Daily Monitor, audit firm tell SMEs to tap gains of tax laws

(Left to right) Mr John Jet Tusabe, the Manager Tax KPMG, Mr Peter Kyambadde, the Director Tax KPMG, Mr Asad Lukwago, the Partner KPMG Uganda and Gadafi Semakula the Assistant Manager Audit KPMG during the Top 100 Mid-Sized Companies conference in Kampala yesterday. PHOTO BY STEPHEN OTAGE

Kampala- Taxation topped the list of challenges faced by Small and Medium Enterprises (SMEs) when Daily Monitor and audit firm KPMG conducted the mid-sized company’s survey 2017 in search of Uganda’s Top 100 midsized companies.

Two issues emerged during the survey; understanding of tax laws among Uganda’s top SMEs was not only wanting but even those that had a bit of knowledge about the tax laws, perceived them as “too stringent to help them grow their businesses.”

Mr Peter Kyambadde, the director Tax and Corporate services at KPMG, yesterday shared the plight of SMEs. For instance, basing on the threshold for VAT which is Shs150m a year, in a country where government provides big business opportunities, complying with tax laws within the current economic environment is difficult.

“It requires that these businesses have to register and comply with VAT. One of the biggest problems we have noted is that they make a supply after borrowing money and they are expected to declare VAT the following month. However, they supply government which takes a whole year to pay. As a starting entity, cash flows are difficult, the bank is demanding its interest and tax body wants its VAT.

A number of businesses are struggling not because they do not want to pay but due to lack of cash flow and they feel some of these policies need to be looked into,” Mr Kyambadde said yesterday.

Improving profits
One month after the approval of the 2018/2019 budget, Daily Monitor and KPMG are using the Top 100 SME forum sponsored by Uganda Investment Authority, Insurance Company of East Africa, and dfcu Bank, in Kampala to lure companies into taking advantage of the current tax law to improve their profits.

Although Mr Kyambadde agreed there are aspects within the tax law that are detrimental to SME growth, he admitted there are some good things in the tax policy SMEs are unaware of, yet can be exploited to grow business internally. “If you decide to import water, you pay a duty of 60 per cent. In other words, as indigenous businesses, if you are looking at production, there are areas where government protects you,” he said.

“We have a 10-year tax holiday within our laws providing that if you set up a manufacturing business and target to export 80 per cent of whatever you produce, then you are eligible for a ten-year tax holiday, no corporation tax and import duty,” Mr Kyambadde said.

While Mr John Jet Tusabe, manager tax and corporate services at KPMG, helped SMEs ensure they comply with the tax laws, saying local investors need to keenly look out for those services or products that enjoy tax incentives.

“It helps you to be competitive. As a business if you do not price your products properly taking into account available tax incentives, you will not be competitive. If you want to maximise your returns, you would want to put your investment in areas that have tax advantages,” Mr Tusabe said. According to Mr Asad Lukwago, a partner at KPMG, the National Development Plan 2 should give SMEs a strong reason to find new areas for investment.

“From the recent budget, there is a lot in terms of government’s areas of focus especially in agricultural extension services such as irrigation, storage facilities, fertilizer production,” he said. “If you look at the economic zones and industrial parks, there are incentives there. So it’s a big opportunity as manufacturers to set up the industrial parks themselves.”

Huge capital requirements
On whether local SMEs have the capacity to leverage the opportunities in the tax policy, the partners from KPMG seemed to agree on one thing. There are huge capital requirements for one to enjoy the available tax incentives and there are few SMEs that can benefit.

But there is something for everyone regardless of the capital requirements.

“The various polices are wide, everyone can participate. Some people may look at developing an industrial park and the tax incentives that have been given and capital required of $5m (Shs28.5b) to $100m (Shs370b) is a lot for a local player. If you cannot play in that space, there are other enabling policies,” Mr Lukwago said.

But first, SMEs must formalise their businesses to tap into these opportunities.