Traders without TIN numbers

In future, traders without TIN numbers to lose out on business

With effect from 1 July 2015, businesses will not be allowed to claim tax deduction in respect of costs and business expenses relating to suppliers who do not have a TIN number. This means that if you are in the business of accounting and auditing like me, you will not be allowed to claim the cost of your stationary such as copying and printing paper, unless the person who supplied you with stationary has a TIN number. This will apply to all business costs that are more than UShs 1 million. This is one of the new tax measures contained in the income Tax Amendment Bill 2015.

This new tax measure is aimed at encouraging businesses to register with the URA. The government is hoping that businesses and traders who are not currently registered with the URA will now realise the dangers of not having a TIN number and register immediately, or else lose out business.

According to the tax law of Uganda, every person who is engaged in a business activity is required to register with the URA and be issued with a TIN number. This applies to every business activity, whether it is a special car hire service, heavy goods truck (maggulu kumi), rental houses, mobile money agent, catering services, comedian, funeral service directors etc. Having a TIN number does not mean you have to pay tax. No. A TIN number is for purposes of identifying you as a tax payer and it is unique for every tax payer.

This change in the tax law requires all business and tax payers to ensure that with effect from 1 July 2015 all the suppliers they deal with are registered with the URA and have a TIN number. Most corporate suppliers will already be registered with the URA and have TIN numbers. Therefore it is the small traders and suppliers who will most likely be affected by this new change in the law. This is one of the new measures aimed at widening the tax base. I think this a very smart and innovative way of encouraging businesses to register with the URA voluntarily. This is because now it makes business sense to have a TIN number. So be warned, with effect from 1 July 2015 if you do not have a TIN number, no one will want to do business with you.

Think of having a TIN number in the same way as having a passport. Not every person who applies for a passport has a scheduled trip to travel outside Uganda. But you need to have the passport on you in case you are required to travel at short notice and there will be no time to apply for one. Likewise everyone who is involved in a business activity must have a TIN number, just in case the business makes a profit sometime in the future and the person is required to pay tax on the profits.

Registration with the URA will also help change the attitude of small business with regards to taxation, and has the potential to stimulate economic growth. Many entrepreneurs and small businesses spend so much time focusing on how to evade taxes, and this often distracts the entrepreneur from focusing on important business development and growth opportunities.  Informality can stifle entrepreneurship as firms remain small and fragmented deliberately to avoid the attention of the URA and other government agencies.

Encouraging businesses to register with the URA has benefits that go beyond just collecting taxes from them. A business that is registered with the URA and regularly complies with its tax obligations is exempt from paying the 6% withholding tax that applies on the importation of goods into Uganda. This means a business that is registered with the URA pays less tax compared to one that is not.  In addition to being exempted from paying withholding tax on its imports, it would also be entitled to a full refund of all the VAT it pays when it imports goods into Uganda. The refund is made in form of either offsetting the VAT it paid against any VAT it would be required to pay on its sales, or by requesting a cash refund from the URA, assuming the VAT it paid on its imports is higher than the VAT it is required to pay on its sales. This can mean a tax saving of up to 50% of the total taxes that would otherwise be payable if the business was not registered with the URA.