Business owners need to understand that the growth of their entities will ultimately grow when operating within legal status
By Steven Baryevuga
Uganda is not collecting as much as it could in taxes, according to the World Bank. The country’s tax collections were 14.46 Trillion in 2017/2018 financial year, having increased by about 12.2% from the previous financial year.
Data from the URA shows that it registered over Shs47bn last year as revenue from small businesses under the Tax Register Expansion Program (TREP) that was started in Kampala and the municipal councils. TREP targets a total of 412,044 new clients on the tax register by the end of FY2018/2019.
Reforms proposed by the World Bank aimed at helping Uganda increase its tax collections include registrations of businesses and narrowing of the informal sector to tap into the tax potential of such businesses, while increasing the tax revenue. The World Bank also recommends participation of government agencies, in the mobilisation of taxes especially from the informal sector.
Uganda Registration Services Bureau (URSB) which is the government agency mandated with the registration of businesses has done a tremendous job at pushing the agenda, giving businesses a legal mandate to formally operate, efforts that are seeing the number of formal businesses growing. Registered businesses today stand at over one million and all these are eligible for taxation.
Uganda has previously been ranked as one of the best entrepreneurial countries in the world with every 2 out of 10 people owning businesses. According to the Global Entrepreneurship Monitor (GEM), 28% of adults own or co-own a new business. Despite being ranked among the world’s most entrepreneurial countries, few Ugandan businesses hit the big time. Some of the reasons for this early failure and stagnation include the informal nature in which these businesses operate.
Most of these businesses remain small-scale and informal, avoiding taxes and registration costs. However,this also means missing opportunities, like bidding for government contracts that could offer financial security and a path for growth. Registration helps businesses under the tax laws to be able to get deductions under the various tax laws. Without registration it is not possible to obtain such deductions under the tax laws
Without registration, most of these businesses are deemed informal and therefore cannot be tapped by URA for tax collection. As such, most of these entities without proper formal operations mode wind up in their infancy. Business registration is very important as it establishes the business as a legal entity. Without formally registering, a company cannot be legally considered and will not be protected under any grievance procedures. Also, such a company will not be protected by the jurisdiction from any economic, legal or social instability.
Efforts have been made by URSB to aid small business owners register their businesses by reducing on the time needed to register. Armed with all documentation, one can register their business in just under two days at the One Stop Business Centre. Also, the centre provides business owners with information on what kind of taxes they are eligible to pay and at what rate.
Business owners need to understand that the growth of their entities will ultimately grow when operating within legal status as this gives them the opportunity to compete for business like tenders for supply. Entrepreneurs across Africa often cite access to capital as the biggest barrier to growth. But money alone is unlikely to produce significant results.
URSB’s intense business registration literacy program that specifically targets the informal sector across the country is beginning to yield results, and should be hailed. Business owners are beginning to embrace the attributes of not just registering their entities but also record keeping, savings, investments, insurance, and even winding up. The sensitization URSB is convinced has broken the ‘jinx’ of businesses that stay stagnant, increased profitability and seen URA pick more revenue through taxes.
Writer is a communications specialist at Uganda Registration Services Bureau