As Uganda Revenue Authority (URA) celebrates 30 years anniversary, business Startsups have been advised to consider formalizing their business ventures given the enormous benefits associated.
Many Small and Medium enterprises in Uganda constitute 90% of the Private sector but many have remained informal and non-compliant due to fear of the presumed tax burden.
The fear to comply with taxes is rooted in the belief that it is costly to formalize a business and Startups also argue that formalising attracts URA to the business and makes operations difficult.
The Assistant Commissioner Public and Corporate Affairs in URA, Ian Rumanyika however notes that contrary to what startups think, there are many benefits to running a business formally.
Rumanyika says that businesses that have been formalized gain credibility and are headed for growth and continuity as well as being a magnet for investors.
He adds that besides these advantages, cross border business expands and with this comes expansion and growth.
“While many entrepreneurs complain that there is unfair taxation for startups and few to no incentives, Rumanyika notes that there are tax incentives and exemptions embedded in the country’s tax laws. The non-discriminatory incentives accessible to both domestic and foreign investment are intended to spur investment in the country; attracting both foreign direct investments and local investments,” Rumanyika says.
Rumanyika adds that young startups should be aware of from international trade incentives including exemption on import duty on certain items, reduced import duty rates, import duty remission and high import duty rates on items that can be locally produced.
Rumanyika noted that, “This is aimed at boosting local production, promoting industrialization, import substitution and protecting the local market.”
To further solve the challenges of navigating taxation and protecting startups from unfair taxation, URA has taken to the digitisation of its taxation system on a platform called Electronic Fiscal Receipting and Invoicing Solution (EFRIS).
The new smart business solution is used to record business transactions and share the information with URA in real-time, to generate e-receipts and e-invoices. Under the EFRIS, startups can receive refund claims using e-receipts or e-invoices that are fast-tracked given that the information shall be available in the system.
Also, URA provides a report of the taxpayer’s transactional data on sales and purchases through the tax period which the taxpayer either confirms or modifies to include additional information.
The pre-filled tax returns help taxpayers to avoid penalties for late or non-filing and would enable them to have fair assessments of their tax positions and reduce unfair competition in business.
The Legal Tech Lab Lead at The Innovation Village, Hellen Mukasa says that when startups embrace legal knowledge it becomes a springboard to gain a competitive edge.
Mukasa believes that entrepreneurs shy away from registering businesses because of the expected costs once on the taxation radar.
“While they set out to save money, they end up losing out on great opportunities for markets that prefer working with formal businesses. To demystify the process of formalising businesses, the Legal Tech Lab partners with institutions like URSB and Uganda Revenue Authority (URA) to provide information about intellectual property protection and tax compliance respectively,” Mukasa says.
Mukasa adds that the move towards tax compliance begins with a mindset change and she hopes that The Legal Tech Lab will help to change legal services from the perspective of a curative service to a preventive service through compliance of startups with the law.