No tax on employee food allowances, URA clarifies

The Uganda Revenue Authority (URA) has dismissed rumors that it’s planning to slap a tax on employee food allowances, calling the claims unfounded and clarifying that no such proposal or law exists.

The reports, which spread quickly on Tuesday, suggested the URA was introducing an 18% VAT on food allowances for employees. But the URA has firmly set the record straight.

According to URA’s Assistant Commissioner for Public and Corporate Affairs, Robert Kalumba, the existing tax law – passed last year – simply aims to address a common VAT loophole.

This loophole lets businesses provide taxable goods or services to employees free of charge while still claiming VAT credits, creating a revenue loss for the government and skewing the VAT input-output balance.

Kalumba illustrated this by explaining how it works in practice: if an employee at a VAT-registered hotel pays for a meal worth Shs 100,000, VAT is charged and claimed. However, if the same hotel gives an identical plate of food free to its staff, no VAT is charged on the free meal, yet the hotel still claims VAT on both meals. This practice results in the government covering costs for VAT that was never paid.

“The URA’s move is about closing a revenue loophole, not taxing employees’ meals. If a business provides a taxable product – like a plate of food, or sugar – to an employee at no charge, they’re expected to account for VAT on this ‘free’ product as they would with any sold product,” Kalumba said.

He emphasized that this requirement only applies to businesses in industries dealing with taxable products, like food or sugar, to ensure VAT compliance even for goods given to employees at no cost.

So, no need to worry about a tax on your lunch allowance – the URA is only looking to stop tax-free magic tricks in the food business.