KAMPALA – Oyam County North MP Hon. Dr. Eunice Otuko Apio has raised concern over the implementation of the six per cent withholding tax on fuel supplies to district local governments, warning that the tax could reduce resources available for service delivery.
Otuko raised the matter before Parliament in Kampala, citing Oyam District as an example of local governments whose fuel purchasing capacity could be affected by the way the Uganda Revenue Authority (URA) implements the withholding tax under Section 11 of the Income Tax Act.
The legislator explained that withholding tax is intended to be deducted from payments due to fuel suppliers and remitted to URA on their behalf. However, she argued that the current implementation effectively shifts the financial burden to district local governments, leaving them with reduced purchasing power for fuel.
She warned that the six per cent deduction could affect the ability of districts to acquire the fuel required to support essential government operations and service delivery.
Otuko consequently asked the Prime Minister to have the Minister of Finance clarify the legal basis for the implementation, establish its financial impact on local governments and take corrective measures to ensure that districts do not lose resources intended for public services.
In response, the Minister of Finance, appearing on behalf of the Prime Minister, defended the withholding tax policy, explaining that the tax is not necessarily final and may be credited against a supplier’s overall tax obligations.
The Minister argued that suppliers conducting business with government should account for their tax obligations rather than treating themselves as exempt from taxation.
He explained that the challenge arises when suppliers incorporate withholding tax and Value Added Tax (VAT) into the cost of supplies, consequently increasing the financial burden on government and making the budgets appropriated for local governments insufficient.
The Minister noted that the six per cent withholding tax, together with the 18 per cent VAT, could result in a combined tax burden of 24 per cent being factored into the cost of supplies.
He urged suppliers to consider their tax obligations when preparing quotations for government contracts, while also calling on district planners to make adequate provisions for the taxes during the budgeting process.
The Minister further encouraged government officials engaging with local governments to explain that supplies delivered to districts are not automatically exempt from taxation and that the relevant tax obligations must be provided for.
The exchange has brought renewed attention to the financial pressures facing district local governments as they plan for essential services, with Otuko calling for clarification on the implementation of withholding tax and the Finance Ministry maintaining that local governments should adequately budget for their tax obligations.
