31 Jul 2016

MONEY LENDERS INTEREST RATES

MONEY LENDERS INTEREST RATES

Did you know you can challenge your money lenders interest rate?

The key parts of a money lending contract normally are the Loaned amount, interest charged, payment period and collateral. Money lenders are generally aware that the interest rates they charge are both illegal and socially unpopular which are rates above the ceiling or the required rate as under the money lending Act.

In practice in Uganda written loan agreements often indicate the sale of items pledged as collateral. Sometimes loan contracts purport to be assistance agreements to friends in need. Other lenders ask for postdated cheques or assets to be kept in trust by the money lender.

However some registered money lenders do sign loan agreements that more or less accurately reflect the actual terms of the transaction. Although the terms of a loan are verbally communicated transparently to the borrowers who understand the amount they must pay the period of repayment and the guarantees, written loan contracts are deliberately confusing.

Rather than stating the amount of the loan and the interest to be paid , contracts usually imply that the total amount of principal plus which was lent must be repaid, with no mention of interest. These contracts are considered more easily enforceable , not only because they raise illegality or high interest rates but because socially a magistrate is more likely to be sympathetic with claims of someone who made a no interest loan to a friend , than a professional money lender charging 30% per month.

Mandated rate as under the money lending Act provides that money lenders are to have an interest on any money lent out to be 24% per annum and not above it, this thus implies a month installment of 2%. This however has not been the practice of lender in Uganda as interest goes up to 30%.
In case you feel you have been cheated by your money lender however the irregularities can be resolved by filling a case in the commercial court.

THE DUTIES OF THE COURT;

1. The court has power to recall the contract of money lending that has unfair terms.
2. The court can reopen a contract of money lending and relieve a borrower of his obligation if he or she was cheated and exploited.
3. The court can order the return of collateral sold illegally by a lender.
4. Court can determine if an interest rate has been harsh and excessive.

In the event a person feel unfairly treated in a money lending contract one can have the contract reviewed and the challenges addressed.

African proverb ; When people are asking for money they are seated when time for repayment of the loaned amount is due they stand up and shout.

28 Jul 2016

CAN FOREIGNERS ENGAGE IN RETAIL BUSINESS IN UGANDA?

CAN FOREIGNERS ENGAGE IN RETAIL BUSINESS IN UGANDA?

GOOD NEWS FOR UGANDAN RETAILERS

The President recently made a statement referring the phenomenon of foreigners operating retail trade businesses in Uganda as an “importation of importers” and saying it has worsened poverty levels.

Kampala City Traders Association has been pursuing this matter for some time requesting for the government to enforce limitations on the nature of business foreigners can engage in, in order to secure some sort of space for Ugandans.

The President explained that foreigners engaging in retail trade business is one of the reasons for increasing unemployment.

The relevant government ministry was instructed to ensure that foreigner businesses are limited to manufacturing and construction with retailing left for Ugandans “or possibly, the other African immigrants as well.”

WHAT DOES THE LAW SAY?

The Investment Code Act is the law that provides for foreign investors who wish to do business in Uganda. An analysis of this law exposes the loopholes in the law, essentially making it easy for non-Ugandans to engage in almost every type of business except a few categories which we name in the analysis what follows.

FOREIGNERS ARE PROHIBITED FROM CERTAIN BUSINESSES

Section 10(1) of the Investment Code ACt says a foreigner is not supposed to carry on business unless it is in accordance with the Code.

This Section later goes on to prohibit foreign investors from carrying out the following businesses.

1. crop production
2. animal production
3. acquiring land for the purpose of crop production or animal production.

However, related to this, the foreigners are allowed to:

1. provide material and other assistance to Ugandan farmers in crop and animal production
2. lease land for purposes of manufacturing or carrying out the activities in the Second and Third Schedules of the Act.

