502 Keeping Records Presentation

8/6/2019 502 Keeping Records Presentation

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A presentation to the

Uganda Law Society by

Uganda Revenue Authority

3/10/20101

KEEPING RECORDS



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Key Legislation

3/10/20102

The Income Tax Act cap, 340;

The Value Added Tax Act, cap.349;

The Advocates Act, cap.267 As Amended

The Magistrates Courts Act, Cap. 16 The Police Act, Cap. 303



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What is record keeping?

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Recordkeeping can be described as a systematic compilation ofsimilar information in an office setting, and stored in files/folders

for the purpose of office administration.

This whole idea about record keeping and the word keep meansto make and retain. Records are generally created in the normal

course of business and business operators are expected to retain

them;

Sometimes due to the nature of business records, they are notproduced immediately but a contemporaneous record is required

to satisfy business operators substantiation requirements.



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Why keep Records? Records.

3/10/20104

Assist in preparation of financial statements quickly &accurately;

Provide information to enable control of cash in the

business; Provides management information for business

decisions;

Contributes to assessing business financial situation at

any time;

Keep track of staff costs & performance;



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Why cont.

3/10/20105

Help in measurement of performance againstprojections;

Highlights quickly areas where problems could arise &

enable remedies to be put in place; Assist in providing information required by bankers;

Help in detecting thefts within the business itself;

Help fulfill the obligations imposed by Tax legislation;

Assist in calculating how much tax you have to pay & to

check your tax position accurately;



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Why Cont..

3/10/20106

you can avoid headaches at tax time & avoid paying toomuch tax in form of interest & penalties( right tax at the

right time);

Makes filling in your tax return easier and quicker; Keeping well-organized records also ensures you can

answer questions if your return is selected for

examination or prepare a response if you are assessed for

additional tax.



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How will it benefit your business?

Records will reveal.

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Income generated & how much you expect in future;

How much you owe for goods, rent or other expenses;

How much cash is at hand & how much is tied up eg. In stocks;

Your gross & net profit;

How your financial situation compares with last year;

What is owing to you & for how long;

What your actual expenses are compared to what you estimated;



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Principles of a Good record keeping

Program!

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Accountability: Responsibility and auditability; Integrity: Authenticity & reliability;

Protection: Private, confidential, secret or essential to businesscontinuity;

Compliance: applicable laws and other binding authorities, as well as

the organizations policies; Availability: ensures timely, efficient, and accurate retrieval of needed

information;

Retention: appropriate time, taking into account legal, regulatory, fiscal,operational, and historical requirements;

Disposition : records that are no longer required to be maintained byapplicable laws and the organizations policies;

Transparency : documented in an understandable manner and beavailable to all personnel and appropriate interested parties.



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Sources of Record Keeping

requirements.

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Legal Requirements : Tax legislation, Advocates Act, etc

Business needs: Past dealings with clients, for ready

reference etc;

Community expectations:



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What Records should I keep?

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Records are impartial participants in business & socialactivity.

To a legal practitioner, records could be:

court record of litigation;

records of evidential value;

Continuous professional Development( CPD or CLE);

Clients accounts etc ( important also for taxman)

Records relating to the practitioners income andexpenditure.



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Tax Records Required

3/10/201011

It is mandatory for every taxpayer without exception to keeprecords in the English language necessary to determine ones

tax liability.

The Income Tax Act, cap.340.(ITA)

- S.129(1)ITA provides that

unless otherwise by the commissioner, a taxpayer shall maintainin Uganda such records as may be necessary to explain theinformation provided in a return or in any other document

furnished in terms of S.92 or to enable an accuratedetermination of the tax payable by the taxpayer



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TAX Records cont.

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Note the two(2) reasons above:

I. To explain the information provided in a return submitted

under S. 92 ITA.

The relevant provision is S.92(5) which provides that Ataxpayer carrying on business shall furnish with the

taxpayers return of income a statement of income and

expenditure and a statement of assets and liabilities.

ii. To enable accurate determination of the tax

payable by the taxpayer with the ability to vouchfor the declarations made in the statements of

income and expenditure and the balance sheet.



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Tax Records cont.

