VALUE ADDED TAX

by Evelyn Alepere
(Kyambogo University)

Question 1: VAT is a very important tax in Uganda. Explain it's importance?

Answer:
Value Added Tax (VAT) is an indirect tax that is paid by a person who consumes or imports goods and/or services in Uganda. The Tax is charged on the value added at different stages of production or supply of goods and services.
Below are the main importances of VAT:

• VAT completely avoids tax cascading as only charges tax on the Value Added.
• VAT can also provide temporary financing for producers and service providers-by law, all vatable persons are required to deduct the input VAT from the output VAT and remit the difference to the tax authorities monthly or every two months, so such organizations can utilize such funds to meet their working capital needs.
• For the Government, VAT is a veritable source of revenue, its broad base can generate more revenue for the government; and secondly, its ease of collection (little or no cost) makes it more economical.
• VAT serves as a fiscal policy instrument available to the government and can increase or reduce VAT rate to redistribute income and check the consumption of harmful commodities such as cigarettes and alcohol.
• VAT does not discourage production, or work since it is not a tax on income or profit, taxes on profits might actually discourage investments.
• Generally, VAT has posed a powerful tool in harnessing funds in domestic markets enabling Uganda to better meet the challenges facing them such as education, poverty eradication, and provision of infrastructure etc.
• VAT helps developing economies to be fully integrated in the international economy as being championed by IMF, World Bank etc.


Question 2: Explain how VAT is collected in Uganda?

Answer:
Collection of the local VAT from the large taxpayers is collected under the Large Taxpayers Department.

The collection function of VAT on local goods and services is placed under the Expansion and collection department. The Audit and Assessment functions were placed under the responsibility of the Domestic Indirect Taxes Department.

The VAT on imports is collected by the customs department because all taxes are collected at one point. It is therefore paid at the point of clearing goods in the customs department.

If the goods are imported for taxable business purposes, you will be able to claim credit for the tax paid on the VAT return.