ENTREPRENUERSHIP

TAXATION
PRESENTATION GROUP MEMBERS
S/No. NAME REGISTRATION NUMBER COURSE
1 MUGABE SAM UBT006/2023/T/D/A/0016 NDCE
2 AKASHABA DERRIC UBT006/2023/T/D/A/0446 NDCE
3 AHAISIBWE ISAAC UBT006/2023/T/D/A/0040 NDEE
4 RUSOKE RONALD UBT006/2023/T/D/A/0026 NDCE
5 TWINOUSINGUZI ISAAC UBT006/2023/T/D/A/0058 NDEE
6 BIKORWOMUHANGI ALEX UBT006/2023/T/D/A/0072 NDCE
7 NASASIRA COLLEB UBT006/2023/T/D/A/0170 NDWE
8 KABAGENYI DOREEN UBT006/2023/T/D/A/0212 NDEE
9 ASIIMIRE GIFT UBT006/2023/T/D/A/0258 NDCE
10 MUSOKI JANET UBT006/2023/T/D/A/0196 NDCE
11 AIJUKA IBRAHIM UBT006/2023/T/D/A/0092 NDCE
12 AHEEBWA RAYMON UBT006/2023/T/D/A/0454 NDEE
13 BULUKE ANTHONY UBT006/2023/T/D/A/0662 NDCE
What is taxation?
• Definition of a tax: A tax is a compulsory charge or levy imposed by the
government or any other competent authority on persons (individuals,
corporations, or other legal entities) or on businesses in order to finance
government activities.
• Taxes are general obligations and are not paid in exchange for a specific
benefit.
 Tax terminologies used
• Tax incidence: This is the final resting of a tax. In this case the person bears the burden
of the tax.
• Taxable income: This refers to the income which is subjected to taxation after all
exemptions have been deducted.
• Tax avoidance: This refers to the deliberate refusal by the tax payer to p[ay tax levied to
him or her.
• Tax base: This is the amount or value of something that is subjected to taxation.
• Tax rate: This is the percentage of tax base that is paid in taxes.
• Tax authority: This is the government agency responsible for collecting taxes.
• Tax payer: This is an individual or business that is required to pay taxes.
• Tax return: This is a form submitted to tax authority that reports income and calculates
tax liabilities.
• Tax liability: This is the amount of taxes an individual or a business is required to pay.
• Tax assessment: This is the process of determining the amount of tax owed.
• Tax audit: This is the examination of tax payer’s records to ensure accuracy and
compliance.
• Tax evasion: This is the illegal non-payment or underpayment of tax.
 PRINCIPALS OF A GOOD TAX SYSTEM
• Certainty.
• Convenient
• Equity
• Economy
• Productivity
• Elasticity
• Simplicity
• Neutrality
 TYPES OF TAXES
• Direct taxes: These are taxes imposed on income and property of individuals and
business entities.
• In this case;
• The burden of tax is directly borne by the individual or business entity.
• The taxes cannot be shifted to the consumer.
• Indirect taxes: These are taxes charged on an individual or business entity and
shifted to the final consumer.
 DIRECT TAXES
• PAYE (Pay as You Earn): This is where taxes are deducted from employee’s
salary and paid to the government.
• Corporation Tax: This is the tax charged on the net income by a company of at a
flat rate of 30%.
• Individual rental income tax: Tax on rental income derived by an individual is
assessed separately from the individual’s other business income or employment
income.
• Withholding tax: This is a method of collecting income tax. It is collected either
at the point of payment by the payer or at the point of importation.
• Capital gain tax: Is a tax on the profit earned from the sale of an asset.
• Income tax: These are taxes imposed on income and property of individuals and
business
 ADVANTAGES OF DIRECT TAXES
• They are economical to collect by the government in that the government does not
have to spend a lot of money to collect these taxes. For example the PAYE system,
the government simply deducts the tax from the tax payer's salary
