Book Four Ent

ENTRPRENURSHIP BOOK FOUR
FOR LOWER SECONDARY
1
THEME: INSURANCE
Figure 11.1.1: Insurance

Competency: The learner should be able to utilise insurance services
INTRODUCTION
We are exposed to many risks in our day-to-day life. Nobody can predict what may
happen in the next moment. There may be an accident, calamity, theft, loss due to
certain other cause etc. Similarly, there are always risks in business. Everybody feels
like shifting the risk to some agency which can compensate in case of loss or damage.
In this chapter you are going to be able to utilize insurance services.
SUB-TOPIC 11.1: TERMS USED IN INSURANCE
2
Figure 11.1.2: Terms used in insurance
Keywords Learning outcomes

By the end of this sub chapter, you
should be able to;
 Insurer (a) understand the meaning and
 Insured importance of insurance.
 Insurance policy (b) understand the basic terms used in
 premium insurance and the difference between
 claim types of insurance
 actuary
 risks
 mitigation
 contract
11.1.1: Understanding the meaning of insurance

Insurance in your own understanding how would you define it? have you noticed any
posters around your community advertising the importance of insurance to an
individual or company? You should have noticed that all cars have insurance companies
they are working with. Insurance is a way to manage your risk. When you buy
insurance, you purchase protection against unexpected financial losses. The insurance
company pays you or someone you choose if something bad happens to you. If you have
no insurance and an accident happens, you may be responsible for all related costs.
In activity 11.1.1 you will understand the meaning of insurance.
Activity 11.1.1: Understanding the meaning of insurance
In groups,
Listen to your school director or administrator as he/she talks about:
a) The insurance policy he/she has for his/her property at school.
b) The importance of insurance to his/her property
c) Brainstorm and agree on the meaning of insurance
d) Write a report of your findings in your notebooks
e) share your findings to the rest of the class through a discussion
You have probably foundout that Insurance is a contract, represented by a policy, in
which an individual or entity receives financial protection or reimbursement against
losses from an insurance company.
11.1.2: Importance of insurance
3
You insure your car and your home. But nothing is more important than your life and
your ability to make a living. So it makes good sense to insure your greatest asset —
you!
As we move through life, find a partner, raise a family, and maybe start a business, the
importance of insurance in a long-term plan increase. That’s because insurance is all
about providing a financial safety net that helps you to take care of yourself and those
you love when you need it the most.
Activity 11.1.2: Understanding the importance of insurance
In pairs,
a) Brainstorm to each other why insurance is important
b) Describe what you would insure in their own lives and why.
c) Discuss examples of where a lack of insurance has led to considerable financial
difficulty and conversely from your community.
d) Describe where the need to pay insurance has been a financial burden from
business persons in your community
e) Write a report of your findings
f) Present your findings to the rest of the class through a discussion
You have probably leant Why insurance is important as follows:
1. Protection for you and your family
Your family depend on your financial support to enjoy a decent standard of living, which
is why insurance is especially important once you start a family. It means the people
who matter most in your life may be protected from financial hardship if the
unexpected happens.
2. Reduce stress during difficult times
None of us know what lies around the corner. Unforeseen tragedies such as illness,
injury or permanent disability, even death – can leave you and your family facing
tremendous emotional stress, and even grief. With insurance in place, you or your
family’s financial stress will be reduced, and you can focus on recovery and rebuilding
your lives.
3. To enjoy financial security
No matter what your financial position is today, an unexpected event can see it all
unravel very quickly. Insurance offers a payout so that if there is an unforeseen event
you and your family can hopefully continue to move forward.
4. Peace of mind
No amount of money can replace your health and wellbeing – or the role you play in
your family. But you can at least have peace of mind knowing that if anything happened
to you, your family’s financial security is assisted by insurance.
4
5. A legacy to leave behind
A lump sum death benefit can secure the financial future for your children and protect
their standard of living.
11.1.3: TERMS USED IN INSURANCE
Figure 11.1.3: Common terms used in insurance

