1. VAT IN THE FINANCIAL SECTOR
VAT for Finance Sector

2. Introduction
Financial institutions are clearly defined in the tax laws, and in Uganda by the Financial Institutions Act under section 3.
Financial institutions are major contributors to tax revenue, and as such are accorded special attention.
VAT for Finance Sector

3. Definition What is the Financial Sector.
A category of firms that provide financial services to commercial and retail customers. This sector includes banks, investment funds, insurance companies, pension funds and real estate companies.
VAT for Finance Sector

4. Scope
For purposes of this presentation we shall put emphasis to banking and insurance, however the VAT law apples in a similar manner to taxable services offered to all prayers in the finance sector .
VAT for Finance Sector

5. VAT ACT AND THE FINANCE SECTOR
Taxation of the finance sector for VAT is mandated by the VAT ACT Cap 349( Uganda)
Section 4 of VAT Act Cap.349 states that a tax to be known as value added tax shall be charged in accordance with the Act on:
-Every taxable supply made by a taxable person
-Every import of goods other than an exempt import
-The supply of imported services, other than an exempt service by any person.
VAT for Finance Sector

6. Financial Institutions
The financial institution include the following
1. Banking
2. Insurance
3. Forex Bureaus
4. Credit Institutions
5.Pension Funds
VAT for Finance Sector

7. VAT and Banking Sector
While financial services are NOT VATABLE, ancillary services rendered are VATABLE e.g.
Leasing,
Consultancy,
Disposal and Purchase of equipment, Brokerage services,
Imported services,
Custody services
Rent, etc
VAT for Finance Sector

8. VAT and Banking Sector
Where a banking institution is engaged in the above listed services will be required to charge VAT and declared output VAT at the rate of 18%
Will be allowed to claim input VAT that is attributable to the declared output tax.
VAT for Finance Sector

9. VAT Refunds and Offsets
For any one particular period where declared input tax is higher than output tax the taxpayer is entitled to claim refund of the excess amount.
Where the excess amount declared is below 5million, then the amount can be claimed as an offset and carried forward to the following month.
VAT for Finance Sector

10. Tax compliance issue
Furnish returns by the due date; VAT return by the 15th day of the following month.
Pay Tax by due dates
Maintain proper records
Right full use of TIN
Make correct declarations
VAT for Finance Sector

11. VAT and the Insurance Industry
What is insurance?
A practice or arrangement by which a company provides a guarantee of compensation for specified loss damage, illness or death in return for payment of a premium
VAT for Finance Sector

12. The insurance players include
The insurance players are the following:
Insurance Companies.
Reinsurance Companies.
Insurance Brokers.
Reinsurance Brokers.
Agents and Agencies.
Loss Assessors and Adjusters
The above fall within the boundaries of the VAT regime for services that qualify.
VAT for Finance Sector

13. Income of Insurance companies subject to VAT
Applicable on the following:
Insurance Premiums - excluding life.
Imported Services
Management Fees
Deposit Administration.
Other taxable supplies eg rent and disposal of property
VAT for Finance Sector

14. Declaration of Output tax on premiums
Supply is deemed to be completed and VAT due and payable at the earliest of;
Date when contract of insurance is completed;
Tax invoice is issued (upon payment of the required premium)
VAT for Finance Sector

15. Tax compliance issues
These are the same for all taxpayers;
Furnish returns by the due date; VAT return by the 15th day of the following month.
Pay Tax by due dates
Maintain proper records
Right full use of TIN
Make correct declarations
VAT for Finance Sector

16. Challenges in administration of VAT in Finance Sector
Transfer pricing issues, as the big banks have transactions with the non resident parent companies.
Apportionment of input tax credit as some cost may not be easily attached to taxable and none taxable items.
These are big institutions verification of transactions during audit can be a challenge.
VAT for Finance Sector

17. Challenges
Legal framework to counter arising tax issuing that need immediate redress to avoid loss in revenue
Technology issues in soft ware applied by financial institutions but has not been adopted by the tax authorities.
VAT for Finance Sector

18. Thank you
Q & A
VAT for Finance Sector