Tag Archives: Uganda

BBC News: How your social media reputation could secure you a loan

How your social media reputation could secure you a loan – http://www.bbc.co.uk/news/business-37224847

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My Valentine: No romance without finance!

Advertisers are in full swing, maximising the final hours before the red day, the day of love, Valentine’s day! Or ‘Loveville’ as I prefer to euphemise this particular ideology. It’s all spend, spend, spend. On roses, dinner and presents galore. Don’t get me wrong, like any other enthusiast, I don’t really need a reason to have a party however: the speciality of this day is the implied guidelines under which it is dictated; the red, flowers, chocolates. Just because it’s red doesn’t mean that we will get a Value Added Tax (VAT) write off for love. Yes, flowers have a special place in the exempt echelons of agricultural produce but ultimately, are they really free? Chocolates are taxed. Hence, I made my crossover, from the red flower totting, wine sipping, chocolate receiving undergraduate, to the ‘plan before you spend’ tax lawyer to the big spenders.

Cue my title: No romance without finance

Seanice Kacungira of 88.2 Sanyu FM, I love your morning show and paid special attention to the topic about having a relationship on a budget (Taxes notwithstanding). I understand the need for honesty (to the tax collector as well as the boyfriend), however, I do not think it is possible to always:

1.  Live on a budget of romantic walks; what happens when we get thirsty along the way?

2. Cook together most of the time; I’m no Nigella Lawson

3. Watch bootleg DVDs at home; copyright infringement.

I agreed with the caller, I think his name was James (like your co host Fatboy) who encouraged both parties to work harder and have what they both perceived would be a better quality of life.

And to my cousin Brenda Sekabembe, proprietor of the tasty ‘Bake for me’ cakes (you can find her on Facebook), “You were right, what is love in Umeme darkness on Valentine’s day”. To Umeme Ltd, ” Your rates are crippling, there’s nothing left over for romance.”

So, February 14 2013, no romance without finance!

 

On to Romance with finance; along the lines of Reality television star Kim Kardashian’s present to musician boyfriend Kanye West: A Lamborghini Aventador as below.

And then in came the heavyweights Zari and Ivan Semwanga with the first Lamborghini on the dusty streets of Kampala, in the Christmas holiday season. If this was a Loveville present, it surely was over the top. All I can say is that if you two had unveiled that beauty on February 14th 2013, more than hearts would have been broken.

To all the rest, please remember to plan before you buy.

Love thy neighbour the tax man, be honest in all your dealings, be committed to paying all your tax dues, share all your income, forgive all indiscretions, always wait patiently for the servers to reboot and forget the small things like expired passwords or late notifications. Happy Valentine’s day everyone.

Doctors And Lawyers Locking Horns Over Taxes

As January 2013 ticks by and new resolutions are set for some, below is a reminder of what was going on yester yester year. In Uganda, we spend more time watching and sympathising with medical personnel in the public sector who have previously seen it fit to down tools for better pay. A suggestion would be for them to lobby for lower P.A.Y.E tax so that as the pay raises are slow in coming, 30% of their monthly income won’t still be reverted back to the state coffers while they wait. Happy New Year!

Doctors And Lawyers Locking Horns Over Taxes

Sep. 8 2010 – 9:56 am | 252 views | 1 recommendation | 0 comments

By ROBERT W. WOOD

Doctors and lawyers may both be professionals, but there’s often no love lost between them.  And mentioning tort reform to either group can prompt an extreme response.  Throw taxes into the mix and it’s even more interesting.  Lawyers are lobbying Washington for better tax treatment for their contingent fee cases, but doctor groups like the AMA have lined up claiming passage will give rise to even more lawsuits, many of them plaguing the healthcare field.  See AMA, 90 Medical Organizations Oppose Tax Changes That Encourage More Lawsuits.