Every Business has its own unique language and insurance is no exception. Here are
some key insurance definitions and terms you might come across as you consider
insuring yourself or your stuff. In activity 11.1.3 you will understand the key terms used
in insurance.
Activity 11.1.3: Understanding the terms used in insurance
In groups,
a) Carryout a library or internet research and fill in the terms used in insurance in the
table 11.1.1.
Description Terms used in insurance
A person or company that underwrites an insurance risk;
the party in an insurance contract undertaking to pay
compensation.
Premium
A business professional who deals with the measurement
and management of risk and uncertainty
Claim
The practice whereby insurers transfer portions of their
risk portfolios to other parties by some form of
agreement to reduce the likelihood of paying a large
obligation resulting from an insurance claim
Policy
b) Identify other terms not in the table above
5
c) Present your findings to the rest of the class
You have probably foundout the following terms
Premium
This is the actual cost of your insurance plan. Keep in mind that the higher the premium,
the higher your coverage and thus, the less you will have to pay in medical bills
throughout the year.
Deductible
The Deductible is the amount that you must pay out of your own pocket before the
insurance company will begin paying towards any covered expenses. The deductible
affects how much money you will pay to the doctor or hospital, and is typically paid at
the time of treatment.
Depending on the plan, the deductible may be paid once per calendar year or once per
new condition:
Once per Year
Once-per-calendar-year deductibles are paid once for the entire year and don’t need to
be paid again until you renew for an additional year.
Once per Condition
Once-per-condition deductibles are paid each time you visit the doctor, unless it’s a
follow-up visit for the same condition.
Co-Pay
Like a deductible, this is the amount of money you must pay out of pocked before the
insurance company begins to pay for your eligible expenses. Typically this is required
instead of a deductible or coinsurance, and requires you to pay a set fee for a specific
visit.
Coinsurance
Coinsurance is a percentage of what the insurance will pay to cover your health care
cost after any deductibles or copays have been met.
Depreciation
A decrease in value due to age, wear and tear, etc.
Disability Insurance
Health insurance that provides income payments to the insured wage earner when
income is interrupted or terminated because of illness, sickness, or accident.
Endorsement
Amendment to the policy used to add or delete coverage. Also referred to as a "rider."
Exclusion
6
Certain causes and conditions, listed in the policy, which are not covered.
Expiration Date
The date on which the policy ends.
SUB-TOPIC 11.2: PRINCIPLES OF INSURANCE
Figure 11.2.1: Principles of insurance

