TO BE OR NOT TO BE A COMPANY?

It’s the question we are all grappling with, should we or should we not form a company?

In a recent discussion among friends, landlords are fretting because Uganda Revenue Authority (URA) is moving in more aggressively to tax their rental incomes. The law has always been there but URA has not be able or willing to enforce it across the board – I suspect partly because there are many landlords in URA.

"But as the demand for locally generated revenues build up, look to the taxman to get more aggressive in going after every cent that is due to him...

Everybody should pay taxes (please reinstate graduated tax), but if we are to get ahead it would be wise to pay only those taxes due to ourselves.

One way of doing that is keeping verifiable records, so if there is a tax dispute you have a basis on which to stand, but more importantly we really should incorporate or do all our business under a company, even those hobby farms we have on Hoima road.

To illustrate.

Assuming there is a rental property which earns about sh10m annually in rent. But also the landlord has done some repairs and shoulders the security, garbage expenses and other expenses, which in total amount to three million shillings a year.

Mr Magezi -- Landlord

INCOME	EXPENSES
Rental income                                 10,000,000	Repairs, security etc                          3,000,000
10,000,000	3,000,000

Mr Magezi tax liability will be sh10,000,000 X 30% or about sh3,000,000. URA allows some expenses as tax deductible if you are trading as an individual, up to 20% . So let us say they will allow Mr Magezi sh600,000 deduction so his tax bill will be (sh10,000,000 – sh600,000)X30% = sh2,820,000.

[Since this article was published in the New Vision i have been corrected on my computation on taxes paid on properties ownd by an individual.

Tax computation of an Individual;

Gross Rental tax                          10,000,000
Less: 20% of (10,000,000)=       (2,000,000)
                                                      8,000,000
Less: Annual thresh hold            (2,820,000)
                                                      5,180,000

Tax rate @ 20%                          (1,036,000)
rental income net of tax                4,144,000

NB: The expenses the land lord incurs like repairs and maintenance, security etc. for an individual are assumed to be 20% of the gross rental income.
Annual thresh hold is provided for in the current Income Tax Act.

This may suggest that its advantageous to own property in individual names but other expenses a company is allowed include depreciation and finance costs that may still bring the tax liability down even further]

But if Magezi had incorporated his real estate business the situation changes quite dramatically.

Magezi & Sons Ltd – Landlord

INCOME	EXPENSES
Rental Income                                 10,000,000	Repairs, security etc                         3,000,000
10,000,000	3,000,000

To get the tax liability of the company Magezi & sons first they deduct the expenses so sh10,000,000 – sh3,000,000 = 7,000,000, which is profit. Then they tax the profit say 7,000,000 X 30% = sh2,100,000.

Of course the calculation has been oversimplified, but the principle remains that in taxing individual income they do not deduct expenses before they lay on the tax, while in a company they first deduct the expenses and tax the profit. Technically if you are making losses you pay no tax.

An expert near you can advise you, but incorporating sooner rather than later is in all our best interests.

For starters it formalises your operations. All incomes and expenses are documented to start with, which gives you a more accurate picture of the state of your business. If you were under any illusions that you were making money keeping records can disabuse you of the notion before you have thrown too much money down the hole.

"How many of us are subsidising our business from our salaries with no end in sight but if we knew better would close the business and look somewhere else?..

Secondly a formalised business is more likely to attract serious partners – clients, suppliers, investors and banks, than an informal one, making ones chances of survival and expansion much better.

The story is told of some serious monied investors coming to Uganda looking for opportunity. There first choice was to partner or buy out an existing business as a way to enter the market. When they looked around they found that the so-called market leader was such a shambolic operation, they could not even come up with a fair value for the business. Not only that, they realised they could come into the market from scratch and actually put the “market leader” out of business. And that’s what they did within 18 months they are the market leader and the previous local businessman’s enterprise is sliding down into collapse.

And finally. If you are not paying tax now when URA comes knocking they will attempt to recoup all the taxes you have been dodging. Now if your books are well kept you might be able to negotiate, but if not it will really be up to the discretion of the tax agents what you are liable for. Many a businessman has collapsed in trying to pay their tax arrears.

Incorporate your chicken coop, your vegetable patch, your make believe consultancy as soon as is possible, being informal is a luxury you cannot afford if your intention is to build your business into a sustainable going enterprise that will feed your family for generations to come.

LET HE WHO IS WITHOUT SIN CAST THE FIRST STONE

It was a cut and dried case. The woman had been caught having sex with a married man for which the punishment was clear – death by stoning.

The wandering Jew with a growing following was presented with the case as a way, it seems, to trap into contradicting the holy book, and then who knows the stones meant for the woman would be turned on him.

He continued to doodle in the sand before uttering one of the most memorable lines in the bible, “Let him who is without sin cast the first stone.”

They used to be nice people those days, because they all slinked away one by one leaving the woman with Jesus Christ.

If she were in Uganda today enough of the people would have gone, “Shya!” and stoned her to death anyway.

Twenty one hundred years later in a land far, far away from the hills of Judea, Ugandans last week set upon our very own Desire Luzinda as if with stones passing around her nude images with glee, mocking her with unbridled abandon and basically revelling in the young woman’s affliction.

You might question Desire’s judgement in fraternising with a Nigerian (the byword for the con) or even for her other rumoured dalliances (whispering under your breath how she had it coming). Ok that she has a body made for the camera goes without saying. But we know other celebrities who have leaked their nude images, more accomplished women, may be even more beautiful and they did not attract as much attention as Luzinda – at least the good minister of Ethics did not see cause to set the police on them.

