KEEP RECEIPTS TO MANAGE YOUR TAXES

The Uganda Revenue Authority is running a receipt campaign which encourages all persons to request and/or provide receipts in their business dealings. This is a timely reminder by the Uganda Revenue Authority given the current desire to regulate the informal sector currently standing at about 48%. According to Uganda Bureau of Statistics 2016, The National Population and Housing Census 2014 Main Report, nearly two thirds (64 percent) of the working population were engaged in subsistence agriculture which implies that their mode of operation may not necessarily require documenting.

The Generally Acceptable Accounting principles (GAAP) require all business to keep records commonly known books of primary entry through a process called book keeping. Bookkeeping can be defined simply as keeping daily records of business financial transactions. It is important that one makes a habit of recording the business transactions every day as it will help one to make precise and efficient business decisions. The importance of keeping accurate records cannot be overemphasized. It is fundamental in filing an income tax return at the end of every tax period or financial year to the Uganda Revenue Authority.

Keeping your receipts organized helps you to assess your daily spending accurately and makes filing your taxes easier. All transactions should be recorded on a daily basis, whether a sale was made, or an expense was incurred and paid, as it is related to the business. Documents such as bills, receipts, invoices, bank statements, cheque just to name a few, should be kept as evidence that your records are in fact accurate. A businessman down town may give an excuse of the nature of the business dealings, the procsess being time consuming but i encourage them to consider collecting all the relevant data and creating a report of activity once a month perhaps when they sit down to pay the month’s bills. This can be achieved through the following;

Getting organized. The big secret to keeping receipts is organization along with conscious effort and a little time each day. Whenever you incur a valid expense, write the nature of the expense on the receipt and put it in a drawer of your shop (you can have to a file cabinet for documents). Dedication is the hard part but organisation during the process will help ease the burden and increase the rewards during tax season. A taxman will always do periodic audits on your company and the best way to manage your taxes is by providing support or proof of evidence that you actually incurred an expense and therefore deserve a tax deduction. A receipt will prove that you actually paid the bill or incurred a cost.

Digital help in the digital age. Maybe stuffing receipt slips into boxes or desk drawers and then drafting spreadsheets to calculate your monthly spending takes time you just don't have on a daily basis. You're always on the go looking for business. Well, several companies have products that can help you manage receipts with just a few clicks of your mouse. Tally and QuickBooks accounting software to easily track income and expenses. Many of these tools will export reports or can transfer data directly into programs like Ms Excel hence to make tax time even easier.

In conclusion, for tax purposes, it is very important that every self-employed individual keeps and maintains clear and accurate records, which reflect the true financial position of all their business transactions. I encourage the business community to support this campaign, coordinate with the Uganda Revenue Authority and instill in your selves a spirit of keeping records as this will improve accountability and maintain proper financial control of the business in order to maximize profit, it will also help you provide the Uganda Revenue Authority with the necessary information to file a tax return as well as to furnish the relevant information if your business is undergoing a tax audit hence reducing the potential tax disputes risks hence managing your taxes and improving tax compliance.

Andrew Kyambadde

          

The Economics behind Environmental Levy on Used cars.

The proposed increment in environmental levy rates contained in the Finance Bill (Amendment), 2015 is primarily on the principle of Environmental policy other than Fiscal policy. Article 3.7.4 of the National Environment management policy (1995) requires the use of Economic incentives and disincentives to change people's behavior and the tax structure should provide for disincentives for actions which compromise social welfare. This is the principle upon which environmental levy is charged.

Amendment 2 of the Finance Bill, 2015 proposes for an amendment in the Second Schedule through an increment in the Environmental levy rate for motor vehicles (excluding goods vehicles) which are between 5-10 years old from 20% to 25% of the CIF value and motor vehicles (excluding goods vehicles) which are 10 years old or more a levy of 35% of the CIF value.

Environmental Levy emanates from a concept developed by a British Economist Arthur C. Pigou in his book The Economics of Welfare (1920) and it is commonly referred to as the “Pigouvian/ sin tax”. According to the Organisation for Economic Co-operation and Development (OECD) Glossary of terms (2001), A Pigouvian tax is a tax levied on an agent causing an environmental externality (environmental damage) as an incentive to avert or mitigate such damage. Pigou observed that costs imposed on others are not taken into account by the person taking the action. He argued that the existence of externalities is sufficient justification for government intervention. If someone is creating a negative externality, such as pollution, for instance, he is engaging in too much of the activity that generated the externality. Pigou advocated for a tax on such activities to discourage them and this is where the policy makers are coming from with regard to increment in environmental levies. For example when the driver of an old car that is emitting carbon into the environment, the government has to intervene by imposing such a tax to correct the social externality and hence protect the environment through its environmental policy.