By the end of this sub chapter, you should
be able to;
 principle (a) appreciate the principles of insurance
 indemnity (b) understand the types and classes of
 insurable interest insurance
 proximity
 subrogation
 contract
 utmost goods faith
 insurance
7
11.2.1: Explaining the principles of insurance
I generally come across some very basic insurance related queries like
“I am not a smoker right now, if I buy a term plan – will I have to inform the company in
case I start smoking in future”
“My father just got diagnosed with diabetes, Can I get a health insurance which covers
that?”
“Why my premium has gone up after medicals even though I am fit and healthy?”
“How can an insurance company pay me shs 10 million, when they are just charging shs
15,000 as premium?
All these questions are very genuine questions and if someone does not understand the
principles of Insurance, they will ask them.
In activity 11.2.1 you will be able to explain the principles of insurance
Activity 11.2.1: Explaining the principle of insurance
In pairs
a) Study the word puzzle below and do the tasks that follow
U T M O S T G O O D S F A I T H
A S D F G H J K L R O Q W E R T
Z X C V B N M L K H G F D S A Q
S U B R O G A T I O N E R T Y U
R T Y U I O P G S A D C V B N M
K L H G F D S A Q W R Y U I O P
D F G H I N D E M I T Y F U I O
P I U Y T R E W Q A S D F G H J
C A U S A P R O X I M A D F G H
Z X C V B N M J L K G F D S A Q
S D P R O X I M I T Y D F G H F
D F G H B V C X D F G J U T E D
A D F G H J K L Q W E R T Y U W
I N S R A B L E I N T E R E S T
Tasks
a) Identify the principles of insurance from the puzzle above
b) Describe each principles identified in (a) above
c) Share your findings to the rest of the class
You have probably identified the following terms as used in insurance
Principle of Utmost Good Faith
The principle of utmost good faith is the most basic and primary level principle of
insurance and it applies to all kind insurance policies. It simply means that the person
8
who is getting insured must willingly disclose to the insurer, all his complete & true
information regarding the subject matter of insurance.
The insurer’s liability exists only on the assumption that no material fact is hidden or
falsely presented by the person getting insured.
There is a process called as “Underwriting” in insurance industry which is the activity of
studying the risk and assigning the premium value for the case and it’s very important
that the person buying any kind of insurance tells all the facts correctly and does not
hide it.
If you think about term plan or health insurance, you need to correctly mention things
like
If you are a smoker or drinker
Your family illness history
The Industry you work for
Your Income
Your Age
Your current illnesses (which you are already aware of)
If you do not tell these things correctly, you are violating the “Principle of utmost good
faith” here and it can impact your insurance claim process in future.
Principle of Insurable Interest
This principle says that the person who is taking insurance should have some insurable
interest in that thing which is getting insured. So if there will be financial loss to the
person if the insured object gets destroyed. If this is not the case, insurance cannot be
taken
So when a breadwinner takes life insurance for his life, it makes sense because incase
the person dies, there will be financial loss to family .
In the same way, you can get your car, bike, home, gold insured because you have
insurable interest in that object. You can’t get your neighbor car insured and benefit
because you do not have insurable interest in that.
Principle of Indemnity
Principle of Indemnity says that Insurance is not to make profit, but only to compensate
you against the losses incurred. It’s an assurance to restore the same position which
was there before the loss.
So the compensation paid cannot be more than the losses incurred.
In term plan, people ask why companies ask for income details. It’s to make sure that a
person takes limited insurance which goes with his financial status and is good enough
to restore back his family life style which was there in existence
9
Principle of Subrogation
As per this principle, once the insured is paid for the losses due to damage to his insured
property, then the ownership right of such property shifts to the insurer. So if your car /
bike / house / valuables which you have insured is fully damaged and once you get
compensation from insurance company, then they get the ownership of the item and
now they can sell off the remains to recover their dues by that process
You can’t benefit from the remains of that item.
Imagine this scenario : You have car insurance and the car is stolen. The insurance
company will pay you the full claim amount. However now the ownership rights are
transferred to the insurance company and if the car is found in future by Police, it will
be owned by insurance company
Also, imagine a scenario where a car is insured and the car is badly damaged beyond the
use. In that case the insurance company will pay you the claim fully. Now you can’t say
that you will still sell off the car parts by getting it repaired because you lose the rights
to property.
One more thing ..
As per this principle, the insurer will try to recover their losses from other party later as
if they were at your place. Let me give you an example
Let’s say your house is insured for shs 10m. Because of some reason, let’s say your
neighbor negligence there was a fire in your house and your house is fully damaged. In
this case you will claim from insurance company, and get the money.
But after that the company will try to recover the losses from the culprit in the way you
might have done it if there was no insurance. So might file a case against the neighbor’s
in court claiming for damages.
Principle of Causa Proxima (Nearest Cause)
This is a very important principle of insurance which an insured person should be
aware about.
As per this principle of causa Proxima, when a loss if caused by more than one causes,
then the nearest or the closest cause should be taken into consideration to decide the
liability of the insurer.
The nearest cause should be insured by the insurer, only then the insurer liability comes
into picture and policy holder will be paid. Insurer will not be liable for the farthest
cause.
One of the common examples given for this is this
A cargo ship base was punctured by rats and because of that puncture, sea water
entered the ship. If you look at the events, there are two reasons for damage of ship
Rats punctured the base of ship (farthest)
10
Sea Water entered the ship (closest)
Here as the insurance company will have to pay because the ship was insured against
sea water entering the ship and that reason was closest.
11.2.2: Identifying the Examples of each Principles of Insurance in our daily lives
The insurance contract between an insurer and an insured is based on certain
principles. The concept of insurance is risk distribution among a group of people. Hence,
cooperation becomes the basic principle of insurance. This affects our daily lives, the
way we live, travel, and risk.
Examples of our daily lives help us understand more the principles of insurance
Activity 11.2.2: Understanding more about the principles of insurance
Copy the table below and match each statement with the correct principle
Example Principles
Jacob took a health insurance policy. At the time of taking For example
insurance, he was a smoker and failed to disclose this Principle of Utmost Good
fact. Later, he got cancer. In such a situation, the Faith
Insurance company will not be liable to bear the financial
burden as Jacob concealed important facts.
Due to fire, a wall of a building was damaged, and the
municipal authority ordered it to be demolished. While
demolition the adjoining building was damaged. The
owner of the adjoining building claimed the loss under
the fire policy. The court held that fire is the nearest
cause of loss to the adjoining building, and the claim is
payable as the falling of the wall is an inevitable result of
the fire.
In the same example, the wall of the building damaged
due to fire, fell down due to storm before it could be
repaired and damaged an adjoining building. The owner
of the adjoining building claimed the loss under the fire
policy. In this case, the fire was a remote cause, and the
storm was the proximate cause; hence the claim is not
payable under the fire policy.
The owner of a vegetable cart has an insurable interest in
the cart because he is earning money from it. However, if
he sells the cart, he will no longer have an insurable
interest in it.
To claim the amount of insurance, the insured must be
the owner of the subject matter both at the time of
entering the contract and at the time of the accident.
The owner of a commercial building enters an insurance
contract to recover the costs for any loss or damage in
future. If the building sustains structural damages from
fire, then the insurer will indemnify the owner for the
costs to repair the building by way of reimbursing the
11
owner for the exact amount spent on repair or by
reconstructing the damaged areas using its own
authorized contractors.
If Mr A gets injured in a road accident, due to reckless
driving of a third party, the company with which Mr A
took the accidental insurance will compensate the loss
occurred to Mr A and will also sue the third party to
recover the money paid as claim.
b) critically think about the effects of these insurance principles on the way people live.
c) share your findings to the rest of the class through a discussion
11.2.3: Identify the types and classes of insurance
Figure 11.2.2: Types of insurance

