Taxation of SMEs Vs Entrepreneurial Growth in Uganda
Ugandans are naturally hardworking people who love to start businesses. However, amongst the many business ventures started, only a few managers are able to celebrate their first birthdays. Business challenges mainly lie with support systems from regulators, authorities, and families. On the other hand, Ugandan entrepreneurs also lack persistence and perseverance, which is the backbone of entrepreneurship. Other entrepreneurs lack the required managerial skills but there is some progress despite the prevalence of unsupportive systems like the challenging taxation system.
Some SMEs argue that they are taxed highly compared to their returns. Many business people cannot negotiate with the authorities and this explains why many are reluctant to register but continue operating informally. While there are several advantages of running a formal business, one disadvantage might outweigh the benefits. Notably, businesses are being closed by tax authorities or losing remarkable financial resources in penalties due to non-compliance with the country’s tax requirements which has paused significant drawbacks to the growth of entrepreneurship in Uganda.
It is worth noting that many SME directors/management are not aware of the taxes they are supposed to pay. Consequently, they became un complaint and pay heavy penalties when they would have otherwise avoided these costs had they been enlightened about their tax obligations. Many Ugandans have good business ideas but have failed to execute them for fear of tax compliance requirements. According to Independent.co.ug publications of May 25, 2016, “the biggest portion of Uganda’s economy (about 80%) is composed of the informal sector”. This could be attributed to fear of high taxes charged on formal businesses or other tax compliance requirements yet having untenable effects on the growth of entrepreneurship in Uganda and profitability of SMEs because informal businesses are always denied opportunities to participate in government procurements and limited freedom to export to international markets among others.
“In such instances, tax planning and training is a key solution to skill people on how to manage their business affairs while remaining compliant with the tax regulations and requirements so that the results can be much better. It is important to note that tax-compliant businesses are enjoying tax exemptions, freedom to trade through quick accessibility of tax clearance certificates, and easier access to international markets. These are in some instances government initiatives intended to promote exports yet individual businesses are retaining the profits generated thereon, among other benefits”.
As part of the core values of Dativa & Associates to ensure value addition, capacity development and to manage our client’s resources in a cost-efficient manner, we have a skill set of dedicated professionals to help our clients manage their tax affairs by offering tax training, advisory and consulting services to our clients.
We always encourage current and potential entrepreneurs to operate their businesses formally and where necessary, engage professionals in the management of their tax affairs to ensure compliance and reap the associated benefit/profits in operating formal businesses.
By Okot Leonard