Maximizing Tax Efficiency: A comprehensive guide to proactive tax risk management and compliance

However, this does not mean that the tax authority will never go through your records to test their completeness, accuracy, proper classifications, and proper declarations, non-misrepresentation of facts or misinterpretations of the laws applied in each tax filed.

Therefore, this mandates them to review your records and let you be aware of the inconsistencies if any and get advised to amend and show a true picture of your tax affairs.

Where you fail to respond, the tax authority has no option but to raise an administrative assessment and or additional assessment such that they correct the wrong position you filed and this usually comes with a tax liability to pay.

Article 26 of the tax procedures codes states that the onus is on the taxpayer to prove that the tax so assessed is in excess.

General compliance issues

i. Have you kept proper books of accounts?

ii. Did you file your return on time or requested for extension of time to file the return?

iii. Do you make proper and accurate provisions?

The above three issues if not addressed well can result into a URA estimated assessment that can be onerous and any attempt to object and appeal to it would require you to have proper support documentation and a technical person like a tax agent, a law firm or audit firm to solve it with URA.

Therefore, to avoid these embarrassing moments in your business, you are advised to be proactive in tax risk management strategies by doing the following:

Carry out a self-tax health review

By law in Uganda, the taxpayer is supposed to at-least keep the records for five years; likewise, the tax authority is mandated to audit the taxpayers for at least five years on the road, except in rare case where need may arise and they can go beyond this period. Therefore, as a taxpayer, you must develop a habit of carrying out your self-tax health checks or reviews in some of the following areas:

Employment costs

Compare that your employment costs claimed in the income tax returns over the year matches with each of the PAYE return filed in that fiscal year. The only variances expected may be in terms of the provisions made for leave, gratuity, bonuses or any other lump sum payments. Such increases or decreases in provisions must be reflected exactly in the Add back position of the tax computation.

Where causal wages are paid to casual employees, please file their PAYE & NSSF or automatically disallow this expense.

Please note also that where such casuals are subcontracted and managed by the subcontract, keep records of contracts and other engagement records.

Issuance of credit note

These credit notes must be correlated with the beneficiary’s declarations in the returns. Do not pass credit notes in your ERP and fail to pass them in EFRIS and file them in the VAT returns.

The input credit

The input credit claimed on import purchase must match with Asycuda reports of URA or customs data and any variance must be justified.

Retained earnings

The retained earnings brought forward from the previous year’s being declared in the current years declarations must match with the retained earnings carried forward in the balance sheet.

Many taxpayers have faced a wrath in terms of assessments because they do not file well this area.

 Deferment VAT

Under the deferment Act, a taxpayer is allowed to defer VAT on importation of Plant & Machinery.

Normally, the customs will show that you enjoyed VAT deferment on purchase of plant and machinery but did not account for its VAT in accordance with the deferment Regulation of 2013. Therefore, make sure that the machines are installed in the production of goods and can easily be verified in case they come for a visit. This VAT is only paid as per Article 7 of the Deferment Act that is upon sale or disposal of such machines.

Mismatch in VAT paid at importation against VAT claimed in monthly return

The VAT paid at importation must match with the VAT declared in the Schedule 3 of the VAT return. If there is any variation, it must be brought to book and explained to URA. This may be as a result of some entries failing to fiscalise on time in that specific month or year.

Make sure that after payment for the entries, an exit is done on time in Asycuda and where a challenge is faced; communicate through raising a ticket to EFRIS or customs team.

Variances in sales turnovers

Here most taxpayers do not bother to match their VAT returns with the Audited sales numbers in the audited books of accounts. Even some Auditors do not bother to reconcile these numbers. It is an automatic area that triggers skepticism for audit by URA yet you could have done it yourself.

Whenever the audit is done please ask for the reconciliation of VAT return and Sales in The Audited Books of Accounts. Discounts, cancellation or reversals of sales in the system may lead to such imbalances if not booked in VAT returns. Today, the VAT return, the ERP sales and the EFRIS sales under the Z table report and detailed report must all match. This applies to purchases too.