Unexpected costs are an unfortunate reality of life. Even if you believe you are
financially secure, an unexpected or unplanned expense can jeopardize that stability.
Depending on the severity of the situation, you can find yourself in debt.
While you can't anticipate for contingencies that arise from such events, insurance
coverage can help you limit your financial obligation in the event of an accident.
12
There are numerous insurance policies available, each designed to protect specific parts
of your health or possessions.
Activity 11.2.3: Describing the different types of insurance
In groups carryout a library or internet research to find out the following:
a) Describe the different types of insurance
b) Share your findings to the rest of the class
You have probably foundout that the types of insurance can be categorised into two
major types which include:
 Life Insurance
 General Insurance
Life insurance
Figure 11.2.3: types of life insurance

Life insurance is a contract that offers financial compensation in case of death or
disability. Some life insurance policies even offer financial compensation after
retirement or a certain period of time. Life insurance, thus, helps you secure your
family’s financial security even in your absence. You either make a lump-sum payment
while purchasing a life insurance policy or make periodic payments to the insurer.
These are known as premiums. In exchange, your insurer promises to pay an assured
sum to your family in the event of death, disability or at a set time.
Activity 11.2.4: understanding the types of life insurance
In pairs, carryout a library or internet research to fill the table below:
13
Type of life Description
insurance
For example -It is the most basic type of insurance. -It covers you for a specific period. -Your
Term family gets a lump-sum amount in the case of your death. -If, however, you
Insurance survive the term, no money will be paid to you or your family.
Whole Life
Insurance
-Like a term policy, it is also valid for a certain period. -A lump-sum amount
will be paid to your family in the event of your death. -Unlike a term plan, you
get the maturity proceeds after the term period.
Money-back
Policy
-Such products double up as investment tools. -A part of your premium goes

towards your insurance cover. -The remaining amount is invested in Debt and
Equity. -A lump-sum amount will be paid to your family in the event of your
death.
Child Plan
-This helps build your retirement fund. -You can get a regular pension amount
after retirement. -In the case of your death, your family can claim the sum
assured.
c) Brainstorm on the meaning of life insurance

