The Accountant Sep-Oct-2016

Financial reporting and assurance
employment income, fringe benefits and
the qualifying interest, shall be charged
for a year of income at the individual
rates for that year of income; (b) . . . . (c)
tax upon that part of the total income
of an individual that comprises the
qualifying interest shall be charged for a
year of income at the qualifying interest
rate of tax for that year of income –the
“qualifying interest rate of tax” means the
withholding tax rates of (i) ten per cent
of the gross amount payable in the case
of housing bonds; and(ii) twenty per cent
of the gross amount payable in the case
of bearer instruments; and(iii) fifteen
per cent of the gross amount payable in
any other case”. It is clear from Section
34, subsection (1), (a) and (c) that the
withholding tax on qualifying interest is
final tax, even though the phrase “final
tax” is not used.
However, what is the position with
qualifying dividends? In my own words, in
order to simplify the definition in section
2 of the Act, a “qualifying dividend” is
a dividend paid by a resident company
to either another resident company
which owns less than 12½% of the first
resident company or a dividend paid by a
resident company to a resident individual;
a dividend paid by a designated cooperative
society is not a qualifying
dividend.
Section 34(1)(d) states: “tax upon
that part of the total income of a person
that comprises qualifying dividends shall
be charged for a year of income at the
qualifying dividend rate of tax for that
year of income” – that is 5%.
But what about “non-qualifying
dividends”? At first sight, it would appear
that a co-operative cannot pay a dividend.
In section 2 of the Act, a dividend is
defined as “any distribution (whether
in cash or property, and whether made
before or during a winding up) by a
company to its shareholders with respect
to their equity interest in the company,
other than distributions made in
complete liquidation of the company of
capital which was originally paid directly
into the company in connection with the
issuance of equity interests”. But section
3(3)(b) comes to the rescue: “a bonus or
interest paid by a designated co-operative
society shall be deemed to be a dividend”.
Section 34(1)(f ) states: “tax upon
that part of total income that comprises
dividends other than qualifying dividends
shall be charged in a year of income at the
resident withholding rate in respect of a
dividend specified in the Third Schedule”
– that is, 10%.
Compare carefully Section 34(1)(f )
with Section 34(1)(d). If withholding
tax on qualifying dividends is final tax,
withholding tax on non-qualifying
dividends is also final tax.
Let us now turn to withdrawals from a
registered pension or provident fund (the
National Social Security Fund is deemed
to be a registered provident fund). The
Third Schedule, paragraph 5 states: “The
resident withholding tax rates shall be –
(d) (i) in respect of a payment of a pension
or any withdrawal made after the expiry
of fifteen years from the date of joining
the fund, or on the attainment of the age
of fifty years, or upon earlier retirement
on the grounds of il lhealth or infirmity of
body and (this “and” should be “or”)mind,
from a registered pension fund, registered
provident fund, the National Social
Security Fund or a registered individual
retirement fund, in excess of the tax-free
amounts of Shs 600,000 or Shs 60,000 per
full year of pensionable service with that
employer,10% on the first Shs.400,000,
15% on the next Shs.400,000, 20% on
the next Shs.400,000, 25% on the next
Shs.400,000 and 30% on any amount
over Shs.1,600,000 of the amount in
excess of the tax-free amount”: the next
phrase contained in paragraph 5(d)(i)
states: “Provided that the tax so deducted
shall be final”.