Motor Vehicle taxation is premised on the provisions of the East African Community Customs Management Act (EACCMA, 2004) specifically with regard to Valuation and classification for customs purposes. The Uganda Revenue Authority has a Motor Vehicle value guide that is used to levy uniform taxes and therefore the Value of the car determines the taxes to be paid not the Environmental levy, more to that,  there are other taxes which apply uniformly regardless of the nature (new or old) like import duty, Import value added tax etc.  The calculation of taxes in based on International trade Inco terms and the common one is Cost, Insurance and Freight (CIF). It is the value of the CIF that will dictate the amount of taxes payable at importation, a new car with a higher CIF pays more taxes than an old car with a lower CIF even when the old car is charged an Environmental levy than the new car. The CIF is always calculated in the standard US dollars as per customs motor vehicle indicative value guide which is then translated into Uganda shillings. The value of the car is then subjected to different tax rates. There are various CIF guides for various car types can be accessed on the URA website (www.ura.go.ug) under the A-Z topics.

 According to the proposal, Environmental levy will be charged on vehicles which were manufactured before 2010 at rates between 25 - 35%. However this does not make used cars more expensive in comparison to new cars neither does it discourage importation of used cars as the business community has perceived it. This is therefore is an indicator than environmental levy is more of an environmental policy aiming at reducing carbon emission and preservation of the environment.

In Kenya the law is very strict about importation of used cars due to the environmental reasons and according to the Kenya Bureau of Standards , Standard KS 1515:2000. For example, for the year 2015, only vehicles manufactured in or after 2008 are allowed. I therefore urge the business community to support the government in the implementation of this Environment policy and preserve the environment for both the present and the future generations.

For God and My Country.

Andrew Kyambadde

Tax Consultant.

The Benefits in Voluntary VAT Registration For Small Businesses.

Value Added Tax (VAT) is an indirect domestic tax which is imposed on goods and services at each stage of production, starting from raw materials to the final product. Therefore VAT is levied on the value additions at different stages of production.

According to the Organization for Economic Co-operation and Development (OECD), A German businessman Wilhelm Von Siemens is credited for coming up with the idea of VAT in the 1920s which idea was later developed by the father of VAT Maurice Lauré in 1954, who was then the joint director of the French tax authorities. In Uganda, An act was enacted called the VAT Act Cap 349 Commencing 1^st July 1996 to provide for the imposition and collection of Value Added Tax and for other purposes related to VAT. Section 4 of the VAT Act commonly known as the charging section requires that  Value added tax be charged on every taxable supply made by a taxable person, every import of goods other than an exempt import and the supply of imported services other than an exempt service by any person, this gives the scope of Value added tax.

The VAT Amendment bill, 2015 proposes that businesses with a turnover in excess of One hundred and fifty (150) million Uganda shillings which is the proposed VAT registration threshold are required by law to apply for registration under section 7(1) of the VAT Act. Businesses that fail to do so after reaching this threshold commit an offence under section 51(1) (a). Once a business is VAT registered it can charge VAT on goods and services sold to customers and also reclaim VAT charged on goods and services purchased for the business from other businesses, suppliers. VAT registration is therefore an important part even to the small business.

However in a context of a Small business as legally defined by the Small Business Administration (SBA) of the United Sates of America, the proposed VAT threshold might be too high for it to meet at the time the desire to register for VAT arises. Section 7 (4), provides a solution which is voluntary registration and encourages a person supplying goods and services for a consideration as part of his or her business activity but doesn’t not met the compulsory registration threshold to apply to the commissioner General to be registered if the commissioner is satisfied that the small business has a fixed place of abode, good record keeping system among other factors.

There’re benefits of voluntary VAT registration which make it quite appealing for small businesses.

·         Avoiding Financial Penalties. If you don’t keep a careful eye on your turnover then you might not notice when it creeps over the VAT registration threshold. The obvious advantage of voluntary VAT registration is you won’t have to worry about passing the threshold or notifying URA in time.

·         Boosting Your Business Profile. Starting out as a small business or new limited company it can be tough to compete against the big and already established businesses. So voluntarily registering your business for VAT might give the impression that your business is bigger and more successful than it actually is especially when involved into open domestic and internal biddings evaluations yet in other cases, lack of registration for VAT purposes denies a small business chances of winning that contract.

