TAX COMPLIANCE IN UGANDAN BUSINESSES - Presentation to the Rotaract Club of Kampala Ssese Islands

 

Tax Compliance is a Business’s adherence to its tax obligations as outlined by Ugandan Tax laws and administered by the Uganda Revenue Authority. A Ugandan Business has a host of tax obligations which include; Registration for taxes with the URA, Filling timely tax returns, Timely payment of assessed taxes, Proper record keeping, Proper usage of digital stamps for manufacturers and EFD’s for VAT-registered businesses.

Ugandan Businesses must comply with the following taxes; Income tax at 30% of the chargeable income, Rental Income tax at 12% or 30%, VAT at 0% or18% for Businesses with over 150M in annual turnover, Excise duty for manufacturers, Pay As You Earn for Employers to deduct form employees’ salaries, Withholding Tax, and Local Service Tax.

Small Business taxpayers in Uganda have a special tax regime for their income tax called Presumptive tax. Ugandan Businesses whose total sales for the year are 10M to 150M, qualify to be under the Presumptive Tax regime. If a Presumptive taxpayer’s total sales do not exceed 10M, they will not be required to pay any tax. Taxpayers with sales between 10M and 30M will pay a maximum of 80,000 Ugx for the year. Taxpayers with sales between 30M and 50M will pay a maximum of 200,000 Ugx for the year. Taxpayers with sales between 50M-80M will pay a maximum of 400,000 Ugx for the year. Taxpayers with sales between 80M-150M will pay a maximum of 900,000 Ugx for the year. Taxpayers with sales above 150M will pay 30% of their chargeable income. Taxpayers with sales over 500M will be required to have audited books of accounting submitted along with their returns.

VAT DOUBLE TAXATION? NO! Value Added Tax is an indirect tax on the consumption of goods/services, as they have some value added to them i.e. brought closer, that is borne by the final consumer as they will not resale the goods or services. To best understand this, we look at the VAT TRAIL of iron bars from the point of manufacture at Roofings to the final consumer at a construction site. When Roofings sells the iron bars to a Wholesaler at 100M, the Wholesaler pays 18M in VAT, which Roofings will remit to the URA as VAT. This is the Wholesaler’s INPUT VAT. When the Wholesaler sells the iron bars to a retailer at 120M, the retailer pays 21.6M in VAT this is the Wholesaler’s OUTPUT VAT and the Retailer’s INPUT VAT. Therefore, the Wholesaler will remit its OUTPUT VAT-INPUT VAT (21.6M-18M) 3.6M to the URA as VAT. When the Retailer sells the iron bars at 140M to the final consumer, the final consumer pays 25.2M in VAT, this is the Retailer’s OUTPUT VAT. Therefore, the Retailer will remit its OUTPUT VAT-INPUT VAT (25.2M-21.6M) 3.6m to the URA as VAT. In a nutshell, the total VAT remitted to the URA is 18M+3.6M+3.6M= 25.2M which by no coincidence, is the VAT paid by the final consumer. So, NO! VAT is not a form of double taxation.

There are various benefits of Tax Compliance for a Business, and these include competitiveness in bidding processes as a Tax Clearance Certificate is an added advantage, Access to credit facilities as it improves your creditworthiness, Avoidance of penalties and fines that risk Business closure, and Eligibility for tax incentives through investment promotion schemes such as the 3-year tax holiday for new Businesses being proposed.

Non-compliance comes at a great cost for Ugandan Businesses. These include; Interest and Penalties: For late payments or filing (e.g., 2% monthly on overdue taxes)

The possibility of higher tax assessments through default tax assessments, Prosecution of Criminals: filing fraudulently and avoiding taxes, Reputational harm: impacting licensing and business alliances, and Closing and seizing Assets: for chronic non-compliance.

As a Ugandan Business Owner, you should embrace tax compliance as it is the only way to keep your business healthy. Seek professional advice from tax consultants and accountants on the everchanging tax regime, and embrace URA digital platforms such as the prefilled monthly VAT return forms and online Rental income tax returns, EFDs. Compliance may come at a small cost, but non-compliance may cost you your Business.