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Why Ugandan Commercial Farmers Should Embrace Voluntary Tax Compliance

Ian Rumanyika, the Public & Corporate Affairs Manager at URA

Should farmers pay taxes? How does Uganda Revenue Authority (URA) tax farmers?  These are some of the widely discussed questions in many farming WhatsApp Groups.

During the Economic Summit held at Serena Hotel on November 27, 2019, Finance Minister Matia Kasaija said it was about time farmers started paying taxes if Uganda was to increase its tax to GDP ratio.

“For as long as you stay in Uganda you need to pay tax. If you don’t, you are cheating yourself. How do I increase our tax to GDP ratio?” Kasaija said.

Against the above background, Business Focus on Sunday November 8, 2020 had an exclusive interview with Ian Rumanyika, the Public & Corporate Affairs Manager at URA, on matters regarding taxing Ugandan farmers.

Rumanyika says commercial agriculture is registered like any other business and should pay taxes.

He explains that agriculture is a dominant sector in Uganda’s economy contributing close to 25% of the country’s Gross Domestic Product (UBOS 2015).

The sector is also the main foreign exchange earner and the largest employer of Uganda’s population with over 70% of the population employed in this sector.

According to UBOS, the sector accounts for over 50% of the county’s exports. Unfortunately,  Rumanyika says, the sector only contributes less than 1% of the annual revenue collections.

“In spite of the many people being employed in the sector, it only accounts for 2.7% of the URA’s register-only 20,430 are currently registered for taxes. Of these, 96.2% are engaged in crop and animal production, 2.1% in forestry and 1.7% in fishing and aquaculture,” Rumanyika reveals.

He adds:“When you earn income, you deduct expenses and pay tax on the profit. A commercial farm is advised to register for taxes because it is usually a requirement for big clients who want supplies. Having a TIN (Tax Identification Number) gives you advantage and enables you grow bigger.”

This means that a farmer should ensure proper record keeping to allow him or her accurately account for the expenses on the farm.

Rumanyika adds that most players in the agriculture have a misconception that they do not have to comply with tax obligations.

According to the Income Tax Act, he says, anybody whose annual turnover is above Shs10m is supposed to pay Income Tax.

 “Would it be a fair ground for one to sell 1,000 cartons of grapes and earn Shs20M at a single sale and not pay tax? If someone earning Shs10m in a retail shop pays tax, why shouldn’t someone earning over Shs40m from farming annually pay tax?  Commercial farmers reap immense profits and they too ought to contribute something. The example I gave you of the person who sells grapes is way above the threshold; such income is subject to tax as stipulated by the Income Tax Act,” Rumanyika says.

He also gave an example of a teacher who earns Shs250, 000 per month and pays PAYE (Pay As You Earn) yet someone who sells cows and earns Shs100M doesn’t pay tax yet almost all agricultural inputs are a tax free.

Rumanyika says farmers  also employ staff at their farms that are supposed to pay PAYE.

“For example,   farm doctors, farm managers and all others have to comply as long as the income is above the threshold of Shs235, 000 per month,” he says, adding: “Agriculture compliance is still low, the majority still believe they are not supposed to pay tax. But we are engaging them and asking them to formalize their businesses.”

He reveals that players in agricultural sector benefit from the many incentives introduced to encourage investment.

A farmer is also encouraged to register his farm for taxes because he can’t import or export any agricultural items without a TIN.

“For example, if machinery like tractors are bought, taxes like Import Duty and Value Added Tax would not be applicable. This is also applicable to purchase/importation of seeds and fertilizers. However, only those who ate registered benefit from the enormous incentives.”

He explains that URA’s tax system aims to promote voluntary compliance which is designed to be a self assessment system.

“The only way we can change taxpaying culture is to enable businesses or taxpayers do it themselves,” Rumanyika says.

He adds that many times URA has gone to the taxpayer for tax awareness, registration and nurturing/support.

“It is not feasible to go to every taxpayer; tax administration shouldn’t be costly Vs the revenue you collect,” he says.

He adds: “It is the taxpayer’s right under the law to get tax education/sensitization and it is then the Taxpayer’s obligation to register and pay taxes that are due.”

In conclusion, he emphasized that paying taxes is a moral and ethical issue.

“If you earn income and tax is a cost, treat it as a price you have to pay to access a better business environment that you demand from Government; electricity, water, cheap capital, business security etc,” he says.

Taddewo William Senyonyi
William is a seasoned business and finance journalist. He is also an agripreneur and a coffee enthusiast.

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