The body of her work (forgive the pun) does not even make her superstar. She is a looker, yes, but we all know age will account for that soon enough. So what is it about Luzinda?

If the truth be told this episode was more about us as a society than Desire Luzinda.

"Her moment of infamy only served as a trigger to reveal our true selves.

A judgemental, self-righteous and petty people, who derive pleasure from bringing people down, find solace in the hurt of their people and think its ok to wallow in mediocrity because one of our own fallen on bad times...

We are akin to maggots that feast on rotten flesh, turned on by the fetid smell and licking our lips of every last morsel.

This is not written in defence of Luzinda (She is a big girl she can handle the situation) but more an indictment on us as a society.

They say no one flogged a dead horse. The fact that we are enjoying Luzinda’s fall from grace is testament that she is someone – in our eyes, worthy of being pulled down. And since you cannot pull someone down from above it means in our eyes she is more worthy than we are.

That reveals a lot about us, doesn’t it?

It displays a singular lack of ambition on our part.

But maybe we shouldn’t be too hard on ourselves. The chaos of Idi Amin’s Uganda damaged more than the infrastructure, economy and rule of law.

Going by the stories Ugandans were an educated, hardworking and cultured people relative to their neighbours. The Amin era seems to have put paid to all that, reducing us to our basest selves, content with foraging for food, sheltering and clothing ourselves and the basic physiological processes.

Just because we have enjoyed stability for the last 30 years does not mean that as a society we have graduated to the next level of human development. And every so often we are reminded of this.

You can take the man out of the village but you cannot take the village out of the man.

The trick would be to refer to an older generation, who hopefully remember how “that” Ugandan was brought up, to recapture that essence of ourselves that would not openly jubilate at the misfortune of others or plot incessantly for their downfall.

The point is we cannot rise to any meaningful heights of achievement if we continue to crawl, our vision blinded by the dust we and those around us continue to kick up.

One interpretation of the story, my interpretation, was that Jesus was telling his people you need to improve yourselves not by bringing others down but by building yourselves up. Essentially mind your own business.

That is enduring wisdom and common sense.

Luzinda may not get off as lightly as the adulterous woman – if the Ethics minister has anything to do with it, but she might have done us a favour by making us come face-to-face with our true selves and hopefully change for the better.

That would be a greater service to her society than any son g she may release.

BUKINA FASO AND THE ECONOMICS OF REVOLUTION

Today, as is the tradition on the first Friday of the month, the US Bureau of Labour Statistics releases the Non-Farm Payroll, an indicator of the monthly change in the employment excluding the farm sector.

The Non- Farm payroll is probably the most important economic indicator after the GDP monthly release, it gives an idea whether the economy is growing or not. IF the economy is growing more jobs will be created and if it is not jobs will be lost or at least no new ones will come on line.

Today expectations for an announcement of 232,000 new jobs were created in October.

The European Union has a similar key indicator as do the UK and Germany.

The economy is not there for its own sake but to serve the people. Keeping people in employment is the sign of a good economy and bodes well for future national stability. The trick is how to create jobs, especially private sector jobs to keep the economy ticking so new jobs can be created … a virtuous cycle.

It’s obvious. When people are engaged in economic activity they have little time for rabble rousing and venting whatever grievances they have in a way that is disruptive.

Which brings us around to the events in Bukina Faso. Last week’s revolt was triggered by ex-President Blaise Campore’s attempt to extend his term in office beyond the constitutional mandate. It was reported that youth fearing that national assembly was about to rub stamp a constitutional amendment to that effect burnt down the parliament and the rest is history.

Doesn’t it make you wonder who these youth were? How did they get mobilised so quickly (Revolutions are never spontaneous regardless of what their pro0moters say)?

"It is safe to say that revolutions occur during times of economic stress. Either the economy is not working at all or is not ticking along at a pace the population is used to...

A cursory glance at the economy of Bukina Faso shows where the problem could lie. It has a GDP of $13b and for a 16m economy comes down to about $800 per capita. But more worrying than that low number is the country’s Human Development Index (HDI), which measures the extent to which social services are being delivered to the people. The country was fourth from the bottom in the world.

Seven in every ten export dollars come from gold and cotton whose prices fluctuate wildly on international markets. Remittances from Bukinabe abroad used to be a useful cushion but since neighbouring Ivory Coast got embroiled in a civil war these have fallen from a quarter of GDP to about one percent, as emigrant workers have returned home.

This bleak picture is a useful addition beyond Campore’s attempted machinations in explaining the country’s implosion.

To quote Bill Clinton’s 1992 US campaign slogan, “It’s the economy stupid”.

To prevent destructive revolution the economy has to work and not only on paper. Improvements in national statistics have to register in the people’s daily lives and there has to be constant improvement in this respect. A tall order for any government.

To make the economy work the government has to concentrate on improving the environment for businesses not only to survive but to thrive. This means ensuring national stability and security, building physical infrastructure, improving health and education services.

Easier said than done. Politics often gets in the way of this simple but easy formula the end result being that even if the economy is cruising along at a prodigious speed, the benefits are being enjoyed by a small minority.

However an improved economy is no guarantee for political longevity.

This week the Republican Party took back the US Senate from the Democratic Party to control both houses of the US legislature, a situation that can make for an uncomfortable last two years of President Barack Obama’s administration. This despite recent findings that show that US economy under Obama has put on 4.5 million jobs more than the Ronald Reagan era yet he has two more years to go.