3/10/201013

Under the ITA, it is not specified what kind or in what formthe records ought to be kept as long as the records are

sufficient to vouch for the declarations appurtenant to the

return of income.

There is specificity under the ITA as regards Withholding Tax

Records ie. Payments made to the payee & tax withheld there

from; S.126(1) ITA

What is emphasized under S.40(1) ITA is that the taxpayers

accounting method should conform to the generally accepted

accounting principles(GAAPs).



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Tax Records cont.

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The Value Added Tax Act, cap.349 (VATA)o This Act specifies in succinct terms the records required to

be kept by a taxable person S.46(1) VATA: These are:

a) Original tax invoices, copy tax invoices, credit notes, and

debit notes received by the person;b) A copy of all tax invoices( your fee notes), credit notes and

debit notes issued by the person;

c) Customs documentation relating to imports & exports by

the person;d) Such other accounts and records as my be prescribed by

the Commissioner General.



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Tax Records Generally Include..

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Gross receipts: Cash register tapes, bank deposit slips,receipt books, invoices, etc ;

Proof of purchases: Canceled checks, cash register tape

receipts;

Expense documents: Canceled checks, cash register tapes,

account statements, sales slips, invoices and petty cash slips

for small cash payments;

Documents to verify your assets: Purchase and salesinvoices, real estate closing statements and canceled checks;



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. Records Generally cont....

3/10/201016

For Partnerships or Sole practitioners, the followingrecords should be kept:

A current list of the names and addresses of the partners;

A copy of the initial deed of partnership and all amendments;

A copy of any conversion or merger agreement;



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. Records Generally cont....

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A record of contributions;

Employment contracts & Records relating to tax deductions,

bonus etc;

Records relating to Clients Accounts & the underlying

transactions; ( the URA may require that these accounts are

laid bare to ensure that these accounts are not used as safe

havens for hiding income earned).



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ACCESS TO RECORDS

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The Commissioner General has unlimited and unfetteredaccess to any records, books and computers of any taxpayer.

To this end the principle of confidentiality in inoperative to

the extent of use of any records in the taxpayers possession

for purposes of determining the taxpayers tax liability.



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Access cont.Statutory power

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S.131 ITA & S. 47 VATA are coined in more less similarfashion in respect to access to records.

S.131(1) provides that In order to enforce a provision of

this Act, the commissioner, or any officer authorised in

writing by the commissioner

a) Shall have at all times full and without prior notice full and

free access to any premises, place book, record, or

computer;

b) May make an extract or copy from any book, record



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. Statutory power cont.

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C) May seize any book or record that, in the opinion of thecommissioner affords evidence which may be material in

determining the liability..

Note that under S.131(7) it is provided that This section

has effect not withstanding any rule of law relating toprivilege or the public interest in relation to production of

or access to documents.



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.Statutory power cont.

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S.47(1)(a) VATA has a small variation from S.131(1)(a) ITAin that it introduces a phrase shall have at all times during

normal working hoursfull and free access

Ponder!What happens if the commissioner proceeds to

access records under s.131 ITA( any time outside normalworking hours) and the same records are of material

relevance for a VAT assessment? Would the taxpayer contend

that VAT is not assessable because Information was irregularly

obtained? I do not think so!



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Statutory power cont

3/10/201022

To insulate against such rigidities, the Commissioner hasresorted to securing search warrants against taxpayers under

the Magistrates Courts Act( S.70,71,& 73) & The Police Act

(s.27 & 29).

And because such searches could have criminal connotationsand may lead to prosecution of the taxpayer.



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For How long Should records be

kept?

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Taxpayers should keep books and records for as long as theymay become material in tax matters:

Under the ITA, the taxpayer must keep records for a

minimum of five(5) years after the person prepared or

obtained them or five years after the end of the year ofincome to which the record or evidence relates S.129(3)

ITA;

Under the VATA, records shall be retained for at least six

years after the end of the tax period to which they relate

S.46(2) VATA.



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How Long Cont.

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For Withholding tax Records, the ITA provides that thewithholding agent keeps the records for 5 years after the year

of income to which the records relate; S.126(2) ITA.

Where fraud or evasion is involved the URA will want to go

back to the source records which means that they can goback to the date of the non-complying conduct whenever that

was.