d) Share your findings to the rest of the class through a discussion
You have probably found out that Life insurance is a contract between an insurance
policy holder and an insurer or assurer, where the insurer promises to pay a designated
beneficiary a sum of money upon the death of an insured person.`
Types of life insurance
Term life insurance, also known as pure life insurance, is a type of life insurance that
guarantees payment of a stated death benefit if the covered person dies during a
14
specified term. Once the term expires, the policyholder can either renew it for another
term, convert the policy to permanent coverage, or allow the term life insurance policy
to terminate.
Whole life insurance, also known as traditional life insurance, provides permanent
death benefit coverage for the life of the insured. In addition to paying a death benefit,
whole life insurance also contains a savings component in which cash value may
accumulate. Interest accrues at a fixed rate and on a tax-deferred basis.
Endowment policy
Figure 11.2.4: Endowment policy

An endowment policy is a type of life insurance policy designed to pay a lump sum
on maturity or on death. An endowment policy can be used to build a risk-free savings
corpus, while providing financial protection for family in case of an unfortunate event.
Money back policy is a type of life insurance product that allows the insured to receive
regular returns, or as a lump-sum amount at a defined point during the policy period.
The returns offered under a money back policy can be guaranteed or depend on
investment performance, or a combination of both.
A ULIP is an insurance plan that offers the dual benefit of investment to fulfil your long-
term goals, and a life cover to financially protect your family in case of an unfortunate
event. The premium paid towards a ULIP is divided into two parts. A part of it is
contributed to your life cover, and the remaining is invested in the fund of your choice.
You can choose to invest in equity, debt, or a combination of both funds as per your risk
appetite and goals. This makes ULIPs an ideal investment option for you and your
family’s long-term goals.
Children’s policy: Child life insurance covers the life of a minor and is typically
purchased by a parent, guardian or grandparent.
15
In general, these policies are whole life products. a type of permanent life insurance.
This means coverage lasts for the child’s entire life, as long as the premiums are paid.
Retirement plans: Life insurance is often referred to as a retirement plan due to the
cash component of some life insurance policies that act as retirement income for
individuals. Though life insurance should not be considered as a replacement to other
traditional retirement plans.
General insurance
Figure 11.2.5: General insurance

Insurance contracts that do not come under the ambit of life insurance are called
general insurance. The different forms of general insurance are fire, marine, motor,
accident and other miscellaneous non-life insurance.
The tangible assets are susceptible to damages and a need to protect the economic value
of the assets is needed. For this purpose, general insurance products are bought as they
provide protection against unforeseeable contingencies like damage and loss of the
asset. Like life insurance, general insurance products come at a price in the form of
premium.
Activity 11.2.5: Understanding the different types of general insurance
In pairs,
Carryout a library or internet research and do the tasks that follow
Tasks
a) Identify the meaning of general insurance
b) Describe the different types of insurance
16
You have probably leant that general insurance is an insurance contracts that do not
come under the ambit of life insurance are called general insurance. The different forms
of general insurance are fire, marine, motor, accident and other miscellaneous non-life
insurance.
Types of general insurance
A general insurance policy can cover all of your things. While there are various types of
general insurance policies, each asset can be covered by a specific type of policy.
An insurance policy's main idea is to compensate you for your losses. So keep in mind
that insurance is not a preventative measure; rather, it compensates for any damage or
loss.
Figure 11.2.6: General insurance policy

Akin to life insurance, general insurance as well works on the principle of the risk
occurring to many people at once. Not everyone who suffers from the risk faces the
damages. This helps the general insurance companies honour your claims.
17
A premium is charged by the insurance company to cover the risk. A similar coverage is
provided to many others willing to insure for the same type of risk. Payouts are then
offered by the insurance companies from this pool of funds when claims are made.
Like life insurance provides your family financial support in your absence, a general
insurance plan ensures you receive the money when the time comes as per the terms of
the policy.
Fire insurance
A fire has the potential to destroy a property or a business, leading to losses of great
scale. To get compensated for such losses, you can opt for fire insurance, covering your
movable and immovable property. The property that you want to insure could be
residential, commercial or industrial.
Activity 11.2 6: Understanding fire insurance
In groups, study the case-study below and do the tasks that follow:
Tricia, a business owner of a cloth manufacturing business, was told to insure her
properties with a fire insurance policy to cater for her property if it caught fire, but she
did not consider the advice. During the manufacturing process, an electricity shock
happened, and this led to the burning of most of the products and their properties. This
led to a big loss of property, two people, and products of capital. She was very
depressed since no one was able to help her recover from the loss she had made..
Figure 11.2.7: Property on fire