• They are based on the principle of economic equity. The progressive nature of
direct taxation can help reduce income inequality.
• Certainty of tax to be paid
• Collection of direct taxes is generally economical. Like in the case of personal
income tax can be deducted at source (TDS) from the income or salaries of the
individuals.
• They are relatively elastic. Increase in income of individuals and companies, leads
to increase in the yield from direct taxes.
• Direct taxes help control inflation.
 DISADVANTAGES OF DIRECT TAXES
• They are easy to evade. This is due to high tax rates, poor documentation and
corrupt tax administration by suppressing the correct information about incomes.
• Arbitrary rate of taxation that is there is no objective defined for determining the
tax rates of direct taxes. Direct taxes may not always fulfill the requirements of
equity.
• The cost of collection is at times high. This is because the government has to
employ many officials and pay a lot to do the collection and administer direct
taxes this they tend to be less Productive.
• They tend to discriminate among tax payers especially where tax assessment is not
based on impartiality For example they do not have a wider coverage.
• High rates of direct taxes make the people resent the government in power hence
making it popular.
• They discourage entrepreneurship especially where the rates of corporate taxes
 PAYE COMPUTATION
AMOUNT EARNED (UGX) PERCENTAGE TAXED
0-235000 0
235001-335000 10
335001-410000 20
Over 410000 30
Consider an employee whose salary is Shs.600,000
1. (235,000-0)*0= 0
2. (335,000-235,000)*0.1= 10,000
3. (410,000-335,000)*0.2=15,000
4. (600,000-410,000)*0.3=57,000
Total PAYE tax, 0+10,000+15,000+57,000=81999.5
Net pay; 600000-81999.5= 518000.5
 INDIRECT TAX
• Customs duty. This is a duty imposed on goods that cross national boarder points
either as imports into the country or exports.
• Excise duty. This is duty imposed on the production or importation of specific
goods with a view to influence their consumption and supply in the local market
• Entertainment tax. Liability is on the cinema owners who transfer the burden to
the cinema goers.
• Service tax. This is the tax levied on specific services for example
communication.
• Value Added Tax. Is an indirect tax that is paid by a person who consumes or
imports goods and services.
• Tariffs: This is the tax levied on imported goods and services.
• Luxury tax: This is the tax levied on luxury goods and services.
 Advantages of indirect tax
• They are economical to collect by the government since the government does not
pay the traders who collect the taxes .
• They are impartial in that they do not discriminate among tax payers thus the
government is able to raise more revenue.
• They are used to safe guard the health and morality of citizen.
• They have a variety of taxes. The increases government revenue .
• They promote hard work among the tax payers.
• They are flexible.
• They used to protect infant industries against unfair competition.
 Disadvantages of indirect tax
• They encourage trade mal-practices especially in foreign traders in an attempt to
evade taxes through smuggling.
• Reduce economic welfare of citizens
• They lead to increased costs of production and this adversely affect the level of
investment, production and employment levels within the economy.
• Indirect taxes like import duties interfere with the freedom of trade hence reducing
the volume of international trade.
• Revenue from indirect taxes fluctuates a lot.
• They spark off in inflation.
DETERMINIG INCOME TAX PAYABLE
Monthly income (UGX) Tax rate

