The Client’s Problem

During one of the tax audits, we realised that one of our clients had ignorantly not filed the exempt purchases for VAT during the financial year, this would affect the income tax return we were to file to Uganda Revenue Authority (URA) because purchases as per VAT would be lower than what was to be declared for income tax which could cause tax issues with URA. According to the Value Added Tax act cap.349 section states that there are three supplies made that need to be declared for VAT that is taxable supplies under section 18, exempt purchases under section 19 and exempt imports under section 20. URA requires a VAT registered person to declare their supplies whether exempt, zero or standard. The biggest challenge with the tax payers that ignorantly they do often forget to declare the exempt supplies in their monthly VAT returns and, in the end, their financial records do not reconcile with what is declared in the VAT return. In the end the client was going to have a high tax liability if the exempt purchases were to disallowed under the income tax return because they had not been declared under the VAT returns.

Our Solution

In order to ensure that our client does not pay high income taxes, we amended the VAT returns to include the exempt purchases. This automatically made the purchases per VAT reconcile with the purchases in the income tax return.

Current Situation

The tax audit was an eye opener, since then the client has ensured that he files all exempt purchases. Now our client no longer has issues with his tax returns because his financial information reconciles with that submitted to URA.