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Is your income tax return ready?
What you need to know:
Any tax due must be paid by June 30th, otherwise late payment interest at 2 percent per month may be imposed.
In life, two things are certain. Death and taxes.
However, we all prepare for death in different ways. Some prepare to meet their maker by doing good deeds because they believe in life after death. Some pay for funeral insurance for a respectable send-off, while others open insurance policies or create Trusts to support their loved ones after they are gone. And then, there are those who just don’t care. You are dead after all. Dead men tell no tales, so they say.
So, where do you fall? Do you have a written will? As we internalise the Finance Ministry’s fiscal budget for this new financial year, is your income tax return ready for filing?
Every taxpayer is required to file a return of income for each year of income not later than six months after the year end. For a person whose financial reporting year-end is 31st December, this means the annual income tax return and final income tax payment for the year ended 31st December 2022 is due by 30th June 2023. This is based on the provisions of Section 92A of the Income Tax Act.
There are also other tax filing and payment requirements that fall due on 30th June 2023 as follows:
●the 2023 1st provisional income tax return and payment for persons with a 31st December year- end;
●the 2023 last revised provisional income tax return for persons with a 30th June year-end; and
●the above also applies to individuals with a return filing requirement depending on the year-end.
Avoid the penalties for non-compliance by starting your return preparation early.
Filing an income tax return is one thing. Ensuring that your tax return is correct and accurate and is backed by credible documentation is another.
Before you file your annual final income tax return, here are a few tips to follow:
1. Financial statements
If your annual turnover is or exceeds Shs500 million, have financial statements audited by an independent external auditor. Most of the information required in your income tax return is based on information contained in your financial statements.
A man reviews tax documents. If your annual turnover is or exceeds Shs500 million, ensure to have financial statements audited by an independent external auditor. PHOTO/COURTESY
2. Data reconciliation
Reconciliation of data per your Electronic Fiscal Reporting and Invoicing System (“EFRIS”) reports and monthly tax returns to the financial statements including:
-Revenue: Are all variances between the entity’s sales revenue as recorded in EFRIS vs sales revenue per the Value Added Tax (VAT) returns and in the financial statements fully explained? Ensure a reconciliation is in place.
-Expenses: Are all your expenses supported by EFRIS tax invoices or other acceptable invoices as applicable? For EFRIS registered persons, records of local purchases from VAT registered persons, imported goods, and imported services can easily be obtained from URA’s EFRIS portal.
Generally, except for accrued expenses and provisions, and expenses like depreciation or amortisation, interest, staff salaries and allowances, all other expenses need to be supported with an invoice or receipt. Variances attributed to such expenses should be reconciled.
-Inventory – If you manufacture or deal in goods, does your opening and closing inventory in EFRIS match the amounts in your financial statements? If you have challenges maintaining up to date stock records in EFRIS, engage URA’s EFRIS team for support.
-Staff costs – Staff costs such as wages and salaries may not be backed by an invoice; however, the staff costs reported in your monthly Pay as You Earn (“PAYE”) returns should be reconciled to staff costs in the financial statements.
3.Advance tax paid
Have evidence of all provisional income tax and withholding tax paid during the year. A credit is allowed for these taxes provided one has the supporting evidence.
4.Transfer pricing documentation
If your company had any transactions with related parties during the year, then you should also prepare and have Transfer pricing documentation in place by the time of filing the annual income tax return. Transfer pricing documentation is necessary to support the prices charged on transactions between your company and other related parties; aimed at confirming that the price charged is arm’s length and that the relationship did not influence the price. If you are not ready to file your tax return for any reason, the tax law allows you to apply to URA for a filing extension of up to three months. This application should have been submitted online before June 30th.
However, any filing extension does not cover the taxes payable. This means that any tax due still has to be paid by June 30th, otherwise late payment interest at 2 percent per month may be imposed.
You now know when your taxes fall due.
Sophie Kayemba is a senior manager in tax at PwC.
