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.