URA – Prime Time Communications

Out to Lunch

#OutToLunch: Investment ideas to fulfill your 2024 resolutions

By Denis Jjuuko This week sees the end of the festive holiday period almost for every organisation especially those in the private and development sectors. Like every new year, many people come up with resolutions, committing themselves to what they would like to achieve. For many, making more money tops the list. Money, makes the world go round or so we are told. If making money is one of your resolutions, here are some ideas: Trading in FMCGs: There is a saying that cashflow is king. If you want to make money in 2024, you may have to look at businesses with a lot of cashflow. Trading is one such business. You can buy stuff in the morning and have them sold by the evening. This is common in the sector known as fast moving consumer goods or FMCGs. Almost everybody or household uses them every single day. Such goods may include sugar, soap, cooking oil, wheat, bread, and packaged drinks (soda, water, beer, juices etc.). Fuel (petrol and diesel) are considered as FMCGs too. There are so many other goods in this category just like you see in the supermarket or retail shop near you. Because they are highly consumable, they provide good returns to those who trade in them. The margins per item is small but the secret here is in the volumes. Traders earn about Shs500 or so per a carton of soda or bottled water but the numbers they can sell a day can be huge. A small trader doing just 1,000 cartons a day would be able to earn a gross income of half a million shillings. In a six-day week, that would be Shs3m or approximately Shs12m a month. Treasury bonds and bills/unit trusts: There is an increasing interest in treasury bonds and bills as well as unit trusts. Unlike trading, these are hustle free investment options. You simply walk into your commercial bank with a minimum of Shs100,000 and start investing in bonds and bills. Insurance companies and investment companies regulated by the Uganda Capital Markets Authority offer unit trust investment opportunities some of as little as Shs10,000. Bonds, bills and unit trusts offer returns of about 10% annually. If passive income is your thing, this is where to invest. If you reinvest the interest, in a few years, you can significantly see huge returns due to the power of compound interest. Real estate: There are some people who are running away from real estate especially rentals to invest in the hustle free treasury bonds and bills and unit trusts, which means there is a gap that is increasing in real estate rentals especially for the lower and middle income categories. Already, statistics from Habitat for Humanity Uganda indicate that the country’s housing deficit stands at 2.4 million housing units. As Uganda continues to urbanize, there will be an increasing demand for houses for especially young people who are doing their first or second jobs. Houses that are affordable for the lower and middle income earners will continue to be in demand for years. The investment here is also not so high and can be done incrementally over a long period of time. Besides rentals for this population segment, land banking and selling and buying are still other income generation and saving options. Motor vehicle spare parts: If you live and work in the greater Kampala metropolitan area, you know the state of the roads in the country. Each vehicle you see on the road is a potential client. Given the state of the roads, car breakdowns are going to be the norm rather than the exception. The lack of an efficient public transport system and the culture of owning a motor vehicle considered as a yardstick of success will see an ever-increasing number of vehicles on the road. Most of these vehicles come in old from Japan and the state of the roads will ensure frequent breakdowns. Roads take time to be built even when money is available, making investing in motor vehicle spare parts a worthwhile venture. Electric mobility: A trending photo this week was of Tesla car being offloaded from a car carrier somewhere in Uganda. Teslas are fully electric vehicles. Many development partners and blue-chip companies have started electrifying their fleets. This is a result of URA removing import duty on electric and hybrid vehicles this financial year. Kiira Motors’s vehicle plant is nearing completion with the installation of the assembly lines, paint shops and testing facilities ongoing in Jinja. But we don’t have enough mechanics and technical people to maintain these electric vehicles. We don’t even have enough well-trained electric bus drivers. The electric mobility value chain has great potential for those looking for investment opportunities this year. Personal health: Apart from making money, many people resolve to do something about their health every new year. They perhaps understand that you can only make money if you are alive and healthy. Personal health is already an industry worth of billions of dollars globally. As the country urbanizes and a few people get out of poverty, they will always be willing to spend on their personal health making it an area with potential returns for investors. The writer is a communication and visibility consultant. djjuuko@gmail.com

