Uganda’s corporate taxpayers are officially in the final stretch. The current tax administration is anchored on a self-assessment regime, which places the responsibility of computing, declaring, and remitting taxes squarely on the taxpayer.
While this model enhances efficiency and trust, it also exposes taxpayers, particularly businesses and high-net-worth individuals to numerous compliance risks that, if overlooked, can trigger audits, penalties, or even criminal investigations.
This isn’t just another routine year-end; it’s a critical window for proactive risk management.
Companies that ignore this period risk exposing themselves to tax audits, re-assessments, penalties, and reputational damage. With URA tightening compliance surveillance through EFRIS, Asycuda, and cross-matching digital records, even minor discrepancies can escalate into major liabilities.
Now is the time for CFOs, finance managers, accountants, and auditors to pause, reflect, and correct. This article walks you through key red flags and silent compliance gaps that could blow up during or after your 2024/2025 closure if not addressed immediately. Think of it as your last-mile tax risk checklist.
1. VAT Deferment on Machinery Imports – A Double-Edged Sword – Under the VAT Deferment Regulation of 2013, taxpayers are allowed to defer VAT on plant and machinery used in production. However, this benefit is often abused or misunderstood. Many businesses enjoy deferment at customs but fail to align it with their VAT filings. If the machines are not installed or are used for non-production purposes, the deferred VAT becomes payable immediately. As per Article 7 of the Deferment Act, URA may visit the premises to verify the installation. Businesses must maintain proof of the use and location of such assets to avoid exposure.
2. VAT at Importation Vs Monthly VAT Returns – Every item imported attracts VAT at customs, which must be accurately reported under Schedule 3 of your monthly VAT return. If the customs entries are not fiscalized in time or omitted in the VAT return, URA will detect the variance. Use Asycuda and ERP reports to reconcile all import entries monthly. Inconsistent reporting often results in automatic assessments and penalties. Raise tickets early via ERFIS or customs support if you detect issues.
3. Variance Between Sales Turnover and Audited Accounts – URA routinely matches VAT return sales with sales reported in audited financial statements. Discrepancies no matter how small, can trigger an audit. Discounts, credit notes, and cancellations must be properly reflected in both VAT and income tax returns. Additionally, your ERP, EFRIS, and ledger reports must all align. Failure to do so implies underreporting or fraud.
4. Imported Services – Watch the 15% WHT and 18% VAT Trap – Ugandan businesses that import services such as cloud hosting, IT support, training, or consultancy must pay both 15% Withholding Tax and 18% VAT. A common error is to only withhold 15% and ignore the VAT. If URA audits your contracts or bank transfers, and finds undeclared VAT, they will not only demand the tax but add interest and penalties. Proper documentation of all foreign service contracts and transactions is essential.
5. Asycuda Export Declarations vs VAT Returns – Exports are zero-rated under VAT law, but only if properly declared. Any mismatch between customs exports (Asycuda) and your VAT returns raises red flags. If URA cannot match these, they may reclassify the export as a domestic sale and charge 18% VAT. Reconcile forex rates monthly using the URA portal, and keep your export documentation in order.
6. Related Party Loans – Transfer Pricing Minefield – In group structures, loans between related companies (especially cross-border) must be supported by contracts, interest rates, and clear repayment terms. URA often reclassifies undocumented related party loans as income and imposes a 30% income tax charge. Even domestic intercompany loans without a transfer pricing file can attract scrutiny. Always maintain proper loan agreements, transfer pricing policies, and board approvals.
7. Rent Expense – Missing Landlord TINs – Claiming rent as a deductible expense requires the landlord’s Tax Identification Number (TIN). Many businesses fail to obtain this, especially when renting informal spaces or residences. The URA system automatically checks for TINs on rent claims. Absence of this may result in disallowance of the deduction. If you run an online business, declare your market space and payment arrangements properly.
8. Supplies to Contractors – Ensure Full Documentation – When supplying goods or materials to a contractor, always retain certified copies of contracts, invoices, payment vouchers, and delivery records. Missing documentation during a URA review often leads to disallowances of both income and input VAT claims. Reconcile monthly and keep digital backups.
9. Deemed VAT and Self-Supply Adjustments – In cases where supplies are not fiscalized (e.g., deemed supplies), businesses must self-assess VAT. Ensure this is supported by documents such as: – Purchase orders, Proforma and fiscalized invoices, delivery notes, customer confirmations, payment receipts among others. Failure to maintain this trail weakens your claim and may expose your business to risk.
10. Claiming VAT Refunds – Plan Ahead – Section 42(1) of the VAT Act allows refund claims for excess VAT over UGX 5,000,000. However, if you fail to sell the goods related to the inputs or do not declare matching sales, your refund may be rejected. Ensure all inputs are tied to outputs. For manufacturers with bonded warehouses, reconcile removals from bond with production and sales volumes. Do not claim VAT on goods still in inventory.
11. Paying Taxes Under Wrong Tax Heads – Mistakenly paying income tax under a VAT PRN (or vice versa) causes ledgers to mismatch and credits to disappear from the correct tax account. Always verify your PRN corresponds to the correct tax type. Wrong postings can delay refunds, attract interest, or trigger queries.
12. Directors’ Personal Returns – If directors appear on payroll or receive benefits from the company, their personal returns must be filed. URA monitors director filings closely and may reject your Tax Clearance Certificate (TCC) application if any director is non-compliant. Keep tabs on each director’s TIN and tax account.
13. Importance of a Tax Clearance Certificate (TCC) – A TCC is a crucial document that proves your tax affairs are in order. It’s required for procurement, loan applications, and some licensing processes. Taxpayers have a misconception that a TCC exempts one from filing, No, it doesn’t! You must continue to comply with all filing obligations. Always reconcile ledgers, ensure no outstanding liabilities exist, and apply early to avoid delays.
14. Filing Taxes on Time – No Excuses – Missing tax deadlines is one of the easiest ways to attract penalties. Key deadlines include: – 15th of every month: VAT, PAYE, Withholding Tax. End of financial year + 6 months: Final income tax returns, provisional tax: Filed in two installments during the financial year
Penalties of over UGX 20 million have been issued for persistent non-filing. Adopt a compliance calendar and assign responsibility for tax filings within your finance team.
In essence, the most expensive tax mistakes are often the silent ones. Tax is not merely a statutory obligation but rather a civic duty that empowers national development.
The Countdown to Compliance – Only 6 Months Left!
Joshua Kato, CA IS A Chartered Accountant and a Chartered Tax Advisor