Note : Because the statute of limitations never runs if no

return is filed, any proof of income & expenditure should be

retained forever.



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What happens if I don't keep properrecords?

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We want you to pay only as much tax as you owe.

However, if you can't show sufficient evidence of your

income and outgoings, you could end up paying more tax

than you should.

If you do not maintain good records, you might not be able

to render your VAT return on time and this can result in a

surcharge



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What Happens cont.?

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Wherever possible, we will give you the benefit of the doubt, butdon't forget there are penalties for failing to keep proper records

to back up a tax return or claim. Under the VAT Act, S.55 thereof,

A person who fails to maintain proper records under this Act

commits an offence and is liable on conviction to (a) where the failure was deliberate or reckless, a fine not

exceeding five hundred thousand shillings or to imprisonment for

a term not exceeding two years or to both; or

(b) in any other case, a fine not exceeding three hundred thousandshillings or to imprisonment for a term not exceeding six months

or to both.



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What Happens cont.?

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Further, the VAT Act, S.65(5) provides that:

A person who fails to maintain proper records in a tax period

in accordance with the requirements of this Act is liable for a

penal tax equal to double the amount of tax payable by the

person for the tax period.



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What Happens cont.

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There are similar penal Provisions under the ITA as there areunder the VAT Act for failure to maintain proper records:

S.139 ITA provides: A person who fails to maintain proper

records under this Act commits an offence and is liable on

conviction to

(a) where the failure was deliberate, a fine of not less than

fifteen currency points or to imprisonment for a term not

exceeding one year; or

(b) in any other case, a fine not exceeding twenty-five

currency points.



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What Happens cont.

3/10/201029

Further, S.152 ITA provides:

A person who deliberately fails to maintain proper records for

a year in accordance with the requirements of this Act is

liable to pay a penal tax equal to double the amount of tax

payable by the person for that year.



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What Happens cont.

3/10/201030

The beauty in either Act is that the Prosecutorial &Administrative penal provisions are mutually exclusive;

Thus:

Under S.66(3) & (4) VAT Act,

No penal tax is payable under Section 65 where the person has

been convicted of an offence under Section 51, 55, or 59 in

respect of the same act or omission.



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What Happens cont.

3/10/201031

And under subsection (4) ,If a penal tax under Section 65 has been paid and the

Commissioner General institutes a prosecution proceeding

under Section 51, 55 or 59 in respect of the same act or

omission, the Commissioner General shall refund the amountof penal tax paid; and that penal tax is not payable unless the

prosecution is withdrawn.



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What Happens cont.

3/10/201032

Similarly under the ITA, S.155(3) & (4) provide: No penal tax is imposed on a person under Section 152

where the person has been convicted of an offence under

Section 139 for the same act or omission.

If penal tax under Section 152 has been paid and the

Commissioner institutes a prosecution proceeding under

Section 139 in respect of the same act or omission, the

Commissioner shall refund the amount of penal tax paid; and

that penal tax is not payable unless the prosecution is

withdrawn.



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What Happens - Efficacy

3/10/201033

Efficacy of the above provisions largely not tested by URA.

Not because URA is not aware about their existence;

Need to apply these provisions ferociously to foster

compliance.



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Further Consequences

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Generally taxes are all about income, deductions andsubstantiation.

One of the areas where taxpayers are substantially at risk

is record keeping and substantiation for claims made for

deductions.

Default on the part of the taxpayer may further lead to:



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Consequences cont

3/10/201035

Increased exposure to the risk of URA AUDITS;Adverse outcomes ; ( already enumerated in the penal

provisions especially the monetary costs & time );

Higher than average compliance costs;

Liquidity & cash flow problems;

Avoid subjective assessments to tax; eg. Presumptive or

betterment of assets.



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Burden cont

3/10/201037

Where this occurs the URA will accept summary records whichsatisfies the taxpayers obligations provided they are reconciled

with daily bankings which reflect cash takings used for other

purposes, e.g. drawings, expenses, etc



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The future!

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Need for legal practitioners to take recordkeeping for tax purposes more seriously;

With the advent of e-tax, will spell gloomfor all of us.



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End

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Q & A

Thank you

U d R A th it

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