Ugandan businesses should treat tax as a regular, planned expense rather than an afterthought, as poor financial records and failure to meet statutory obligations can expose them to hefty assessments from the Uganda Revenue Authority (URA), tax consultants have warned.Sanyu Daisy Namayanja, a senior tax consultant at Bennett Advisory, advised entrepreneurs to incorporate tax obligations into their monthly budgets alongside salaries, rent, utilities and other operating expenses.As the government moves to widen the tax base and bring more businesses into the formal tax system, entrepreneurs who do not understand their obligations risk accumulating substantial tax liabilities, she said.Namayanja said businesses should aim to pay the correct amount of tax by maintaining proper records and meeting statutory deadlines.“People operate businesses for the first, second and third year without paying attention to compliance. Then one day, they receive an assessment and begin complaining that URA wants to bring them down,” Namayanja said.“But the problem is that you have earned money without meeting your tax obligations. Tax should be a planned expense, just like rent, salaries and electricity.”She added that proper tax planning could help business owners make informed decisions about structuring their investments, including rental properties, while taking into account applicable tax rates, allowances and deductible expenses.Mercy Kanyange, a member of Bennett Advisory’s tax team, said some businesses interpret repeated tax demands as evidence that the tax system is excessively burdensome, yet the underlying problem may be accumulated liabilities spanning several financial years.Taxpayers may receive different communications relating to assessments, outstanding liabilities, objections, provisional tax and current filing obligations, she said.Kanyange said inadequate financial records could also inflate tax bills. Uganda operates a self-assessment tax system under which taxpayers are required to declare their income and expenses and determine their tax liabilities in accordance with the law.For businesses subject to the standard corporate income tax rate of 30 per cent, taxable profits are generally determined after deducting allowable expenses from taxable income.Problems arise when businesses cannot provide evidence of the costs incurred in generating income, Kanyange said.For instance, a contractor who receives Shs1 billion but cannot produce records showing expenditure on materials, labour and other allowable business costs could face a substantial tax liability if the expenses cannot be substantiated.“If you receive Shs1 billion and there is no trail of expenditure, the assumption may be that the entire amount is net profit, which is then subjected to tax,” she said.At the standard corporate income tax rate of 30 per cent, treating the entire Shs 1 billion as taxable profit would result in an income tax liability of Shs 300 million, before any applicable adjustments or other legal provisions.Kanyange said proper bookkeeping and supporting documents, including invoices, delivery notes and payment schedules, were essential in establishing the actual costs incurred by a business.She added that withholding tax deductions on payments to suppliers could also create a trail of income received, potentially exposing businesses that had not declared the corresponding earnings.Many disputes could be avoided if business owners maintained accurate records and filed their returns correctly, she said.“The core of tax compliance and self-defence is bookkeeping. You must have clear invoices, delivery notes and payment schedules,” Kanyange said.Businesses with proper records are better placed to establish their actual taxable income and challenge assessments they consider incorrect, she added.E-invoicing brings more transactions into viewThe consultants also pointed to the expansion of electronic invoicing and receipting as part of efforts to improve tax compliance and identify income that may previously have gone undeclared.Namayanja said the Electronic Fiscal Receipting and Invoicing System (EFRIS) enables transactions to be documented electronically, helping URA obtain information about business activity.She cited manufacturing, mining and quarrying, construction and rental property as sectors where improved transaction records could make it easier to identify taxable income.For landlords, rental payments and supporting transaction records can provide information relevant to determining rental income tax obligations. Electronic invoices can similarly help businesses document purchases and sales, substantiate expenses and identify transactions between suppliers and customers.Namayanja said the expansion of these systems should prompt business owners to understand their obligations instead of waiting for URA to contact them.She stressed that EFRIS is an invoicing and compliance system, not a separate tax, although businesses must establish which requirements apply to their operations.She also urged businesses to understand their tax obligations before entering into contracts, particularly those involving imported services, international transactions, foreign professionals and multinational companies.Depending on the nature of the transaction and the applicable law, such arrangements may raise issues relating to withholding tax, value-added tax on imported services and transfer pricing.Kanyange advised taxpayers who disagree with an assessment to examine its basis and pursue the appropriate objection procedures rather than assume that every amount demanded is automatically correct.About 2.7 million people are estimated to be active taxpayers in Uganda, while only about one million businesses and individuals are tax-compliant. The government has also endorsed a proposal to replace the Tax Identification Number (TIN) with the National Identification Number (NIN), following the mapping of about 21 million potential taxpayers.Sectors such as mining and quarrying, manufacturing, construction, cottage industries and real estate generate significant income but have not always been adequately captured by the tax system.The government’s drive to mobilise more domestic revenue has therefore increased the importance of bringing more businesses into the tax system.Tax compliance as a business strategyBeyond avoiding penalties and tax assessments, the consultants said compliance could help businesses qualify for contracts and strengthen their operations.Namayanja said many organisations require suppliers and contractors to demonstrate that they meet their tax obligations, including by providing tax clearance documentation where applicable.Businesses that cannot provide the required documentation may lose opportunities to supply goods and services to government entities, private companies and non-governmental organisations, she said.Bennett Advisory plans tax clinicThese issues are expected to feature at Bennett Advisory’s annual tax clinic, scheduled for November 19 at Sheraton Hotel.The firm said the event, its third tax clinic, is intended to help business owners understand their tax obligations, identify compliance risks and improve financial record-keeping.Namayanja said the clinic would address issues affecting businesses in real estate, manufacturing, mining, hospitality and other sectors, as well as matters relating to international taxation and transfer pricing.Participants are also expected to receive guidance on filing deadlines, applicable taxes and compliance requirements relevant to their businesses.The post Ugandan businesses urged to treat tax as a planned expense appeared first on The Observer Media Ltd.