The issue is how lawyers deduct costs.  Contingent fee lawyers nearly always front all costs in each case, so the client pays nothing unless and until there’s a recovery.  Costs including filing fees, deposition transcripts, copies, travel expenses, expert fees, and more.  In a big case, costs can total hundreds of thousands of dollars and can mount up for years.  Paying but not deducting them hurts.

When the case finally pays off, lawyer and client will settle up, with the lawyer usually reimbursed for all costs before lawyer and client split the recovery 60/40 or in whatever percentages they’ve agreed.  Because the lawyer is reimbursed, current tax law treats the costs as loans by the lawyer to the client.  That means the lawyer can’t claim any tax deduction until the conclusion of the case.  It’s costing lawyers billions, making lawsuits much more expensive.

But all that may change.  Under S. 437, introduced by Senator Arlen Specter, D-Pa., lawyers would be able to deduct costs immediately as long as their fee agreement calls for a “gross” fee.  A companion bill (H.R. 2519) was introduced in the House by Artur Davis, D-Ala.  A gross fee arrangement splits the whole recovery (60/40 or in some other proportion) without any direct reimbursement for costs.  Lawyers would be free to factor in the likely costs of the particular type of case in setting their percentage split, but they could have no detailed accounting for costs.

This is a good deal for trial lawyers, and would expand a key but controversial tax case decided 15 years ago.  Lawyer groups have championed the provision, but the likelihood of its passage looks dim, even dimmer now that the AMA and others are sounding a lawsuit floodgates alarm. For more on this brewing tax issues, see:

Which Client Costs Are Tax Deductible? Part 1 of 2

Which Client Costs Are Tax Deductible? Part 2 of 2

Lawyers Who Deduct Client Costs: Revisiting Boccardo

Len burman on the Buffet Rule, plus other Thoughts

An interesting read by Reihan Salam , published on April 17, 2012 11:54 A.M. on NRO’s domestic-policy blog The Agenda.

Comments

Having recently discussed Len Burman’s vision for a sustainable tax reform, I was interested to read his critique of the Buffett Rule:

The Fair Share tax is not the right tool for this job. It is bad policy. If it became law, it would needlessly complicate taxes and create new inequities. In so doing, it would repeat an egregious error made 43 years ago when Congress created the first minimum tax in a poorly executed effort to rein in tax breaks for millionaires.

Burman offers several examples of perverse outcomes that might flow from the the Fair Share tax:

For example, imagine two elite lawyers, each making $999,000, who are considering marrying. They would owe no Fair Share tax if they stayed single but could owe tens or even hundreds of thousands of dollars in additional tax if they married.

Or consider if you were on the cusp of paying the Fair Share tax: you wouldn’t know at the beginning of the year whether your capital gains would be taxed at a rate of 30 percent or 15 percent; it would depend on whether you were ultimately hit by the tax….

More fundamental is that the idea of three different sets of tax rules — regular tax and alternative minimum tax and fair share tax — makes no sense. One set of rules should apply to everyone, and if we close some loopholes, a reformed tax code could satisfy the goal of the Buffett Rule.

Rather than add a new set of tax rules, Burman favors eliminating the favorable treatment for capital gains and dividends, an idea we’ve discussed a number of times in this space:

Specifically, we should fix the regular income tax to eliminate or curtail the tax loopholes that let rich people avoid tax, especially the lower tax rates on capital gains and dividends. And while it’s true that taxing capital gains at rates up to 35 percent (the current top income tax rate) might be counterproductive (because many investors would choose to hold on to their shares rather than pay the tax), there are other options. For instance, the top rate on capital gains could be raised from the current 15 percent to 28 percent — the rate set by Ronald Reagan’s Tax Reform Act of 1986, but undone in stages by tax changes under the administrations of Bill Clinton and George W. Bush.