0-235000 0

235000-335000 10% of the amount by which chargeable

income exceeds UGX 235000
335000-410000 UGX10000 plus 20% of the amount by which
the chargeable income exceeds 335000.

Over 410000 a. 25000+30% of the amount by which

chargeable income exceeds UGX 410000.
b. Where chargeable income exceeds shs
10,000,000 an additional 10% is charged
on income exceeding shs 10,000,000
INCOME TAX PAYABLE
• Calculate the income tax payable by the following employees who earned the
following incomes in the month of March 2006
• Dembe shs 235,000.
• Mulembe shs 400,000.
• Makanika shs 600,000
• Musanji shs 11,000,000
•
• solution.
• Income tax=tax rate*monthly gross salary
• Dembe: 0*235000=0 (his income is below the threshold)
• Mulembe: 10000+0.2*(400000-335000)=23000
• Makanika: 25000+0.3(600000-410000)=82000
• Musanji: 25000+0.3(11000000-410000)+0.1(11000000-10000000)=3302000
 VAT
Terminologies of VAT computations.
• Output tax; this is the VAT a taxable Person charges upon making taxable
supplies i.e. tax charged upon selling taxable goods and services.
• Input tax: This is the VAT a taxable person is charged on taxable purchases and
expenses incurred for business purposes.
• Taxable supply. this is a supply of goods and services other than an exempt
supply, by a taxable person for consideration. Taxable supply is charged to VAT at
either zero rate or standard rate.
• . VAT= Output VAT-Input VAT.
 TAX RATE AND FRACTION
• Tax Rate: This is the percentage that is applied to the consideration for a
transaction or taxable value, so as to determine the VAT amount,
• Example.
• If the consideration or taxable value is Shs 20,000 and the VAT rate is 18% then
• VAT = 20,000*0.18 = shs 3600
• Tax fraction: this refers to the ratio used to determine the amount of VAT where
the consideration is inclusive of VAT.
• The fraction formula = (R÷r)+100
• VAT=Taxable value*VAT Rate (where taxable value excludes VAT) or
• VAT=taxable value x VAT ratio (where the amount is VAT inclusive)
 COMPUTATION OF VAT ON TRANSACTION
• VAT=Taxable value*VAT Rate (where taxable value excludes VAT) or
• VAT=taxable value x VAT ratio (where the amount is VAT inclusive)
• Example.
• If the rate of tax (r) = 18% ,then the tax fraction = 18÷(18+100)=2124/=
• For example.
• If the consideration (VAT inclusive) is shs 20,000, then
• VAT= 20,000(18÷118)=Shs3051
COMPUTATION OF VAT PAYABLE OR REFUNDABLE
• VAT= output tax- Input tax. Where output tax is greater than input tax, the tax
payer Pays the difference. Where input tax is greater than the output tax, the tax
payer claims the difference.
• If output tax=100,000 and input tax 77,000, then VAT payable?
• VAT payable = 100,000-17,000 =23,000
• If output tax= 100,000 and input tax = 140,000 then
• VAT claimable = 140,000-100,000=40,000.
Examples
Mega enterprises had the following VAP exclusive transactions with VAT registered
enterprises for one month.
• Purchases shs 236,000,000 .
• Sales shs 259,600,000.
• Calculate the amount of vat paid by Mega enterprises to URA for that Period C
use 18% as VAT rate). Determine Mega enterprises total sales value VAT
inclusive.
• Solution
• VAT =output tax- Input tax.
• =18÷100[259,600,000]-((18÷100(136,000,000) )
• =Shs 46, 128,000-42,480,000
• = shs 4,248,000
• Total sales value VAT inclusive 259600000+4,248,000> 263,848,000
 TAXES COLLECTED BY URA
• Excise Duty
• Excise Duty charged
• Licensing
• Remission of excise duty
• Returns and payments
• Non tax revenue
• Stamp duty
• Registration of motor vehicles
• Transfer of ownership of motor vehicle
 ROLES OF URA
• To advance government on matters related to taxes and tax policies.
• Assess and collect taxes e.g. domestic and foreign taxes.
• Account for taxes collected to parliament and ministry of finance.
• Provide policy frame to government relating to tax rates and administration.
• To protect the public against foreign and domestic fraud.
• Providing investment opportunities to both local and foreign entrepreneurs.
• Verify goods both import and export, this helps to avoid evading taxes.
• Recruit personnel for tax evaluation and implementation of tax policies.
• Developing strategies of increasing tax base for the government, for
example finding new tax base.