Why Informal businesses are encouraged to register

by Abbas Muhamad
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There are a number of businesses that operate informally in Uganda for several reasons. These miss out on vast opportunities from the both the government and private entities that come from operating a registered business.

Whereas the business formalization process in Uganda today has undergone tremendous reforms and improvements, there are those who still prefer to stay informal claiming, there is a lot of bureaucracy and that the process is long, exhausting and expensive.

According to the Uganda Revenue Authority (URA) Commissioner General John Musinguzi, there is need for businesses in the informal sector to formalize so that they can be supported to grow without facing unnecessary obstacles in their day to day operation.

Without necessarily focusing on raising revenue (which is used to provide social amenities to Ugandans), the Commissioner General believes formalization of businesses will provide a better competitive advantage from a business that continues to operate informally.

“The principle of taxation is that you pay a fraction of the profits made or income earned. Tax education is a minimum that we must do to reduce informality,” he said, adding that informality ties their hands as URA and they will not be able to grow.

The discussion was during URA e-bomba ya business summit under the theme: “Business Formalization and inclusive resource mobilization for Uganda’s economic independence” that took place in Kampala recently.

Having a registered business gives the business owner the opportunity to build a reputation and image that clients can easily rely on, especially if the services provided are beyond the client’s expectations.

“You can register and get a Tax Identification Number(TIN), online without being asked too many questions. In principle, we are together in this. Let us encourage businesses to formalize and support them to grow. They will only contribute tax when they have grown and are making profits,” said Musinguzi.

To be able to provide the requisite financial support, experts say any bank will require a business to provide proof of registration and at times certified evidence of existence of the business provided by the Registrar of Companies.

It is unfortunate that most businesses start informally and choose to operate in the same arrangement thus limiting their ability to grow, expand, attract and retain a client base while providing their core services.

With the advancement of technology and ease of access to the internet, the Acting Executive Director, Private Sector Foundation Uganda (PSFU) Francis Kisirinya says every potential customer will look out for a service provider, who is versatile, quick to provide responses and who has provided similar services to another client.

Kisirinya says, if one is operating formally, then paying taxes shouldn’t be a problem because he or she only pays taxes when he or she has made profits.

“I have seen businesses which operate for years and fail to develop, they eventually fall because they have continued to operate informally. When you are not registered, people cannot trust doing business with you. Everyone thinks that you are the one that deals in counterfeit goods,” says Kisirinya.

For a person running a business informally, he or she might end up paying bills, which he or she would not have paid, if the business was registered.

Rosemary Mutyabule, the Director Business Advisory and Consultancy Services Enterprise Uganda says citizens hold the obligation to support the informal businesses to grow and then formalize.

One of the main challenges in the informal sector, according to experts, is the negative perception towards paying taxes, so what needs to be done is educate the population on why to pay taxes and to encourage them to formalize their businesses.

All government service providers must be registered business owners, meaning an informal business will not be able to participate in any bidding process for goods, works and services unless they provide supporting documents to that effect.

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