A Simplified Guide VALUE ADDED TAX

FY 2022-23

VAT is an indirect tax on consumption charged on value added to taxable supplies at diff erent stages in the chain of distribution. In Uganda, VAT is imposed on the supply of goods and services (taxable supplies) made by a taxable person, other than exempt supplies; and imports other than exempt imports.

KEY DEFINANTIONS

1. TAXABLE SUPPLIES

Taxable supplies are supplies of goods or services made in Uganda by a taxable person i.e. persons registered or required to register for VAT purposes. Such supplies are either standard rated or zero rated – meaning that they are not exempted from VAT and are supplied for a consideration.

1. Standard rated supplies: These are those supplies where VAT charged is 18%
2. Zero rated supplies: These are supplies charged VAT at a rate of 0%. Such supplies are listed in the third schedule to the VAT Act. They among others include all exports and supply of drugs and medicines manufactured in Uganda and supply of cereals where such cereals are grown and milled in Uganda among others.
3. Examples of taxable supplies liable to VAT
4. Sales of business assets (e.g. equipment, furniture, commercial vehicles);
5. Hire or leasing/letting of goods to someone else for consideration;
6. Goods which you or your families have taken from the business for own use;
7. Commission received in return for selling something on behalf of someone else.
8. Sales to your staff  or relatives (e.g. your products supplied free of charge, or at reduced prices);
9. Sales from vending machines;
10. EXEMPT SUPPLIES

Exempt supplies are supplies of goods and services which do not attract VAT. These are specified in the second schedule to the VAT Act. Examples of exempt supplies include;

• Health insurance and life insurance services
• Petroleum fuels,
• Social welfare services
• Educational services,
• Financial Services
• Passenger transportation services

NOTE: A person dealing only in exempt supplies is not expected to register for VAT while one dealing in zero rated supplies is expected to register in case they meet the registration requirements.

• CONSIDERATION

This is payment that may be received in money form or in kin, wholly or partly when a person makes a taxable supply.

• A PERSON

A person includes an individual, a partnership, a trust, a company, a retirement fund, a Government, a political subdivision of government and a listed institution

5. A TAXABLE PERSON

A taxable person is:

1. A person who is registered for VAT.
2. A person who is not registered but is required to be registered for VAT.

6. INPUT TAX

Input tax means the tax paid or payable in respect of purchases or on imports of taxable goods or services by a taxable person for example if one is manufacturing water and buys packaging material, the VAT that person is charged on packaging material is input VAT.

7. OUTPUT TAX

This is the VAT charged by a taxable person upon making a taxable supply. When a person is registered for VAT, they will charge VAT on all the taxable supplies they make, That VAT charged is output tax.

8. VAT PAYABLE or CLAIMABLE

Where a person’s output VAT is greater than the input VAT, the diff erence is VAT payable to URA. In case the person’s input VAT is more that the output VAT, the diff erence is VAT claimable and the person who has such a position may opt to get a refund from URA if the amount is more than 5 million shillings, off  set it against any VAT payable or push it forward to meet any VAT that may arise in future.

REGISTRATION FOR VAT

Who is required to register for VAT?

1. A person who carries on business activities or intending to carry on business activities is required to apply to be registered for VAT, if the taxable turnover of that person for three consecutive calendar months exceeds or is likely to exceed Shs 37.5 million. The annual registration threshold is 150m.

Note: Threshold means the amount above which a person is supposed to register and account for VAT while turnover means total value (sales-not profi t) of all a person’s taxable supplies (including exports) made in Uganda. These supplies can be zero-rated or standard rated.

• A person being a national, regional, local or public authority or body which carries on business activities or intending to carry on business activities is required to apply to be registered for VAT regardless of the turnover.

What does one need to consider before registering?

Registration for VAT can happen under two circumstances i.e when a person applies voluntarily or compulsorily

1) Voluntary Registration

The Commissioner General shall register a person who applies for registration voluntarily and issue to that person a certifi cate of registration (TIN) unless the

Commissioner General is satisfi ed that;

1. the person has no fi xed place of abode or business; or
2. the Commissioner General has reasonable grounds to believe that that person:
3. Will not keep proper accounting records relating to any business activity carried on by that person; 
4. Will not submit regular and reliable tax returns; or
5. Is not a fi t and proper person to be registered

   Administratively, the Commissioner General may also not grant registration if a person

• Has no bank account
• Has previously been registered for VAT purposes but failed to perform his duties under the VAT law

2)  Compulsory Registration

If during the past 3 calendar months one made taxable supplies whose gross value, exclusive of VAT exceeded Shs. 37.5 million then one has to register for VAT immediately. Or, if one reasonably expects that during the next 3 calendar months the total value of your taxable supplies is likely to exceed Shs.37.5 million then one must register for VAT. Remember that even if one doesn’t qualify to register at present, and in future their taxable turnover increases to the level mentioned above, one will be required by law to register at that point.

How does one calculate turnover?

Turnover is calculated on an ongoing basis. Two periods should be considered – the past 3 calendar months and the next 3 calendar months (consecutive months). 

One should ascertain at the end of each calendar month the total value of taxable goods and services supplied for the past 3 months. Where the total exceeds Shs 37. 5 million a person is required to register for VAT. Or If after estimating the total value of supplies for the next 3 months one expect your turnover to exceed Shs 37. 5 million then you are required to register.

Can one be registered if turnover is below the threshold/ limit?

Yes, if the taxable turnover is below the 37. 5 million limits in any 3 calendar months of business activity, one may apply for voluntary registration.

However, one will have to satisfy the Commissioner General that they have a fi xed place abode, are able to keep proper records and are fi t and proper person

Voluntary registration is at the discretion of the Commissioner General. In case one’s application is rejected, they will be notifi ed the reasons for the refusal given.

How does one account for VAT if value of supply is not clear?

VAT on any goods or services where value is not clearly defi ned should be accounted for basing on the fair market value at the time the supply is made; e.g. barter trade, gifts, own use.

What are the obligations after VAT registration?

• Charge and collect VAT on supplies by issuing a Tax Invoice. Currently this all VAT registered taxpayers are required to enroll for the Electronic Fiscal Receipting and Invoicing Solution – EFRIS and issue invoices and receipts online
• File a VAT return within 15 Days after the end of the month
• Pay VAT due as assessed in ones return within 15 days after the end of the month. Currently when the return is fi les the return, the pay slip is automatically generated
• Maintain Proper Records
• Avoid making reckless, false and misleading statements

Benefits of VAT registration

• Being in position to supply large and or credible business which leads to more profi ts and growth
• Avoiding inconveniences arising from unfair assessments
• Avoiding offences related to VAT registration, return fi ling and failure to pay

Penalties related to VAT

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Disclaimer:

This information is strictly for creating awareness and providing guidance to our clients. It should not at any one time be used in place of substantive law; and is subject to change on amendment of tax legislation and any other regulations governing tax administration.