What is deemed VAT?
Deemed VAT is a VAT relief mechanism where VAT payable on a taxable supply is charged but not paid by the recipient of the taxable supply. The VAT is treated as if it has been paid on the taxable supply to the supplier. The supply has to be solely and exclusively for use on qualifying mining or petroleum operations or aid-funded projects controlled by the Government of Uganda as stated in Section 24 of the VAT Act.
What is the legal basis of deemed VAT?
The tax law provisions are as follows;
Section 24(5) of the VAT Act provides that the tax payable on a taxable supply made by a contractor to a licensee to undertake mining or petroleum operations is deemed to have been paid by the licensee to the contractor provided the supply is for use by the licensee solely and exclusively for mining or petroleum operations.
Section 24(6) of the VAT Act provides that the tax payable on a taxable supply made by a supplier to a contractor executing an aid-funded project is deemed to have been paid by the contractor provided the supply is for use by the contractor solely and exclusively for the aid-funded project.
Section 24(7) of the VAT Act provides that the tax payable on a taxable supply made to a Government ministry, department or agency (MDA) by a contractor executing an aid-funded project is deemed to have been paid by that ministry, department or agency if the supply is for use solely and exclusively for the aid-funded project.
Section 24(8) of the VAT Act defines an “aid-funded project” to mean a project financed by a foreign government or a development agency through loans, grants and donations.
Section 24(9) of the VAT Act provides that the tax payable on the taxable supply of a passenger automobile, and the repair and maintenance of that automobile or entertainment shall not be deemed to have been paid under subsections (5) and (6).
Section 24(10) of the VAT Act (10) defines “passenger automobile” to mean a motor vehicle designed solely for the transport of persons with a seating capacity of not more than eight persons; and “entertainment” to mean the provision of food, beverages, tobacco, accommodation, amusement, recreation, or hospitality of any kind.
The key players of the deemed VAT provision are:
| Sn | Key players | Definition |
| 1 | “Licensee” | Section 1(la) VAT Act: means a person granted a mining right or a person with whom the Government has entered into a petroleum agreement. |
| 2 | “Contractor” for purposes of Section 24(5) | Section 1(da) VAT Act: means a person supplying goods or services other than as an employee to a licensee in respect of mining operations undertaken by the licensee or a licensee in respect of petroleum operations undertaken by the licensee. |
| 3 | “Contractor” for purposes of Section 24(6) | Not defined by VAT Act but Black’s Law Dictionary defines a Contractor as; “A party to a contract. One who contracts to do work for or supply goods to another especially a person or company that agrees to do work or provide goods for another Company” |
| 4 | Contractor executing an aid-funded project under 24(6) and 24(7) | A person who enters into a contract with Government of Uganda to execute works which fall within the definition of aid-funded projects. |
| 5 | “Supplier” | A person or business engaged, directly or indirectly in making a product available to consumers. |
| 6 | “Government ministry, department or agency (MDA)” under 24(7) | Any ministry, department, authority, institution, or agency which is controlled by the Government. |
Compiled by Winiefred Akinyi and Irene Kayebe Nakiyingi
Additional content on the same to follow in the next article
