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Experts Encourage Businesses To Formalize, Grow

URA CG Musinguzi (in maroon necktie) poses for a photo with panelists Kisirinya, Mutyabule and Kekihembe. Left is sign language interpreter Olivia Nakigozi and host Maurice Mugisha (Right)

Experts agree that for businesses to expand, the must formalize.

Business formalization formed part of the discussion at the last session of e-Bomba Ya Business Summit 2021 hosted by Uganda Revenue Authority (URA) on Friday.

Constance Kekihembo (Chief Executive Officer, Uganda Women Entrepreneur Association Ltd), Rosemary Mutyabule (Director Business Advisory and Consultancy Services, Enterprise Uganda) and Francis Kisirinya (Ag. Executive Director Private Sector Foundation Uganda – PSFU) says that if you must grow your business, you must register.

“Don’t keep your business in your bag. Make it formal. If you are going to be supported, you must be known. That means the government can plan for us,” Mutyabule says.

According to Kekihembo, the informal sector is the entry point but “we want to see a transition. But it is a mentality that. There is fear towards paying taxes. So, we encourage the informal sector to think bigger. Think bigger. But we want you to think bigger than today. It is a good way of starting businesses. Being in the informal sector is not an ending.”

Kisirinya says that for anyone to trust you, you must be registered.

“People don’t trust you when you aren’t registered. You can’t get partnerships. You can’t expand. Otherwise if you are registered, paying taxes is not your problem. You can’t pay taxes when you have not made money,” Kisirinya says.

According to Kisirinya, PSFU offers training and builds the capacity of small businesses so that they are able to grow.

“If you are not making money, you must be pricing your goods the wrong way. If you aren’t making money in a business, there is a problem and that’s why we offer business development services. Registration isn’t about paying taxes. If you ever find a problem with paying taxes, the problem is with you. If you must grow your business, you must register,” says Kisirinya.

Data shows that only 48% of businesses are formal.

Responding to alleged fear of paying taxes after formalization, URA Commissioner General John Musinguzi says “Formalization equals paying tax. It is getting your business registered. It is keeping your records right and that way, by implication, you will pay the right taxes if at all. The principle of taxation is that you pay a fraction. A percentage on the profit you have made or the income you have earned. Not everyone is taxed. There is a threshold of 235,000 below which the government does not tax and once you are above that, the government takes a small percentage (10%). Government at the end of the year takes a fraction of 30% from Business Income Tax. They aren’t taking away your capital. Formalization doesn’t mean paying tax. If your VAT input and VAT output are equal, you are not paying tax.”

However, he adds that Tax education is a minimum that URA must do to reduce the informality and as URA, he says “we will be part of this journey of partnerships, of teaching and engaging our citizens and all potential taxpayers to formalize their businesses with a strict pledge that we will never touch you when you have not earned. You can formalize, run your business and you will not pay a penny of tax if you have no income to contribute the taxes from. That’s why we have something called a NIL return and we will consider you a compliant taxpayer for filing your return indicating that you have NIL taxes to pay.”

He wonders how businesses will expand if they don’t formalize.

“How will you ensure that those who work for you will not actually cheat you because you must have a proper way of keeping records,” he says. Musinguzi says that URA is working on its culture.

“We want to position ourselves as a customer service, a customer centric, sensitive and listening to the taxpayers because our all tax system is built around voluntary payment of tax. We are a listening organization and we will only collect what is due,” Musinguzi says.

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