February 5, 2024

Out to Lunch

#OutToLunch VAT should be paid after cash received policy should be extend to all sectors

#OutToLunch VAT should be paid after cash received policy should be extend to all sectors By Denis Jjuuko There is a story that didn’t make newspaper headlines or even trend online but very crucial for small and medium enterprises or as we have learnt over the last few weeks even for ‘big’ businessmen. The story, published by Daily Monitor in its business pages reads that “goods (and I believe services) supplied to government will, beginning July 1, not be subjected to value added tax (VAT) before their invoices are cashed.” It added that “the policy shift is contained in the new tax amendments 2022 that were passed by Parliament but still awaiting to be signed by the president.” I hope the president doesn’t even take a day to sign this into law. I am not sure why this didn’t make the main headline or at least be on the front page but as somebody who has never edited any newspaper, I would certainly never know. The way VAT has been collected is prohibitive and deters growth for especially SMEs which are the heartbeat of the economy, any economy anywhere in the world. Currently, the Uganda Revenue Authority expects you to pay VAT at the point of delivery, invoicing or payment. This has been problematic for SMEs because you have been expected to pay money you aren’t sure you will ever receive. Usually, upon signing of a contract or receiving the purchase order, government expects you to deliver and then invoice even though there are some cases where a certain small percentage is processed upon signing the contract or receiving the purchase order. In many cases, even where a percentage is paid, it isn’t enough to deliver the goods or services. So in order to deliver on your side of the contract, you approach the bank or informal money lender for a loan at huge interest after which you start the protracted game of chasing payment from government. The promised working days before your payment is processed can turn into months and sometimes years. But within 15 days of invoicing, URA has been expecting you to pay failure of which they would institute penalties. So as a businessman who is already in debt, you take on more debt to pay URA the VAT. This can easily make you a bad debtor and have your assets advertised for auction. The move to demand VAT after somebody has been paid is a good move. One doesn’t have to take on unsustainable debt to pay VAT to avoid penalties or even closure of your account. Money can be paid whenever government pays. At least this doesn’t tie up capital to do some other work as one waits for government payment. Though for many smaller businesses, the tax amendments would have made more sense if the amended law included other businesses. Although the issue of delayed payments is more rampant with government, it is also endemic in non-government organisations and the private sector. Many times, people who are supposed to pay don’t do anything to ensure suppliers are paid on time even when for the case of NGOs money is idly lying on their account. It could be due to lack of understanding and appreciating the pressures in the private sector or simply a bureaucratic system. Many times paper invoices are deliberately misplaced or supporting documents are kept away. An officer goes on leave or decides to attend a workshop for weeks without assigning anyone else to handle their work thereby further delaying payments. This is one of the reasons government owes suppliers an estimated Shs2 trillion some of which hasn’t been paid in five years. Imagine as a small and medium enterprise having your invoices unpaid for five years! Litigation is costly for SMEs and it can also take many years as the case is assigned one judge after another who keep on adjourning it for extended period of time. As a businessperson, you sometimes return to prayer or unsustainable debt which curtails growth. Employees will be affected, businesses will close. Government would lose revenue. Now that the issue of when VAT is paid when supplying government is sorted pending the president’s signature, the issue of the 18% need to be worked on as well. In Kenya, VAT is 16%, in South Africa it is at 15% while in Ghana 12.5% and 7.5% in Nigeria. A reduction in the rate in Uganda would also help boost business and incomes especially given the ongoing economic disruptions. The writer is a communication and visibility consultant. djjuuko@gmail.com