FOREIGN INVESTORS ENGAGING IN TRADE

The same Act states that a foreign investor who intends to engage in trade only does not need to comply with the provisions of Section 10(1) *meaning they do not need an investment license* but must:
1. Incorporate a company
2. Deposit USD 100,000 or its equivalent in Uganda shillings at Bank of Uganda to be used in setting up the business.
3. Acquire a certificate of remittance from the Bank of Uganda
4. Apply in writing to the immigration department with the certificate of remittance attached along with other relevant documents and information after which the immigration department may issue an entry permit to the foreign investor.
5. After acquiring this permit, the foreign investor is supposed to obtain a trade permit

WAYS FORWARD

With the provisions reflected upon above, it is clear that the current laws relating to foreign investors do not inhibit foreign investors from engaging in retail trade in Uganda. It would appear to us that the only way to change the policy relating to foreign investors engaging in retail trade, an amendment of this law may be require.

12 Jul 2016

HOW MUCH TAX SHOULD SMALL BUSINESSES PAY

HOW MUCH TAX SHOULD SMALL BUSINESSES  PAY

Taxation is a compulsory charge which the government requires people in a country to pay it for a number of reasons which include financing the operations of the government, building infrastructure, promoting equal distribution of wealth, among others.
Of course, whether or not you agree with taxes, you are required to pay them. Taxes can be levied by the central government and the local governments.

In Uganda, the main law governing taxation is the Income Tax Act. This law sets out a description of the different activities that attract tax and how it is charged. Our website contains a page dedicated to providing information about the law regarding taxation of businesses in Uganda, but today we would like to share with you a brief on the presumptive tax rates on small businesses.

WHAT IS A SMALL BUSINESS?
These are businesses whose annual turnover is greater than 10 million shillings but does not exceed 150 million shillings. They are taxed under the presumptive income tax system which is a method used to tax small business enterprises with sales turnover categorized into grades as in the table provided.

The table provided shows the tax rates applicable to small businesses with turnover ranging from 10million to 50million within Kampala city and its division. Tax will be determined in accordance with the second schedule to the ITA cap 340, sec (5) where the gross turnover is less than 50 million.

BUSINESS GRADE I GRADE II GRADE III
General Trade 500,000 400,000 250,000
Carpentry/metal works 500,000 400,000 250,000
Garage 550,000 450,000 300,000
Restaurant & bar 550,000 400,000 300,000
Hair and beauty saloon 550,000 450,000 300,000
clinics 550,000 450,000 300,000
Drug shops 500,000 350,000 100,000
Others 450,000 300,000 200,000

GRADE I –Turnovers from 35million to 50million.
GRADE II– Turnovers from 20million to 35million.
GRADE III– Turnovers from 10million to 20million.

Tax rates for business turnovers ranging from 50million to 150million are presented below.

Range of turnovers Rate of tax
>50million but less than 75million Ugx 937,500 or 1.5% of turnover whichever is lower.
>75million but less than 100million Ugx 1,312,500 or 1.5% of turnover whichever is lower.
>100million but less than 125million Ugx 1,687,500 or 1.5% of turnover whichever is lower.
>125million but less than 150million Ugx 2,062,500 or 1.5% of turnover whichever is lower.

The different grade shows the different turnover in which the sales amount fall.
It’s only applicable to small business resident tax payers who are dealing in taxable supply.
None residents are not allowed to use these tax system. But note that no deduction will be allowed for expenditures or losses suffered in the production of income included in their gross income.

WHAT TO DO WHEN YOU FEEL OVER TAXED

A tax payer who feels dissatisfied with the tax amount levied upon his business can apply to the commissioner general by writing a notice of complain to be reassessed .This should be done within 45days of receipt of the tax invoice and the commissioner will reply with his decision within 45days as well. For further dissatisfaction, the tax appeal tribunal and the high court shall pass a final ruling.

FILING RETURNS.

Every corporate tax payers dealing in taxable supply must submit an annual income tax return by not later than six months from the end of its corporate tax year. However, you can apply for an extension of a maximum period of 90 days before the due date of filing the return. This therefore calls for a proper documentation of all records of transactions before submission to the tax authority.