From guest author
The end of the fiscal year is a busy time for several companies and tax professionals. For companies whose income tax year coincides with the tax year, June 30th is the end of the income year and the 12-month point in the tax calendar when the second tax rate is due. For companies whose income year ends on December 31st, June 30th is the sixth month of the income year in which the last self-assessment declaration for the previous year and the first provisional declaration for the current year with the corresponding tax payments are due.
One of the easier ways to remember the deadlines is to remember that the obligations come due every six months during and after the year of income. Corporate income tax in Uganda is paid in two 50 percent installments on or before the last day of the sixth and twelfth month of the income year.
It is important to meet the deadlines as there are penalties for filing tax returns late and paying taxes late. Late filing of a tax return will result in a penalty higher than 2 percent of the gross tax liability or Shs 200,000 per month for which the return is pending. The late payment accrues interest of 2 percent per month on the unpaid amount. However, if for any reason you expect a delay in filing your return, you must notify the Uganda Revenue Authority (URA) prior to the deadline and formally request an extension of the deadline. If your business is short of cash, you can also request a payment schedule for the tax to be paid. However, interest is paid on the outstanding amount.
In addition to the deadlines, the associated penalties for underestimating the tax estimates must also be observed. If the estimated income is less than 90 percent of the actual taxable income determined for that year, the taxpayer is subject to a penalty tax at the rate of 20 percent of the difference between the estimated tax and the tax calculated on 90 percent of the tax on the taxpayer’s actual taxable income. Certain businesses such as farms are exempt from the underestimation penalty.
The compliance calendar is intended to give the taxpayer sufficient time to revise the estimates. The critical time for the revaluation of the preliminary tax estimate is before the end of the year, ie when there is still time to submit a revised estimate. You shouldn’t wait until the final tax return is due, because then you can only check whether there is an underestimation penalty.
Other controls that should be performed relate to withholding tax paid as an advance corporate tax payment during the year. Since this should be offset against the tax actually payable at the end of the year, it must be ensured that the withholding tax certificates have been obtained and compared with the credit due.
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In the case of companies registered for sales tax, the sales per sales tax return should be compared with the sales shown in the annual financial statements / administrative accounts. This can be done annually and any differences should be explained and documented as differences could mean under-declaring sales for VAT or corporation tax.
Records evidencing the tax position should be retained for future reference. The records are to be retained for five years after the end of the tax period to which they relate. Poor bookkeeping exposes the company to tax liabilities that can be avoided. In particular, all claimed deductions must be substantiated by the corresponding receipts and invoices and recipients of payments via Shs5m must have a tax identification number. Additionally, purchases from sales taxpayers must be supported by electronic invoices in order to qualify for tax withholding. Contracts for large transactions must also be concluded, especially for cross-border transactions and with related parties.
Finally, it is important to take into account changes in tax law made at the beginning or during the year that may affect the company’s tax position.
Overall, the preparation is an ongoing process and not a one-off process at the end of the tax year or when the payment deadline is approaching.
By Crystal Kabajwara. The author is Associate Director – Tax at PwC.