·         VAT Refunds. Another advantage of voluntary VAT registration is the ability to claim VAT Credit on goods and services purchased for your business. If you are selling one sort of VAT Rated product for example standard rated, zero rated while buying another standard rated or zero rated you may actually receive money back from the URA in VAT refunds under section 42 of the VAT which will ease your business cash flows.

·         Reclaiming the Past. Voluntary VAT registration allows you to reclaim VAT from the last 6 months. So if you’ve been in business for a while, but not yet reached the threshold you can still reclaim VAT as long as you have kept the proper VAT records and invoices among other benefits.

Once voluntarily registered for VAT you need to abide by the same rules as other VAT registered business. This means keeping proper records and invoices, notifying the commissioner in case of change of address, and submitting VAT returns every 15^th date of the following month and payment of any excess Output VAT collected from taxable supplies made.

In conclusion, I encourage small businesses to register for VAT in order to boost tax revenue collection and also reap from the benefits of VAT registration.

Andrew Kyambadde M.

andy.kyambadde@gmail.com

Tax Consultant.

It’s time the Transport sector paid its equal share of tax.

 

At a time when significant focus is drawn on the informal sector and its meager contribution to the pooling of resources to sustain the very economy it feeds onto, it is only mandatory that equity cuts across the board. The resolve the government of Uganda is taking is to have each individual pay their equal share and contribute to the development of the country. 

The Uganda Revenue Authority (URA) has keenly followed up with this mandate to explore and tap into the diverse sectors of the economy hitherto unknown and ultimately closing in on the existing loopholes. 

For instance, the informal sector is known to be mutating in nature with exact location of some businesses unknown yet government’s contribution in form of provision of basic social services are indiscriminate.  

This ending first quarter of the financial year 2014/2015, URA has laid strategies to close in on the rotating informal sector and among the sectors up for compliance checks is the unknown larger sector of transportation. 

In Uganda, the transport sector is among the most essential as other sectors heavily depend on it either directly or indirectly. Its growth is evidently substantial as it has grown by 4.5% in the financial year 2012/2013 up from 2.8% in the financial year 2011/2012! 

Government contribution towards facilitating the sector was an enormous 18.9% of the total budget allocation last financial year 2013/2014. However, the sector’s contribution to the total revenue financing the budget remained a paltry 2.2%! Its Income Tax performance has been considerably declining.

Even then, many more owners of commercial and passenger vehicles have continued to thrive in this business without complying with the exiting tax law requirements.  Section 134 of the Income Tax Act for instance requires every owner of a commercial vehicle to obtain a Tax Clearance Certificate. This proves the compliance status of a client in filing returns and paying taxes. Return filing is not just a ritual but also an obligation.

The sector has major players such as the Tour and Travel operators, Bus and Taxi owners, owners of driving schools, proprietors of landing sites, commercial vehicle owners, Courier transport service providers, operators of private crafts making internal and external flights, owners of inland water transport vessels among others. 

URA acknowledges existing challenges such as the informal nature of ownership, and is thus going to engage all stakeholders in the business of transportation educate and remind them, as taxpayers, of their rights and obligations and ensure they comply. 

Given its informality, in accordance with the law, we have come up with estimates of how much revenue comes from the particular types or classes of commercial vehicles to help in assessing those may not file returns or those who file but are found to have grossly under declared. These are in use by our staff at all URA offices. The Objection and appeals window remains open for anyone who feels this assessment is unfair, as long as they can file a return declaring realistic figures.

Our existing collaborations with the Transport Licensing Board (TLB) which issues Public Service Van (PSVs) licenses and Kampala Capital City Authority (KCCA) for information sharing are paying off already as we work together in sensitizing the different stakeholders to enable them comply. More than 2,000 owners of commercial vehicles have received communication to reminding them to comply and a number are responding.  Those who may not respond in time will get administrative assessments that may be enforced on.  Whoever has commercial vehicle, verify that it is in your names, if not get it transferred to your names as early as possible. Enforcement may catch up with you on a liability that belongs to another person who is the legal owner of that vehicle in your hands.

Transport is a key driver in the economy and we are out to ensure that the sector is formalized and correspondingly contributes to the development of the infrastructural network and other forms of development in the country.

Therefore this is to appeal to all owners of commercial vehicles, to ensure that the vehicles under their care are transferred to the current owners and to comply with income tax requirements. Please remember that other than Public Transport, other forms of transport are taxable for VAT purposes. Hence those owning “magulu kumi” and other forms of commercial vehicles that offer services in the construction sector among others with in the country, should be registered for VAT as well. I wish you a very prosperous 2015.

 

Reference:

https://www.ura.go.ug/readMore.do?contentId=999000000000290&type=TIMELINE