WHAT A TAXPAYER SHOULD DO WHEN FACED WITH CHALLENGES IN PAYING TAXES AFTER LOCK-DOWN
- September 13, 2020
- Posted by: Joseph Okuja
- Category: Alerts & Insights
The lock-down and its impact on economic activity is going to exert several pressures on some businesses in terms of their ability to meet their tax obligations on a timely basis, because the legal obligation to pay tax on a timely basis has not changed. The continuity measures offered by URA in light of the lock-down only deferred return filing dates, thus waiving the penalties that come with late filing (200,000 per month or 2% of the tax, whichever is greater). On the fiscal measures, no stimulus has been offered by government and Parliament has already passed tax law amendments which offer no relief. Instead, there will be an increment in the excise duty on fuel!
In spite of the cash flow challenges taxpayers are experiencing, no taxpayer should allow themselves to get exposed for tax non-compliance even though URA may be sympathetic, under the circumstances, to the cash flow difficulties that have been occasioned by the exceptional events attributable to COVID 19. I also know as a matter of fact, that URA’s sympathy will not last very long since they also have pressure to meet their tax revenue targets and will want to play catch up when normalcy returns. Moreover their mandate under the tax laws is to maximise tax collection. Inevitably, they cannot and will not accept an ongoing failure to meet tax commitments by taxpayers and businesses that will continue to trade.
Mindful of the effects of the lock-down, taxpayers must still take note of the following #AlternativeFacts that may be blind to their economic and financial situation:
1) The role of URA while administering the tax laws is to ensure, among other things, that tax revenue is assessed and collected in a timely manner, considering that a shortfall in revenue impacts on the level and timeliness of financial resources available to Government. URA therefore expects taxpayers to organise their financial affairs to ensure that they pay their tax debts by the due date.
2) While taxpayers have and do encounter cash flow problems, these problems must be addressed so that timely tax compliance is assured. Addressing those problems in consultation with URA at the earliest opportunity is essential so as to avoid a situation where the tax debt becomes overwhelming and enforcement by URA becomes inevitable.
3) Early and realistic engagement with URA is necessary when tax compliance problems begin to emerge. If you do not agree that you owe the tax demanded, or you believe it should be a lot less, you should notify URA immediately, and ensure that you do everything possible to pay the agreed tax or reach an agreement with URA about paying the tax by instalments.
4) If you opt for instalment payment, remember that each instalment payment will include interest, and this will entail an additional financial cost for the business. Accordingly it is in the interest of a business or a taxpayer to minimise its exposure to interest by paying as much of the debt up front and any balance over the shortest possible timescale.
5) Engaging with URA, instead of trying to hide, will maximise the opportunity of arriving at a successful and early resolution of any compliance difficulties in a way that will meet with URA’s approval. Sluggishness in recognising or addressing tax compliance problems merely serves to exacerbate the compliance challenge for taxpayers.
6) When engaging and negotiating with URA, it is really important that a taxpayer understands what precisely is giving rise to the particular difficulties in meeting their tax payment obligations. This will greatly determine the scope for positive action and measures by the business itself to overcome those difficulties and will ultimately dictate the scale of the challenge it faces. Recognising or accurately identifying the specific pressure points will give URA a clearer understanding of key issues relevant to deciding on an agreed approach going forward.
7) Business records are very important in supporting your negotiations with URA. The ready availability of business information while in discussions with URA will show in a very tangible way the serious commitment of the taxpayer to managing the challenge as a whole, and to dealing with the problem in a transparent and meaningful way.
8) Enforcement action to recover a tax debt through agency notices or closure of business premises is normally taken by URA in cases where a taxpayer fails to engage them in a satisfactory manner. Where the engagement with URA is sluggish or less than frank and realistic, or where commitments entered into are not fulfilled, URA then has little option but to initiate the necessary collection and enforcement measures needed to address that problem, and trust me, the options are many.
9) URA has at its disposal a range of enforcement powers to effect recovery of a tax debt. The most frequently used enforcement options are closure and attachment of bank accounts and other assets. They will move swiftly to apply the necessary measures to address that lack of engagement or that failure to fulfil the commitments agreed.
10) URA would be failing in their statutory duty if they simply allowed a business experiencing difficulties in paying its tax debts, to stop paying its taxes and continue trading. Businesses or taxpayers who do not pay their taxes as they fall due, or pay them late, are in effect using URA as an unauthorised source of credit. Apart from non-compliance being unacceptable from the taxman’s perspective, some will argue that in the interest of fairness and equity for businesses that are tax complaint and pay their taxes on time, URA must respond in an effective way.
11) Each taxpayer’s case is considered on its merits with a view to selecting the most effective collection, recovery or enforcement strategy to bring a case to compliance in the shortest possible timescale, taking account of the individual case merits and features. Do not compare yourself with another taxpayer. We are not equal!
12) Taxpayers must ensure that their tax position is always reconciled and up to date. This is where a Tax Agent, like myself, comes in handy. Always undertake an early and proactive engagement with URA as soon as you start experiencing payment difficulties. LIBRA TAX CONSULTANTS are at your service and will be more than happy to assist you in managing your tax affairs by ensuring that you pay only the tax that you must pay.