Undeclared Imported services VAT & WHT

Does your company import services from other countries? If yes, please master the art of accounting for such a transaction.

First, it will attract the 15% Withholding Tax and 18% VAT, where you only withhold the 15% and fail to account for the 18% VAT as a consumer of such a service, then the tax liability and exposure will be manifested and you will pay with penalties. So plan well this area.

Variances in Asycuda Exports Versus VAT

Exports are zero rated products, meaning that had they not been exported and locally sold, you must account for their VAT. Therefore let your clearing agents do the right declarations and reconcile every month your exported goods against your invoiced sales. This will eliminate the challenges of variance between the customs data and your declarations.

Overstated related party loans/transactions

In a multinational setting, enterprises are much related and those with financial muscles or the parent may extend a facility to the starving companies. Where URA discovers that the related party loans are over stated in the balance sheet and have no support or agreement, the audit team from UAR will reclassify them and charge you 30%, as they will be assumed as income. Please keep proper records and transfer pricing in place to avoid such cases.

Costs of sales

Maintain production schedules if you are a manufacturing company, keep your records of purchases and stock movements or issues of materials. Understand your mark-up on the costs. Keep the records of coeffeieciet for the input and output ratio.

Cost of sales is a key component in our books of accounts as it reflects the costs of our purchases that we have sold.

Rent Expenses

In many cases taxpayers claim this expense but without showing the TIN of the property owner.

Automatically the system prompts to put that TIN. However, some taxpayers fail to get the TIN of their property owners and instead absorb this expense elsewhere. Failure to do so, will lead to suspicion by the taxman and hence an assessment.

Supply of assorted materials to your clients

Please keep the following in place

 Keep the certified copies of the contract between your company and the contractor.
 Certified copies of invoices and payments vouchers reflecting the mode of payments
 Any other relevant information.

VAT refund

Any tax payer is free to exercise his or her right under section 42(1) of the Vat Act to apply for the excess credit of vat paid in excess of UGX 5,000,000/=. The Tax authority has the right to reject your offset after advising you to claim for the credit and you do not adhere.

Payment of taxes on wrong tax heads

Make sure that you do not pay your taxes on wrong tax type. Choose these tax types carefully. For example if you are paying for withholding tax for Income tax purposes, do not generate the Payment registration number (PRN) for VAT Withholding payable. This will cause your ledger not to balance, as one credit will be placed where it is not supposed to be hence causing an imbalance on the ledger and assessment.

Directors returns

Ensure that all your directors’ returns are filed on time and the portal is updated always. Where some directors are on payroll be aware such that when the tax authority queries, you are able to answer that on time.

Tax clearance certificates

The advantages of the TCC is that it secures you businesses. Most suppliers ask for it in bidding or other occasions. Most taxpayers think that when they have the TCC, they do not have any tax obligations to pay. It is just a clear tax indicator that your tax affairs are fine. Therefore, always pay your taxes on time.

Check and reconcile your tax ledgers such that there is no liability that will lead to denial of the TCC. On the other hand, apply for the TCC on time to avoid a delay in approving it.

Filing taxes on time

For all the tax heads, there are differently stipulated deadlines, which must be adhered to. For example, all the monthly returns like VAT, PAYE, Withholding Tax for VAT and Income must be filed by the 15th day of the following month. Other taxes like provisions, Final income tax returns must also be filed as per their due date. Failure to do so on time it attracts penalties and interest, which will keep on accumulating on your ledgers. I have seen taxpayers being assessed penalties above 20M due to failure to comply by filing their returns on time.

Therefore, let us be vigilant with taxes in all our spheres, appreciate that taxes help our governments to build the nation by putting schools, hospitals, roads etc.

By understanding the above points, everyone will be able to enjoy why taxes are very important and hence pay the taxes as and when they follow due.

In addition to the underlined points, it is imperative to note that all taxpayers should mind about completeness, accuracy, proper classification and proper declarations in their returns and records. This will save us 100% chances of being suspected for declaring misleading information and being assessed huge taxes.

Remember, the onus is on the taxpayer to prove that the tax so assessed is high or not.