How tax amendments affect small businesses
What you need to know:
- SMEs ought to keep up-to-date with changes in the tax laws; recruit qualified personnel for improved compliance; budget and plan for tax compliance costs.
‘Nothing is certain except death and taxes,’ Benjamin Franklin, 1789. This phrase is perceived with the snowballing tax assessments being issued by Uganda Revenue Authority (URA) to taxpayers daily and the ever-changing tax regime.
On July 1, 2022, new tax amendments were issued under the East African Community Common External Tariffs came into force and these require compliance of taxpayers. These have a downward spiral effect on Small and Medium Enterprises as well.
VAT Amendment Act, 2022
The Act has been amended to provide that a supplier of goods or services to government shall account for the VAT on those supplies on cash basis. This implies they will only remit VAT to URA on those supplies once the government has paid them.
For an SME, Mark Tusiime, the manager tax and regulatory services at KPMG, says this will improve on the cash-flows for those supplying the government.
The Act was also amended to include the following supplies to the list of zero-rated supplies: the supply of educational materials including those manufactured in a partner state of the East African Community and the supply of menstrual cups, and the inputs for their manufacture.
“This implies that the supply of both menstrual cups, and educational material manufactured in a partner state of the East African Community are zero rated,” he explains.
Stamp Duty Amendment Act, 2022
Item 6 of the Second Schedule to the Act has been amended to remove stamp duty payable on an Agreement relating to deposit of title-deeds, and pawn pledge.
“Currently, the stamp duty payable on the deposit of title- deeds and pawn pledge is 1 per cent of the total value of the deeds and pawn pledge,” Tusiime shares.
This will reduce on the cost of accessing credit by SMEs as part of the relief measures following disruptions caused by Covid-19.
Item 48 of the Second Schedule to the Act has been amended by removing stamp duty payable on Agricultural insurance Policy.
“Currently, the stamp duty payable is Shs35,000 and this amendment means more firms can take out the policy,” he says.
Income Tax Amendment Act, 2022
There has been a limitation of expenses and losses allowed as a deduction in computing rental income for Companies to 50 per cent of the rental income, and the rest is not carried forward. Edgar Mukasa, the senior manager tax and regulatory services at KPMG, says this means companies earning rental income will be allowed to claim expenditure and losses up to a maximum of 50 per cent of their annual gross rental income and not allowed to carry forward any excess expenditure and losses to subsequent years.
Tax Procedure Code Amendment Act
People who fail to activate their tax stamps on locally manufactured or imported goods are liable to a penalty of Shs50m. Additional measures can be enforced by URA for entities that are not issuing stamps on locally manufactured or imported goods including temporary closure of the business.
The East African Community Common External Tariffs of 2022
A forth band with a duty of 35 per cent was introduced covering goods that are largely produced locally in the East African countries. These tax bands include: 0%, 10%, 25%, and 35%. Various items such as fresh-cut flowers, leather products, coffee, cereals, sugar and confectionary are accommodated here.
“This is in a bid to encourage local manufacturers of these goods and discourage unnecessary competition from imports,” Tusiime explains.
While URA has a revenue target of Shs25.8trillion for 2022/23, it is cognisant that Ugandan taxpayers operate in a challenging economic environment characterised by rising commodity prices and commercial bank lending rates. Therefore, it has created policies for compliance that will aid increased tax collection.
That said, at the heart of these policies is the use of intelligence and technology and shares the technologies URA is using.
URA is implementaing the Electronic Fiscal Receipting and Invoicing Solution (EFRIS) which is mandatory for VAT registered companies in Uganda for ease of reporting taxes due and addressing the problem of tax evasion.
The Digital Tracking Solution (DTS) is another mechanism developed by the tax body to ensure compliance. It includes a numerical marking with security features applied to goods to prevent counterfeiting, ensure ease of filing of returns, and reduce compliance costs.
“The URA has promised to confiscate items being sold without digital stamps,” Mukasa says.
URA is putting in place more innovative solutions such as the Cargo Tracking System and Non-Intrusive Inspection Technologies to guarantee a fully integrated I.T system for effective trade facilitation and transparency of imports and exports in Uganda.
Cases of non-compliance attract significant penalties. For instance, there is a penalty of not less than Shs6m per transaction for failure to issue a fiscalised invoice.
Therefore, SMEs ought to keep up-to-date with changes in the tax laws; recruit qualified personnel for improved compliance; budget and plan for tax compliance costs such as EFRIS, DTS including the cost of staff training; invest in technological solutions.