42

6.5.4 Filing returns and making payments in a timely manner ..................................................... 42

6.5 Areas for Further Research ..................................................................................................... 42