Basic compliance requirements for an #SME in Uganda

‘When it comes to a business and corporate management, compliance refers to the company obeying all of the legal laws and regulations in regards to how they manage the business, their staff, and their treatment towards their consumers. The concept of compliance is to make sure that corporations act responsibly’ writes Gary Trainor in an article Importance Of Compliance In Business. He highlights that the benefits compliance brings into any business include: avoidance of criminal charges, building positive reputation and higher productivity in the company.

PAYE ( Pay As You Earn)

During salary negotiation, the potential employer asked the candidate their salary expectation. The candidate knew what they expected as take home but not what it would translate to in gross pay. So this person requested me to show them how to calculate their PAYE so that they can gross up their net pay.

The reverse scenario may occur, where as an employee you want to know how much your take home will be when the offer given to use is of the gross pay.

As business owner, you are mandated by law to collect PAYE from yourself and your employees on behalf of the taxman. It is therefore important that you know how the calculations are arrived at. 

Pay As You Earn is income tax on an individual’s monthly chargeable income. Below are the current rates:
1) If your monthly chargeable is less than 235,000 you pay 0
2) If your monthly chargeable is more than 235,000 but less than 335,000 you pay 10% of the amount by which chargeable income exceeds Ushs235,000
3) If your monthly chargeable is more than 335,000 but less than 410,000 you pay Ushs 10,000 plus 20% of the amount by which chargeable income exceeds Ushs335,000
4) If your monthly chargeable is more than 410,000 you pay Ushs 25,000 plus 30% of the amount by which your chargeable income exceeds 410,000. And where your chargeable income exceeds Ushs10,000,000 and additional 10% is charged on the amount by which your chargeable income exceeds Ushs10,000,000

A business owner can set up a payroll template in a spread sheet to automate the above calculations for their staff to make it less laborious. An individual can go to the Uganda Revenue Authority (URA) portal and use the PAYE calculator.

NSSF (National Social Security Fund)

It is interesting to note that many an employee thinks NSSF is a tax much like PAYE. National Social Security Fund (NSSF) as the name suggests is meant to provide you with Social Security Provider in your old age. NSSF should be an addition to your retirement benefits plan and not an option to it.

NSSF Uganda covers all employers who have 5 or more employees between 16 and 55 years of age, with the exception of employees under the Government Pensions Act. The NSSF Act requires a registered employer is required to pay contributions to the Fund for his\her employees every month during which he/she pays salaries.

The NSSF Act also provides for voluntary membership for employers with less than 5 employees.

The employer must deduct 5% from the employee's total gross monthly wage and add 10% of the total gross monthly wage making a total contribution of 15% for each employee. The Payment of contributions must be paid by the 15th day of the following month. 

The Fund declared and paid an interest rate of 11.23% to its members for the last Financial Year. This is not bad for a low risk investment. If you consider the compounding interest effect on your savings, it should be a sizeable amount if the inflation remains below the interest rate. Have you checked your NSSF e-statement of late?

It is said that adopting a provident fund system helped Singapore to focus on economic development. Singapore successfully transited from a third world developing country to a first world developed country within one generation. How about Uganda?

LST (Local Service Tax)

This is the tax that a number of businesses I have gone to seem to either ignore or are just ignorant about.

Local Service Tax (LST) is a tax levied on wealth and incomes of all persons in gainful employment, self-employed and practicing professionals, self-employed artisans, business men/women and commercial farmers.

You are eligible to pay if you are:
1) Person in gainful employment earning a monthly take-home salary exceeding Ugx 100,000.

2) Self-employed and practicing professionals who include medical and veterinary doctors, engineers, accountants, consultants, technicians, lawyers, dentists, pharmacists, architects, scientists, surveyors, valuers, ICTspecialists e.t.c

3) Self-employed artisans who include craftsmen, plumbers, builders, electricians, masons, carpenters, mechanics, blacksmiths, painters, welders, bakers, furniture makers, florists, skilled artisans and any other artisans not mentioned excluding sole petty artisans and juakalis, who are not fully established and not business entities.

4) Businessmen and businesswomen who include owners of shops, fuel stations, restaurants, bars, furniture workshops, directors and shareholders of business companies, printery workshops, food vendors, commission agents, insurance brokers, butchers, real estate service providers, owners of road construction firms, outside-catering service providers, coffee millers, maize millers, fish mongers, timber merchants, garage owners and shoe makers and any other businessmen and business women not mentioned.

5) Commercial farmers

Effective date of payment
1) In the first four months of every financial year for employees earning a salary or wage.

2) Once in a financial year for Professionals, Artisans within the first four months.

3) Once in a calendar year and Businessmen/women before being issued a trading license.

What if you don’t pay
1) A surcharge of 50% shall be levied on the expected Local service Tax after it is due.

2) On conviction in the courts of law, the defaulter will serve a term not exceeding one month imprisonment or be required to pay a fine not exceeding double the amount due.

All the above info is available on KCCA portal including the rates payable. 

It is said that ignorance of the law is no excuse , therefore go ye forth and comply!

To your success,

Lilian

Image credit: http://bizmology.hoovers.com