VALUE ADDED TAX IN UGANDA (VAT)

Is a tax, which is payable on sales of goods or services within the business transactions. It’s a
sales tax administered in a multiple stage form imposed at each stage beginning at the start of the
production process and ending at the sales of the final consumer
Value-added tax (VAT) VAT is governed by the VAT Act and administered by the Uganda
Revenue Authority (URA). VAT is charged at the rate of 18% on the supply of most goods and
services in the course of business in Uganda.
Reasons for the introduction of VAT
1. To eliminate the presence of double taxation and the cascading effect from the then
existing sales tax structure.
2. To fight tax evasion. In case a firm understates its output, it will be trapped by the
disclosure of the firms buying inputs from it.
3. VAT is based on the ability to pay approach.
4. To encourage exports as there is no VAT on experts and if paid on transit, it is supposed
to be refunded as soon as they leave Uganda.
5. To broaden the tax base which collects tax revenue greater than the total of all direct
taxes.
6. To remove the cost cascading effects associated with sales tax and C.T.L.
7. VAT is a neutral tax and less harmful to economic growth.
8. To improve tax administration by reducing the costs associated with the collection of
sales tax and C.T.L
Taxable persons for VAT purposes
There in two categories namely;
1. Any person registered for VAT
2. A person who is not registered but is required to be registered for VAT. .
A taxable person can be an individual, firm, company etc. as long as a person is required to be
registered for VAT.
VAT registration eligibility/ qualifications
A person who carries on business activities or intends to carry on business activities is required
to apply to be registered for VAT if the taxable turnover of that person for three consecutive
calendar months exceeds or is likely to exceed Shs 37.5 million. The annual registration
threshold is 150m.
All professionals except medical and veterinary practitioners are compulsory to register for VAT
irrespective of their annual turnover.
NOTE
1. Taxable persons include;
  Sole traders  Incorporated companies
 Partnerships  Unincorporated companies
 Estates of the deceased  Clubs or association
2. A taxable person whose turnover is bellow the threshold (minimum turnover level) may
voluntarily register for VAT unless when registration is compulsory.

Terminologies used in VAT assessment

1. Taxable supplies:
Taxable supplies are goods or services made in Uganda by a taxable person, i.e. persons
registered or required to register for VAT purposes. Such supplies are either standard
rated or zero rated – meaning that they are not exempted from VAT and are supplied for
a consideration.

2. Standard rated supplies:

These are those supplies where VAT charged is 18%

3. Zero-rated supplies:
These are supplies charged VAT at a rate of 0%. Such supplies are listed in the third
schedule to the VAT Act. They, among others, include all exports and supply of drugs
and medicines manufactured in Uganda and the supply of cereals where such cereals are
grown and milled in Uganda.

Examples of taxable supplies liable to VAT

 Sales of business assets  The commission received
(e.g. equipment, furniture, in return for selling
commercial vehicles); something on behalf of
 Hire or leasing/letting of someone else.
goods to someone else for  Sales to your staff or
consideration; relatives (e.g. your
 Goods which you or your products supplied free of
families have taken from charge or at reduced
the business for your own prices);
use;  Sales from vending
machines;

4. Exempt supplies:
Exempt supplies are supplies of goods and services which do not attract VAT. These are
specified in the second schedule to the VAT Act.
Examples of exempt supplies include;
  Health insurance and life  Educational services,
insurance services  Financial Services
 Petroleum fuels,  Passenger transportation
 Social welfare services services
NOTE: A person dealing only in exempt supplies is not expected to register for VAT,
while one dealing in zero-rated supplies is expected to register in case they meet the
registration requirements.
5. Consideration: This is payment that may be received in money form or in kind, wholly
or partly when a person makes a taxable supply.

6. A person: A person includes an individual, a partnership, a trust, a company, a retirement

fund, a Government, a political subdivision of government and a listed institution

7. A taxable person:
Is a person who is registered for VAT. A person who is not registered but is required to
be registered for VAT.
8. Input tax:
Input tax means the tax paid or payable in respect of purchases or on imports of taxable
goods or services by a taxable person; for example, if one is manufacturing water and
buys packaging material, the VAT that person is charged on packaging material is input
VAT.

9. Output tax:

This is the VAT charged by a taxable person upon making a taxable supply. When a
person is registered for VAT, they will charge VAT on all the taxable supplies they
make; that VAT charged is output tax.

10. VAT payable or claimable:

Where a person’s output VAT is greater than the input VAT, the difference is VAT
payable to URA. However, in case the person’s input VAT is more than the output VAT,
the difference is VAT claimable, and the person who has such a position may opt to get a
refund from URA if the amount is more than 5 million shillings, offset it against any
VAT payable or push it forward to meet any VAT that may arise in future.