This is a proposal Burman has been advancing for some time, and his contributions shaped the Debt Reduction Task Force’s decision to subject ordinary income and capital gains and dividends to the same rates of tax. Burman is less concerned about double taxation and lock-in effects, having observed that double taxation only applies in some cases and that lock-in effects seem relatively modest. Suffice it to say, not everyone agrees with Burman’s take.

The Committee for a Responsible Federal Budget’s Stabilize the Debt calculator gives you the option of eliminating the capital gains tax. One wonders how a reform that raised tax rates on ordinary income — say to Clinton-era levels — while eliminating or dramatically reducing capital income taxes would be received. This approach would certainly not address the concern that animates the Buffett Rule, i.e., that some small minority of high-earners derives most of its income from capital income. In a recent article in City Journal, Josh Barro explained the broad outlines of such an approach:

New York University professor David Bradford suggested a system called the “X tax,” in which both businesses and individuals would pay an income tax—but individuals, crucially, would pay no tax on interest, dividends, or capital gains. Since people can do only two things with their income—invest it or spend it—a government that taxes income without taxing capital is imposing the equivalent of a consumption tax. The businesses, meanwhile, would pay taxes on the revenue that they took in from customers—again, this would be a consumption tax—but subtract from their taxable income whatever they bought from other businesses, as well as what they paid their employees. Though its operation is significantly different, the base of the X tax is the same as that of a value-added tax (VAT). But unlike with a VAT, the government could levy tax at lower rates for lower-wage individual earners, introducing progressivity and potentially drawing some Democratic support to the plan.

Any of these reforms, of course, would bear a price, since the government would lose revenue by no longer double-taxing capital. To help make up for the gap, the top tax rate on individual wage income, for starters, would need to remain in the neighbourhood of today’s 35 percent rate, instead of the much lower rates envisioned in the Bowles-Simpson plan. But by eliminating various tax credits and deductions, such as the deductions for state and local taxes paid and for mortgage interest, the government could pay for reform and even afford to set lower rates for lower- and middle-income earners. Better still, it could increase the earned income tax credit, a benefit that the very lowest wage earners receive.

Because these reforms would reduce or even eliminate the taxes that investors pay on capital income, Warren Buffett’s tax bill would be smaller than it is today. Some other investors with extremely high incomes would likewise be better off. But the tax burden wouldn’t be shifted to the middle class and the poor. Rather, the brunt would be borne by wage earners in the top quintile—partners in law firms and corporate executives, for instance—who have labor income taxed in the top bracket and who tend to benefit heavily from tax deductions. [Emphasis added]

My crude impression is that wage earners in the top quintile are collectively more influential than investors with extremely high incomes, though presumably less influential as individuals. These HENRYs (“high earners, not rich yet”) are relatively large in number, politically active, and overrepresented among small dollar donors to both political parties. Rather than frame fights over the tax code as fights between the homogeneous rich and the homogeneous non-rich, or even as fights between narrow special interest groups, one wonders if there’s an element of HENRYs vs. the capital rich. And is it obvious that the non-rich should be allied with HENRYs and not the capital rich? If it really is true, contra Burman, that a lower tax burden on capital income is growth-enhancing and (not contra Burman, as I think he’d agree) that higher marginal tax rates on individual wage income wouldn’t be that bad, something like a Bradford X tax would advance the interests of the non-rich and the capital rich while squeezing HENRYs. 

(There is a decent case to be made that HENRYs are the real villains of our politics — my sense is that they tend to be the most avid and effective proponents of opportunity-restricting measures like onerous land-use regulations and licensing restrictions, of tax expenditures like the mortgage interest deduction and the state and local tax deduction, etc. But this is all very subjective.)

Yes, Financial institutions are exempt from VAT

PNC Financial Services
Image via Wikipedia

Some Banks and other financial institutions in Uganda today, register for and pay VAT regardless of exemption of financial services from Value Added Tax (VAT). The supply of financial services is an exempt supply for the purposes of section 19 of the VAT Act cap 349. Exempt supplies in lay terms are supplies that are exempt from VAT. Financial services means granting, negotiating and dealing with loans, credit, credit guarantees, and any security for money, including management of loans, credit, or credit guarantees by the grantor.

