What tax compliance means as an obligation in procurement?
One of the check points of a buyer is to check whether the seller pays their taxes well. Questions like, Are you familiar with your tax compliance requirements? Are you registered for taxes? Do you know the taxes you are registered for? are often met verbally in chit chat of procurement officers before any paper work.
If one is familiar with the above then a notice from The Uganda Revenue Authority (URA) reminding one about an upcoming tax return filing deadline, or tax liabilities not cleared, or intention to close their business, or any matter is common.
Over the years most locally owned business thought URA to ignore small and medium sized enterprises however the authority have taken up arms becoming more agile and better equipped.
The annual income tax return for the previous financial year (FY) ended 30th June 2020 was due by 31 December 2020. If one’s tax year end is 31st December, their annual income tax return for the period ending 31st December 2020 is due for filing by 30th June 2021.
URA also recently introduced e-invoicing via the Electronic Fiscal Receipting and Invoicing System (EFRIS) with a compliance deadline of 1 January 2021 for all VAT registered persons.
According to its Annual Revenue Performance Report for FY 2017/18, in FY 2017/18, URA undertook a number of initiatives aimed at increasing tax compliance. These initiatives have led to an increase in the number of registered taxpayers by over 50% from over 1 million taxpayers in FY 2016/17 to over 1.5 million taxpayers in FY 2019/20; and even recovered tax arrears of over UGX 790 billion in F2019/20 alone due to taxpayer under-declaration, misdeclaration, concealment of income and imports and so on.
To achieve tax compliance below are tips;
Firstly register for taxes and obtain a Tax Identification Number (TIN).
If one hires employees, register for Pay As You Earn (PAYE). If one makes a payment subject to VAT, which will happens once they supply goods and services which are not exempt from VAT and one’s annual taxable sales are expected to exceed UGX 150 million, then register for VAT. If one’s business becomes eligible for a certain tax when it already has a TIN, one will need to change the entity’s tax registration details.
Registering a business must be as immediate as when operations take place and not later when one believes to be profitable or needs to take the next step in business. Such mentality could lead to the following:
a)one may not be able to utilise the losses their business incurred before becoming profitable if one did not file income tax returns. This is because ones business could have been allowed to deduct the tax losses it had incurred in previous years against the tax profit (chargeable income) for the current year, so that it pays less tax or even no tax at all in the current year;
b) if VAT registration was necessary, one’s business will not be able to claim a credit (a deduction against VAT on sales) for the VAT incurred on purchases of certain goods and for all services incurred before VAT registration except if the VAT relates to capital goods such as machines purchased less than 6 months before VAT registration, and these capital goods are still on hand on the day you apply for VAT registration.
c) There is even a penalty of the higher of twice the tax you failed to pay when not registered for taxes, or UGX 1 million.
Secondly keeping records.
Keeping correct financial records for your business is a mandatory requirement in the Tax Procedures Code Act, 2014. This is why it’s important
1.To pay the right amount of tax. One may end up overpaying (tax leakage) or under paying your taxes (tax liability);
2. To provide proof for ones business expenses and therefore will be entitled to claim a deduction for these expenses against your income. This means one could end up paying more tax than they should be paying;
3 URA also imposes penalties for failure to maintain proper records. The penalty is double the amount of tax payable as a result of the failure to maintain records.
To avoid these hiccups , from the start is to get and keep all receipts for all ones business purchases however small they may seem, and issue proper invoices for all their sales.
With the introduction of e-invoicing under EFRIS, fiscalised invoices issued or received can now easily be stored electronically. If one is having challenges with EFRIS, reach out to URA.
Thirdly know your taxes. This means know which taxes your business is liable to and why. Know which taxes your business is not liable to and why. Know when your taxes are due for filing and payment, and how and where you should be filing your tax returns and making your tax payments.
Lastly but not least Know your tax leakages. to run a successful business without incurring unnecessary expenses; and this includes unnecessary tax payments such as penalties and interest for non-compliance, and other excessive and unnecessary income tax payments which put you in a tax refund position. When you overpay tax, you are lending money to URA. You do not earn any interest from URA on this money except in specific instances.
Finally one should consult URA for any queries.