What you need to know:
- Many businesses fail to pay tax because they perceive taxes to be very many, very high, and they blame noncompliance on the lack of accountability, Eronie Kamukama writes.
On a Wednesday morning, I stroll around Nsooba, a Kampala suburb. This small trading centre outside the city centre is home to an assortment of seemingly good informal businesses.
Hair saloons, restaurants, video libraries, small market stalls, mini supermarkets, drug shops, and a whole range of businesses littered all over the place.
Mr Rogers Binaisa perches in one corner of his retail shop. While we indulge in simple tax talk, he fuels his morning with a hot cup of tea and a ‘Ugandan Rolex.’
Reaching for his tax payment form, the middle-aged man of average build tells me he started paying taxes to Uganda Revenue Authority (URA) three years ago.
“It was impossible to pay the trade licence fee to Kampala Capital City Authority (KCCA) without paying tax to URA. They work together. KCCA only gave it to me after I had paid for the Taxpayer Identification Number and once you are in the URA system, you cannot run away from taxes,” he explains.
His voice hardening, he points out that he cannot escape what he calls “high taxes” but maybe smaller businesses than his can.
This is true for Ms Joy Nambatya, who sells a few groceries such as sugar, in Upper Kyebando Central.
“My business is very small. Look at what I sell; I get a very small profit margin from it. I can hardly pay for the trading licence, let alone tax to URA,” Ms Nambatya says in an anger-soaked voice.
A displeased Binaisa shares her sentiments as he begs for lenience from the tax authority. “A tray of eggs that was Shs7,000 is now Shs10,000. I only get a profit of Shs500 from it and this is partly because inputs on poultry are also expensive,” he explains.
Profit is an important part of this equation because taxes are partly computed depending on the business turnover. Has Mr Binaisa considered dodging taxes? He says it is a cost he cannot afford.
“They will close my shop and just one day of closure would cost me about Shs150,000,” he says.
Who should pay tax
URA manager of public and corporate affairs, Ian Rumanyika, says any person deriving income from a business, employment or property must pay tax to the government.
“Property tax includes any dividends, interests, annuity, natural resource payments, rents royalties and any other payment derived by a person from the provision, use, or exploitation of property,” he says.
Why pay taxes
Associate director of tax at Pricewaterhouse Coopers, Ms Joanita Nakimuli, says government needs the money.
“Taxes paid are important to finance the government’s plans. Businesses have moral and social responsibilities to contribute towards the development and maintenance of roads, hospitals, schools, and security of the countries in which they operate,” she explains.
According to Mr Georg von Schanz, a tax scholar, persons are economically tied to a community and every person who benefits from the obligations of the community being fulfilled should also share in the responsibilities, so should pay tax whether they benefit on the basis of being a resident in the state, or benefit on the basis of having a source of income (or business activities) in that state.
Such taxes can be based on revenue activities such as trade or from the disposal of capital assets and include corporate tax, Value Added Tax, Excise duty and Import Duty.
Ms Nakimuli notes that paying taxes is not particularly easy anywhere in the world for any person who has spent time and resources to earn the income. It is argued that how well one enjoys the infrastructure and social services is not connected to the amount of taxes paid. However, this does not override the overarching obligation on everyone carrying on a business in Uganda to pay their fair share of the taxes due.
Why people dodge taxes
Ms Nakimuli argues that some business fail to pay tax because they perceive the applicable taxes to be too many and too high, without having due regard to the benefits arising from complying.
She adds that the idea of dodging taxes is a result of failing to appreciate the importance of taxes paid and how far they go to ensure that all the economic and social amenities that we all enjoy on a daily basis are provided.
Businesses blame their noncompliance on the lack of accountability for the taxes that are paid, unclear tax rules and compliance processes that are too complex.
According to the Doing Business 2016 publication of the World Bank, a company in Uganda has 31 tax payments to make per year and it takes approximately 209 hours per year to comply with tax obligations.
Ms Nakimuli says: “We have come a long way in reducing the tax compliance hours and the time alone should not be an excuse for noncompliance.”
Unable to pay?
In the case of failure to pay the taxes due, businesses should engage URA at the earliest to negotiate a payment plan as opposed to dodging. Mr Rumanyika urges business owners to register for taxes and pay diligently. In addition, when a business is registered for tax, he says, it attracts benefits.