Voluntary Tax Compliance

By Joseph O. Okuja

What way forward…Voluntary tax compliance or Enforced compliance? I would say the options depend on whether, as a taxpayer, you fail to properly comply with obligations under the tax laws, or you fail to properly exercise your rights under the tax laws?

Let me share some basic insights on the requirements for voluntary tax compliance that may help improve your relationship with the taxman.

1) The rights, duties and obligations that regulate the relationship between URA and taxpayers are codified in the tax Acts. The mandate to administer the tax laws is given to Uganda Revenue Authority (URA) . Accordingly, they cannot be faulted for applying the provisions of the law on taxpayers who, for one reason or another, get caught up by tax law prescriptions, however, “unreasonable” they may appear to be.

2) The good news is that Uganda’s tax system is based on a self-assessment model that emphasises both the taxpayers’ responsibility to report their taxable income and the need for them to accurately determine their own tax liability. URA only comes into the picture when a taxpayer fails to perform this duty honestly.

3) Under the tax laws, URA officials have various powers and duties to make additional tax assessments on any taxpayer. The need for an additional assessment could arise where a taxpayer has defaulted in filing a self-assessment return, or where a return was filed, the URA is not satisfied with the return for various reasons. In this situation, a URA officer must make an assessment by estimating the tax payable by the taxpayer.

4) While it would be appropriate for URA to audit each and every taxpayer, other than merely estimating the tax payable, URA does not and probably will never have enough personnel and resources to physically audit every taxpayer every year. Nonetheless, tax audits take many forms that do not necessarily require the presence of tax officials at a taxpayer’s premises.

5) Where audits or additional assessments are involved, it is always in a taxpayer’s best interest to hire a tax professional to assist them. Regardless of whether or not the assessed taxpayer believes that their returns are correct, it is best to have someone who understands and is able to explain to URA what the taxpayer did or did not do; and why they did or did not do something.

6) When scheduled or subjected to an audit, a taxpayer’s overall preparedness plays a critical role in its outcome, and the final tax liability. Taxpayers need to recognise that URA officials are also professionals with a legal and factual basis for executing their assessment tasks efficiently and effectively. Treat them professionally and prudently and the result will be accurate. It does not help to be rude or difficult. Be respectful and friendly to the officers and the resulting assessments will be based on verifiable data and records. If you give them attitude, they will unleash the full force of the law on you.

7) Finally, the tax laws require taxpayers to maintain books, accounts, documents and records that are sufficient to enable the determination of a taxpayer’s tax liability. The maintenance of proper records is vital for the effective administration of the tax laws, particularly in providing an audit trail for verifying the accuracy and completeness of self-assessed tax liabilities. A person who fails to maintain proper records but who wishes to challenge a tax assessment may not be able to satisfy the burden of proving that the assessment is excessive if the person does not have proper accounts and records. With proper records, it becomes easy for a taxpayer to comply with their obligations under the tax laws and to confidently object to an estimated assessment.

Joseph O. Okuja is Director | Team Lead, Tax & Regulatory Services at Libra Advocates and Consultants