Understanding the Proposed Waiver of interest on tax arrears accumulated before 1 July 2020

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By CPA David Kiwanuka

As one of the measures by the Government to address short-term emergency liquidity requirements, the government is proposing to waive interest on tax arrears accumulated before 1 July 2020 so as to lessen the tax liability of businesses.

Opportunities

  1. Taxpayers need to be aware of this development (Knowing your tax rights). What this simply means is that they will only pay the principal tax for the tax arrears accumulated up to 30 June 2020 on voluntary disclosure of the tax liability.
  2. For taxpayers to fully benefit from this measure, they need to clear (pay up) all the tax arrears accumulated by 30 June 2020 and establish a new starting point to effectively manage and plan for tax going forward. Otherwise, penalties and interest accumulated after 1 July 2020 will be payable. So, for example, if a taxpayer has a closing balance (tax liability) of UGX 110,000,000 (arrears accumulated before 30 June 2020; principal tax 100,000,000 and interest 10,000,000); the UGX 10,000,000 shall be automatically waived, but the principal tax of UGX 100,000,000 is payable. However, if the principal tax is not paid and it crosses into the period after 1 July 2020, then, it will attract penal tax for the period it will remain outstanding going forward.
    Therefore, this is an opportunity for taxpayers to reboot their tax health status by paying up their arrears to avoid any further accumulation of penal tax on unpaid tax.
  3. Taxpayers can also utilize this window to file objections to administrative assessments issued due to failure to file a return for the periods before 1 July 2020. This is however subject to a cost-benefit analysis study before making the decision to file the objection. Case in point: supposing you defaulted filing the income tax return for the FY 2018/2019 and URA issued an assessment of UGX 23,000,000 yet your books stated otherwise i.e. 10,000,000; before the waiver, if you were to object, your penalty for late filing and interest would be approximately UGX 23,856,000 plus the principal tax of 10,000,000 bringing the total to UGX 33,856,00 thus you would be forced not to object but instead to pay the assessment because it is cheaper but eroding your working capital by UGX 13,856,000. After the waiver; if you are to act before 30 June 2020 and you are to object and file according to your books, you would only face a tax liability of UGX 10,000,000 which is the principal tax thus making a tax saving of UGX 13,856,000.

CPA David Kiwanuka is ICPAU’s Young Accountant of the year 2019, an Internal Auditor at National Drug Authority

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