The services also include transactions concerning deposit and current accounts, payments, transfers, debts, foreign currency sales and purchases, cheques and negotiable instruments, other than debt collection and factoring, transactions relating to shares, stocks, bonds and other securities, other than custody services, the management of investment funds; but does not include provision of credit facilities under a hire-purchase or finance lease agreement.

The rationale behind the tax policy that led to financial services being exempt supplies was to promote and grow the financial services sector in Uganda. The sector has indeed grown with an individual having a choice over which bank, micro finance institution or forex bureau to use all over the country. There is also a variety of services offered by the banks from salary and car loans, Automatic Teller Machines (ATM) services to the more sophisticated like electronic money transfers.

Some banks and other finance institutions took the tax exemption literally and did not register for VAT. However, others followed the prudent but costly approach and registered for VAT regardless of the exemption. In registration for VAT, a number of advantages are given like the credit worthiness of the business and the use of VAT returns. These advantages were mentioned in my last article titled: When to register for VAT as below.

There are benefits to Voluntary Registration and these include: One dealing in zero rated or mostly zero rated supplies would be able to claim input tax credit and even cash refunds, it opens up one to more business opportunities e.g. big firms tend to prefer dealing with fellow registered firms as the payment of VAT can sometimes be used as a benchmark to determine the reputation of a business. Registration is also advantageous because a registered person can issue tax invoices to customers who in turn can utilize them to claim VAT incurred, there is a defined risk reduction on the penalty for not registering for VAT in time i.e. by the time one’s turnover exceeds the required threshold, the person is already registered.

The disadvantages of Voluntary Registration which would also affect the suppliers of financial services include: The registered person must file monthly tax returns even where no sales have been made; and failure of which the person incurs penalties, the business incurs the cost of printing tax invoices, some small businesses incur extra costs of a consultant to compute the tax and one must stay on register for a period of two years.

The question is, with the exemption of the supply of financial services from VAT, is it necessary for the players in the financial services sector to register for VAT as some have done in the past? Would their input VAT exceed output VAT to warrant VAT refunds? Even with the relatively new e-tax on-line filing of VAT returns and automated accounting systems, doesn’t the payment of VAT affect the profit margin or is it passed onto the final consumer, the customer? All is well with the institutions that decide to voluntarily register as it is their choice. But wouldn’t all financial institutions benefit from a waiver of VAT as was originally intended when classifying financial services as exempt supplies?

Unlike some other businesses that need to use VAT returns filed with the Uganda Revenue Authority as a form of credit worthiness, the Bank of Uganda as a regulatory authority, has done a good job supervising the banking sector in Uganda. And unlike some businesses, banks and other financial institutions when licensed, would ordinarily not need a VAT return to prove their credit worthiness. Before the blame is put on the Uganda Revenue Authority for being an exuberant tax collector, one must know that not all financial institutions register for VAT and those that do, register only under voluntary registration. However, after registration, the Uganda Revenue Authority is bound to collect VAT from the financial institutions that have registered and one cannot cry foul over something they did voluntarily.

The decision for the registered financial institutions to deregister should not be taken lightly as it involves an application to the Commissioner General of the Uganda Revenue Authority to deregister and a two year waiting period before the institution is deregistered. During the two years waiting period, the institution must file the mandatory monthly VAT returns. Before applying to deregister, the financial institution must consider the bulk of its supplies as the provision of credit facilities under a hire purchase or finance lease agreement is not exempt from VAT.

I decided to publish the above article again after I received an e-mail request to clarify how much VAT a borrower is supposed to pay on loans of 2 million Uganda Shillings and below, soon after the reading of the 2011-2012 budget by the new Honourable Minister of Finance Maria Kiwanuka.