October 21, 2022

News

#OutToLunch Ongoing URA changes should address SME challenges

By Denis Jjuuko Over the weekend, several senior managers at the Uganda Revenue Authority (URA) tendered in their resignations ostensibly to pursue other careers. Social media as is usually the case went overboard with some people claiming it was a purge that the officers didn’t choose to resign rather forced to do so. URA issued a statement saying the board made recommendations concerning the “reorganization and management” but “some senior officials chose to resign and the board accepted their resignation.” There is nothing new in mass resignations in organisations following an appointment of a new boss. However, what concerned me was the statement, which talked about “reorganization and management of URA” though my concern isn’t merely in the personnel, those can always be replaced. The way URA works is what needs to change and I hope the “reorganization and management” will consider small and medium enterprises (SMEs). There is a need to change or push to change the many taxes that end up strangling small businesses. The income tax rate is at 30%, excise duty at 15%, withholding tax at 6% and VAT at 18%. All these taxes may be fine for large organisations, but for small companies, they are a death sentence. So imagine a company that gets a Shs100m contract, runs to the bank to get a loan to execute the assignment and the loan is granted at 24%. If they pay all those taxes and the interest fee, what do they remain with? But before the company even gets a contract, it must submit a tax clearance certificate (TCC). Some years ago, URA people sat in a boardroom and came up with an ingenious idea —TCC must be issued per a bid. So if you are bidding for work in Company A today, you apply for a TCC that goes to Company A and if tomorrow you need to make another bid to Company B, you apply for another TCC. Never mind that you just got a TCC a day before. The funny thing is that today URA can issue you a TCC and tomorrow they can reject to give you one. I don’t know what makes URA issue a TCC today and refuse to issue another tomorrow. This process of applying a TCC per bid is another cost for SMEs because many rely on external consultants to process these certificates for them. Why doesn’t URA issue a TCC for say six months or one year? If they fear that SMEs will forge them, they can a create verification system. If people can quickly verify in whose name is a vehicle registered at URA, why can’t they verify whether a TCC is genuine or not? Taxes like VAT should also be reformed where SMEs don’t have to pay URA once an invoice is issued rather when they have been paid. I know there is an option for this but its administration is even more complicated than paying URA before a company is paid because you must have paid all your VAT before you allowed this option. Where does an SME get the money to pay taxes for money it is not sure will be paid on top of servicing loans at crazy rates? URA sometime back introduced a very good system where some types of businesses are charged a set rate as income tax. They call it a presumptive tax. Businesses like salons pay this rate instead of self-assessments. The figure payable is set regardless of the profit made. I think this is a very good way of taxing SMEs. However, they left out many businesses that could pay more taxes if they were asked to pay a fixed rate. Self-assessments are cumbersome to both the small taxpayers and URA. The URA needs many staff to look at documents before they accept that the self-assessment is correct. Many times, URA refuses self-assessments and institutes charges that are way above what an SME made in a year. That involves a lot of back and forth before the tax is paid if ever paid. There is a need to widen businesses that pay a presumptive tax rate but also consider the size of business. The other alternative is to have an income limit where, for example, if the business earns less than a certain amount a year is allowed to pay a presumptive tax than going through the cumbersome processes of self-assessment. This will reduce the number of companies filing zero profits and therefore paying nothing in income tax. Also, URA needs to handle SMEs differently. For example, the assessment forms for Withholding Tax exemptions shouldn’t be the same for all taxpayers. A simple form for a small business is sufficient whereas, for the largest taxpayers, they can have a form that fits their size. As URA was issuing statements about its staff resignations, MTN was issuing another regarding a tax case involving Shs326 billion which the telecom giant questioned in court. The assessment came to Shs24 billion but MTN further appealed to the Tax Appeals Tribunal. To cut the long story short, MTN got an interim order against the enforcement of URA notices. MTN as a large company can afford silver-tongued lawyers and appeal even for 20 years but SMEs can’t. A mere lack of a TCC is a disqualification from a potential contract. Excessive assessments from URA simply lead to heart attacks for the owners and closure of the business. URA enforcement officers also love small companies — they quickly attach bank accounts, put padlocks on the premises and such other things. For the big boys, they simply sit on the table or go to court. Changes at URA, therefore, shouldn’t stop at just personnel but the way tax administration is carried out especially for SMEs because they are the majority and employ more people collectively. Customer care is critical if URA is to achieve its tax targets and SMEs can play a critical role if URA invested time and resources to understand them and address

June 4, 2020