Strategies for ensuring tax compliance in Uganda 

Individuals and entities that are liable to pay taxes under any tax law in Uganda are obliged to register with the Uganda Revenue Authority (URA). Despite URA’s previous efforts to register more taxpayers, the number of registered taxpayers remains low.

Non-filing of periodic tax returns

Taxpayers must file periodic tax returns for income tax, value-added tax, excise duty, and other returns required for tax purposes. Where a person fails to file a tax return, URA can issue a default tax assessment based on its estimates.

Non-payment of taxes

Once a taxpayer has filed their tax returns, they are legally obligated to pay the taxes that are indicated in the return or assessment. This means that if the return shows that there is any amount of tax owed, the taxpayer must pay that amount to the relevant tax authority.

Failure to keep proper books of accounting

Taxpayers are required by law to maintain business accounts and records in the English language and Ugandan currency. However, a taxpayer can request the Commissioner General for permission to keep records in a different language and currency. It is upon these records that tax returns have to be based.

URA’s efforts to combat non-compliance

URA rolled out an aggressive sensitization programme that saw them hold Radio talk shows in different parts of the Country, carry out print and digital advertisements for the purpose of teaching taxpayers the relevance of compliance and thus discourage non-compliance.

They also established an active social media presence among others. Secondly, to help businesses bounce back from the impact of Covid19 there were two opportunities, since 2020, for taxpayers to have their interest and penalty fees waived if they paid off their outstanding principal tax.

Lastly, the Electronic Fiscal Receipting and Invoicing Solution system (EFRIS) was introduced in 2021. How it works is that when a transaction occurs, the trader enters it into a machine (or Computer) onto which EFRIS is installed.

That transaction is then recorded by URA, and a receipt or Invoice is generated. URA gets to know about that transaction in real time and so leaves no room for under declaring of taxes.

Sensitization

Whereas URA might believe that they have done enough sensitization, reality suggests otherwise. Some striking traders have often been heard referring to EFRIS as a new tax. This shows an information gap that needs to be filled.

Costs involved

For a taxpayer to use EFRIS, they would have to incur internet costs, purchase Electronic Fiscal Devices (with each costing more than UGX 1,000,000) or computers to enable them create e-receipts or e-invoices.

On addition, EFRIS is not a system that can easily be operated by an ordinary trader without some computer literacy. As such, those traders have to hire a full-time staff just to operate EFRIS. Based on the traders’ strike’s undertones, it is very unlikely that URA was entirely open about the additional costs and traders might have been shocked when they found out.  

URA can still recover the taxes due URA

With a revenue target of about Shs 30 trillion for the financial year 2023/2024, coupled with the regular complaints from the higher echelons of power, URA will definitely engage higher gears to make sure that it meets the revenue collection target. That is reason enough to believe that URA will come down heavy on non-compliant taxpayers.

It is worth noting that URA has various ways to recover taxes owed from non-compliant individuals, including freezing bank accounts, collecting money from debtors or bankers, seizing and selling movable property, and closing businesses, amongst other measures. Once the tax evasion or non-compliance has been brought to URA’s attention, it can take any of these measures to recover the taxes owed.

What next?

Tax non-compliance can be a serious issue that can cause problems for businesses. It’s often not due to an intentional effort to defraud the tax authorities, but rather from mistakes made within a taxpayer’s system or a lack of knowledge. However, regardless of the cause, the consequences of tax non-compliance can be severe and far-reaching.

To avoid non-compliance issues, it is essential to stay up to date with the latest tax laws and the attendant obligations that they bring along.

However, with changes being made every year, it can be daunting for taxpayers to keep up without the help of a tax practitioner. Therefore, do not let tax non-compliance ruin your business – monitor your tax affairs as closely as you do your sales and purchases.

kasambaemmanuel@gmail.com

The author is a lawyer