Government to Tax NSSF savings and Retirement benefits

Nakiwala kiyingi in Parliament Yesterday presenting the Bill

The government has tabled to Parliament amendments to the law governing the National Social Security Fund (NSSF), seeking, among others, to compel all workers in the formal sector to make contributions to the fund.

The National Social Security Fund (Amendment) Bill, 2019, also seeks to exempt the workers’ contributions to NSSF from taxation, but instead tax the member’s retirement benefits.

The Bill was tabled yesterday, by state minister for youth affairs Florence Nakiwala Kiyingi. The Bill’s provisions were approved early this year by Cabinet.

“Every employer, irrespective of the number of employees, shall register with the fund (NSSF) as a contributing employer and shall make regular contributions for his or her employees in accordance with this Act and regulations made under this Act,” the Bill states.

The new amendment implies that even an employer with less than five workers on their farms, shop, workshops or house helps, will have to register and pay NSSF contributions for their employees.

Currently, only workers in a company that employs five or more people are eligible to contribute to their retirement. Under the Bill, the “employer” includes the Government, company, partnership, trustee, any registered business, the governing body of an unincorporated association or a manager or a subcontractor who provides employees for the principal contractor.

But it is unclear whether the Government’s civil servants will equally contribute to the NSSF. 

The current NSSF Act, according to the Government, contradicts the National Objectives of Directive Principles of State Policy, under the Constitution and the International Labour Organisation Convention 102 on social security and the Social Security Policy 2015, which all call for social security coverage of all persons, regardless of the number of their employees.

The taxation

The government argues that the existing law that provides for taxation of contributions and scheme income, does not promote the culture of domestic long term savings, which are critical for sustained economic transformation.

Thus, in the Bill, it is provided to exempt the contributions to the NSSF. This means that the NSSF contributions will now have to be taken off from the gross earnings before any tax deductions are made.

The balance of the earnings will then be subjected to tax. The Bill, however, seeks to exempt the retirement benefits of an individual aged 60 years and above. It further exempts the existing members’ savings held by NSSF.

The Bill states: “Notwithstanding the provisions of any other law, all member contributions not exceeding 30% of the income of the member shall be exempt from tax.” “All employer contributions to the fund shall be exempt from tax.”

Key Highlights in the New Bill

  1. All workers in the formal sector to contribute to the NSSF
  2. Informal sector workers to make voluntary contributions
  3. NSSF to get powers to recover from a third party any sum owed by employer defaulting on contributions.
  4. Midterm access allowed for voluntary contributions
  5. NSSF to lend to Government
  6. Member contributions to NSSF not exceeding 30% of income to be tax-exempt
  7. Employer contributions to the fund shall be tax-exempt
  8. Investment income of the fund to be exempted from income tax.
  9. NSSF members’ benefits shall be taxed at the point of payment to the member, except in the case of death/ invalidity.
  10. All current contributions to the Fund shall be tax-exempt
  11. Members aged above 60 years shall not pay tax on benefits 
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Patrick Luwagga is the editorial director of cross-platform content for UGANDANZ. He works across the newsroom and with business partners to drive and develop ambitious editorial projects that include digital journalism, video, data research, polling, live events, and thought-leadership series that are supported by outside underwriting. As executive director, he is responsible for the creation of Political news section, prior to joining UGANDANZ, Patrick was the chief editor for the national weekly news magazine of Kasese Times. In that role, he covered several presidential elections, wrote and produced two television documentaries, and was a regular commentator on television and radio news programs. Patrick was born in Masaka and grew up in Kasese. He earned a bachelor’s degree in Journalism from Makerere University where he was a Knight Foundation journalism fellow.