Basic accounting unit8

1. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Accounting Framework
Posting and Processing Transactions
Year- End Adjustments and Provisions
Preparing Final Accounts
Introduction to Financial Reporting Standards
Published Accounts
MODULE COVERAGE
1
Financial Ratios and Projections
Elements of Taxation

2. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Elements of Taxation
What is a tax? It is a charge or payment obligation levied by the state or other
public/civil authority on its citizens. Governments fund their operation through the
collection of taxes.
Taxes have gone by many names throughout the centuries, including such phrases as
levies, duties, tariffs, tribute and tithes, but they all amount to the same thing;
payments collected from the governed to the ruling body in exchange for certain
services and benefits. By history and international convention, taxes can be
broadly categorized into two types: direct and indirect taxes.
In the general sense, a direct tax is one paid directly to the government by the persons
(corporate or natural) on whom it is imposed (often accompanied by a tax return
filed by the taxpayer). Examples include some income taxes, some corporate taxes,
and transfer taxes such as estate (inheritance) tax and gift tax.
An indirect tax or "collected" tax, on the other hand, is one which is collected by
intermediaries who turn over the proceeds to the government and file the related
tax return. Examples are sales tax, value added tax (VAT), customs duty and excise
duty.
Overview of taxation in Uganda
In Uganda, like in many other countries, taxes can be levied on different aspects like:
• Trade/ business related movement of goods like imports or exports
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3. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
• Wealth related aspects like property possession or asset transfer
• Income related aspects like profits or turnover/ sales of goods and services
• Production related aspects like manufacturing
• Consumption related aspects like payment for certain goods and services which
attract Value Added Tax
Main taxes in Uganda
Business Income Tax
Uganda also levies income tax on the worldwide income of resident businesses. As
with personal income taxes, non-resident companies are taxed only on income
sourced in Uganda. The tax rate for all businesses other than mining companies is
30 percent. Income tax for mining companies is calculated using a formula and is
dependent upon the chargeable income and gross revenue of the company, but
the tax rate must be at least 25 percent and at most 45 percent.
Uganda has determined special tax rates for small businesses with annual sales
between five million and fifty million Ugandan shillings. These special rates are
determined based upon the gross income of the business.
The normal income tax for banks is the corporation tax, which is levied on the net
operating profit after certain adjustments. The current corporation tax rate is 30%
of the taxable profit annually.
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4. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Taxation of Partnerships
Income tax assessments for a partnership can be made either in respect to individual
partners or in the partnership's name. The profits of a partnership, including a firm
carrying on a trade or profession are taxable.
Taxation of Sole Proprietorships
A sole proprietor is taxed in the same way as an individual.
Taxation of Trusts
The income tax rate applicable to trusts is 30% of the chargeable trust income for the
year of income. A trust is exempt from income tax where income of the trust is
paid directly to the beneficiary without passing through the hands of the trustee;
or where a trustee relies on the ground that a share or part of income to be
assessed accrues or arises for the
benefit of the beneficiary.
Personal income Tax
This is income tax payable by individuals. It is calculated on the individual's net
assessable income after making allowance for deductible expenses. The sources of
assessable income for individuals include employment, business and property.
Different tax rates apply depending on whether the individual is a resident or non-
resident of Uganda for tax purposes.
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5. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
A special type of personal income tax is the Pay as You Earn (PAYE), which is tax on
employment benefits.
• PAYE is not a separate tax. It is an installment income tax system under which
employers are required to deduct tax installments from their employees' salary or
other employment income.
• The installments so deducted are remitted to the Uganda Revenue Authority (URA)
and based on the PAYE tax return lodged by the employer; the total amount
deducted from the individual employee is offset against the employees' tax liability
upon the lodgement of the annual tax return by the employee at the end of the
tax year.
• Every employer must, therefore, register for PAYE as well as be familiar with the
rules relating to filing of PAYE returns and the computation of PAYE.
• Penalties apply where the employer fails either to deduct or remit PAYE, or
deducts and remits incorrect amounts. For example, the URA can require the
Employer to pay any PAYE shortfalls.
Value Added Tax
Value added tax (VAT) is required on every taxable supply made by a taxable person,
every imported good and the supply of any imported services by any person.
Taxable supplies are goods or services made under the business activity of a
taxable person.
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6. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
• Taxable persons are people who make, or expect to make, taxable supplies valued
at one-quarter of the annual registration threshold during three calendar months
of the year. Taxable persons must register. As of July 2010, the annual registration
threshold is fifty million Ugandan shillings. The standard rate for VAT in Uganda is
18 percent.
• VAT as a consumption tax is payable by individuals and firms. The business sales
turnover threshold for VAT is Shs 50,000,000 per year. Individuals and firms whose
business sales turnover is below UGX 50,000,000 are exempt from VAT. It does not
matter whether the business is profitable or not. Individuals and firms with annual
sales/ turnover above UGX.50,000,000 must register for VAT with URA.
• A person or business that has registered for VAT can charge VAT on customers as
an output tax. When a VAT payer buys goods and services he pays VAT as an input
Tax. When the output tax (what a person registered for VAT pays) exceeds the
input tax (what he charges customers as VAT), a refund of the difference can be
claimed from the URA.
• On the other hand when the input tax is greater than the output tax, the
difference is payable to URA within 15 days after the end of the month in which
the transaction took place.
• Certain goods and services are exempt from VAT. A person registered for VAT
cannot claim an input tax on exempt goods and services. Similarly, such person
cannot charge VAT (as an output tax) on goods and services exempt from VAT.
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7. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
All imported goods attract VAT of 17% or the Zero rate except if they fall in
the exempt category. VAT on imports is paid at the time of clearing the
goods and is calculated on the CIF (cost Insurance, Freight) value of the
imports.
VAT on exports is Zero-rated. Investors interested in export trade are however
advised to register for VAT. This is helpful in that the inputs, which are
used to produce the exports, might be attracting VAT. Once registered as a
VAT payer, one can claim input tax and in order to claim input tax on
exports, the Customs Certified copy of the Export entry must be attached
to the VAT return.
Stamp Duty
Stamp duty is an indirect tax levied on a number of commercial transactions.
Taxation of Rental Income
Rental income of an individual is segregated from other income and is taxed
at a rate of 20% (after allowing 20% of the total rental income expenses)
of gross rental income in excess of Shs.1,560,000 per year.
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8. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Withholding Tax
Certain payments are liable to withholding tax. Any payment to a person in
Uganda from the Government of Uganda, a Government institution, a
local authority, any company controlled by the Government of Uganda or
any person designated in a notice issued by the Minister responsible for
finance of an amount in aggregate exceeding one million shillings for the
supply of goods or materials of any kinds or any service is subject to a 6%
withholding tax.
The Minister for Finance has powers to exempt companies from paying
withholding tax.
Tax filing in Uganda
All registered business organizations are under obligation to send a
provisional return of income for any year of income as follows;
Individuals
Not later than three months from the commencement of the 12 months
ending in such year of income for which such individual makes up his or
her accounts and in any other case of an individual, not later than March
31 of such year of income.
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9. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Corporate bodies
Not later than six months from the
commencement of the period of 12 months
ending in such year of income for which the
body prepares the accounts and in any case
not later than 30th of June in the year of
income.
The returns are based on income of the year
immediately preceding the year of income in
respect of which the provisional return is
made or on the last assessment which has by
then become final and conclusive, whichever
is greater, or a considered estimate of
income liable to tax if the former two are
inappropriate.
A final return of income is due within four
months from the end of the accounting
period together with any further tax due.
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10. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
END
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