By Alfred Bamwine
It goes without saying that Ugandans complain about the country’s taxes. When you ask them what specific taxes they mean; you will hear all manner of generalized descriptions. This is not condescending.
Few people have a clear understanding of the word “Tax”. It is both a word and a sentence- in all manner of application. Let me bore you with a brief definition.
A Tax is an involuntary financial charge, payment or levy imposed on residents by the state, imposed by the force of law. Taxes have also been described as non quid pro quo payments to the state. quid pro quo is a Latin phrase meaning something for something. non quid pro quo would therefore impute something for nothing.
What this simply means is that the Taxpayer does not expect a direct proportionate return on the taxes he has paid.
It should be noted from the onset that taxes must be in accordance to the law. A tax payer should never fear to challenge the tax collector as to which or by which law the tax has been imposed. A number of levies have been challenged on the basis of lack of the law imposing the levy, but this is a discussion for another day.
So, how does one make Taxes work for him/ her? To answer this question, one needs to look at taxation as a challenge not a problem.
In life only two things are certain: Death and Taxes. For that matter Taxes are here to stay and the sooner we get used to this fact the better for our blood pressure.
Here is the challenge: Statistically, most Ugandan business persons actually do not plan for or include taxation in their expected costs and cash flow outlays. It is a fact that taxes are actually the highest single cost for any business operation. Take for example a woman who intends to import some goods for trade: The good trader makes a journey to Dubai with a budget, this budget provides for the cost of the stock she is going to buy for trade; she provides for transportation costs, she also provides for her upkeep costs. If you have travelled with small traders from say Dubai or China you will have noticed that by the time many reach the Dubai Airport on their way back, they have simply exhausted their budgets! They will have no money for even a meal if the flight delays! When, as it always happens, they exceed the weight of the luggage allowed, the solution will be to dump the excess luggage or try to impose it on fellow travelers with all the security risks this involves.
Trouble starts at the point of re-entry, usually at Entebbe airport when the taxman accost her!
The same goes for a bigger trader who operates a shop. For example this trader approaches URA and applies for the privilege to collect VAT on behalf of URA. Yes, people actually apply for this “privilege”! In some cases URA actually turns down this application on several grounds, chief among is the lack of a known address or place of work. You will still find the applicant appealing this rejection! Now of course the reason why people may want to apply to be VAT registered may vary from the statutory requirements as say tendering to being able to obtain credit on VAT incurred in their purchases, but the actual effect of a VAT registration is to make the applicant a collection agent for URA.
Smuggled cigarettes intercepted by URA Officers:With proper planning for taxes one can avoid the temptation to engage in smuggling.
Now when the same trader is finally registered, the rules are made clear: The VAT taxpayer must collect an additional 18% on top of the normal invoice value of his/her supply; to this, the registered taxpayer must clearly mark the invoices issue as a “Tax Invoice” to be able to impose the tax on the consumers. Our hero goes back happy with the acquisition, and duly prints his/her invoices with the magical TIN and the word “Tax Invoice”: sometime the taxpayer forgets to add the 18%, and sometime he/she forgets to pay the same attracting the taxmen to come for their pound of flesh!
So how do the two examples above help you make taxes work for you? You will notice one clear flow that run through all the two examples: Lack of discipline! Call it financial discipline, call it personal discipline. See, planning is an essential ingredient in the success of any undertaking. Planning requires that you outline all variables that affect the process of the undertaking. By willfully or negligently omitting the main variables in costing, one is actually planning for failure. Planning properly for taxation will help you in the following fields: Price determination, Cash flow management and statutory compliance. In my next article,we will expand on these three fields.
