February 2011 – Render unto Caesar: A Tax Blog by Susan Nakabembe Bakaawa

In Uganda, persons expected to register for Value Added Tax (VAT) registration are specified under section 1 (p) of the VAT Act Cap 349. As listed, all of the persons below, dealing in taxable supplies as part of business activity qualify to register for VAT; an individual, a partnership, company, trust, government and any public or local authority.

In the year 2002, section 7(6 ) was introduced that read, ‘An engineer, lawyer, economist, architect, publisher, auctioneer, estate agent, valuer, accountant, auditor, clearing and forwarding agent or other professional supplying goods or services for consideration as part of his or her business, but who is nor registered by subsection (1) or(2) to apply for registration, shall apply to be registered in accordance with section 8, without regard to the eligibility requirement under sub-section (2)’.’This mandatory registration section was repealed by the VAT amendment Act No. 1 of 2008.

It is the duty of the tax lawyer or consultant to determine whether the professional or the services he/she renders should register for VAT and it is the duty of the accountant to clarify as to whether the statutory yearly or monthly threshold has been met, for a person to register for VAT.

The Act expressly provides for two ways through which persons register for VAT namely;

Compulsory way (obliged)
Voluntary way (eligible)

Compulsory Registration

Persons whose annual taxable turnover exceeds the statutory threshold of 50 million Uganda Shillings are obliged to register for VAT under section 7(1) of the VAT Act. However, this is determined on a quarterly basis using either the historic or future tests.

The Historic Test is provided for under S.7 (1) (a) of the VAT Act.

It provides that a person must apply to register within 20 days following a “period” of three consecutive calendar months, if in that period the person’s taxable turnover exceeds a quarter of the annual threshold – which currently is 12.5 million.

The Future Test is provided for under S.7 (1) (b) of the VAT Act.

It provides that a person is required to apply for registration at the beginning of a “period” of three calendar months, if that person expects to make taxable supplies that will exceed a quarter of the annual threshold – which currently is 12.5 million.

EFFECTIVE DATE OF REGISTRATION

In the case of compulsory registration, effective date of registration is from the beginning of the tax period immediately following the period in which the duty to apply for registration arose as under Section 8 (3) (a) of the Act.

It is the first day of the month following the month in which an application was made or was due, whichever is earlier. If the due date to apply for registration fell in the month of October 2010, then the effective date of registration would be 1st November ,2010.

National, Regional, Local or other public authorities/bodies involved in any business activity – S.7 (5). should apply for registration on the date they start to deal in business activities. The effective date of registration is the first day of the month following the month of application.

VOLUNTARY REGISTRATION

Any person who is not required to register but who satisfies the Commissioner General that he is carrying out a business activity or that he intends to carry on a business activity from a specified date may apply for VAT registration under section 7 (4) of the VAT Act..

Such a person must be ready to remain registered for a period of 2 years regardless of turnover as long as his supplies are taxable.

Tax payers who may register under voluntary basis include suppliers of zero-rated items.

For a person to be registered for VAT, the Commissioner General (CG)of the Uganda Revenue Authority (URA) must be satisfied that the person has; a fixed place of abode/business, the ability to keep proper accounting records, is able to submit regular & reliable returns and is a fit and proper person to be registered.

The application date depends on the volunteer’s (taxpayer’s) choice. The effective date of registration is the beginning of the tax periods immediately following the period in which the person applied for registration. (Section 8(3)(b)).

FORCED REGISTRATION

The Act expressly provides for two ways of getting registered for VAT. However, by implication, a person may also be forced to register for VAT; hence forced registration under section 8(6) of the Act.

Commissioner may register a person if there are reasonable grounds to believe that the person is required to apply for registration but has failed to do so.

In the event that forced registration is carried out, effective date of registration is the date specified in the certificate of registration.

The Benefits of Voluntary Registration include:

One dealing in zero rated or mostly zero rated supplies would be able to claim input tax credit and even cash refunds.

Business opportunities e.g. big firms tend to prefer dealing with fellow registered businesses. This is because a registered person can issue tax invoices to customers who in turn can utilize them to claim VAT incurred.

It reduces the risk of incurring penalties for not registering in time i.e. by the time one’s turnover exceeds the required threshold, they are already registered.

And the Disadvantages of Voluntary Registration are:

The registered person must go through the rigorous obligation of filing monthly tax returns even where no sales have been made; and failure to do so leads to a penalty for not filing returns.

Being small in nature, some businesses incur the extra cost of having an accountant or tax consultant to compute the tax.

One must stay on register for a period of two years.