Tasks
1. identify cause of the fire outbreak in the case-study
2. describe the lose made by Tricia in the case-study
3. what advice would you give to Tricia?
18
4. Agree on the meaning of fire insurance
5. Describe the why fire insurance is a good choice for your business
6. Share your findings to the rest of class through a discussion
You have probably foundout that fire insurance refers to a form of property
insurance that covers damage and losses caused by fire.
Importance of fire insurance
When you have fire insurance on a BOP, coverage will be provided regarding:
 New property
 Lost business income
 Physical loss or damage to the personal property of business
 Betterments, office fixtures and improvisations
Those who buy fire insurance against their business property will stay protected for the
losses incurred during the damage. If the damage occurs, you file a standard fire
insurance claim. And the insurance company verifies standard claims prior to issuing
compensation.
However, if you don't know how to follow steps in the process properly, approach the
agent as soon as possible.
Activity 11.2.7: Understanding the Types of General Insurance
In groups
Carryout a library or internet research and do the tasks that follow.
Tasks
a) Identify the meaning of the following types of general insurance
i. Marine insurance
ii. Travel insurance
iii. Motor insurance
b) Describe the importance of each of the following types identified in (a) above
c) Share your findings with the rest of the class through a discussion
Marine insurance
19
Figure 11.2.8: Marine Accident
There is insurance of cargo and vessels against possible loss at sea. The
policies available may include marine hull insurance which covers the vessel
itself with all its fixtures, cargo insurance which covers goods on the vessel
and ship owners liability which covers losses, damage or injury to Cargo or
people resulting from the carelessness of the ship crew.
Why is Marine Insurance important?
High-risk exposure:
When it comes to trade, a business needs to rely on transportation. Transport is an
extremely risky process that faces exposure to various named and unnamed perils.
Businesses need to take steps cautiously from packing the goods for transporting. And
also, choosing reliable logistics methods for smooth transits. However, despite all safety
measures taken accidents can still happen to result in a loss or damage to shipment or
cargo. In order to manage these transport risks, it’s important to avail marine insurance.
Marine insurance is available in various forms such as marine transit insurance, hull
insurance, and inland transit insurance, etc to cover both domestic and international
trades.
The possibility of exorbitant losses from transits:
Businesses transport shipments in bulk. As carriers have limited liability, loss or
damage to high-value shipments can put a business under severe financial crisis. Marine
insurance provides comprehensive coverage by protecting your shipment from various
perils such as theft and piracy, fire, explosion, natural disasters like storms, hurricanes,
earthquakes, cyclones, collisions, derailments of land conveyance, the sinking of ships
apart from covering various expenses.
Motor insurance
20
Motor Insurance is a type of insurance policy which covers your vehicles from potential
risks financially. Policyholder's car or two-wheeler is provided financial security against
damages arising out of accidents and other threats. In India, motor insurance is
mandatory.
Figure 11.2.9: Car Accident

Importance of motor insurance
Motor Insurance Reduces Liability
Since signing up for third-party motor insurance is mandatory in India, it automatically
safeguards vehicle owners from accidents caused by the policyholder. For instance, if an
accident caused by the policyholder causes damage to another person’s vehicle or
causes injury to the person, then the policy saves the policyholder from legal
repercussions and pay for the treatment.
Motor Vehicle Insurance Pays for Damages
Another benefit extended by motor vehicle insurance is that it pays for damages since
accidental repairs are quite expensive especially when the damage is caused by
someone else. However, this insurance cover helps policyholders breathe easy as the
insurer foots the bill in such cases and it won’t burn a big hole in the pocket causing an
unexpected expense.
Also, motor insurance online helps policyholders file a request from the comfort of their
homes. Additionally, the entire process is more transparent, quick, and needless to say
more efficient as well.
Purchasing Vehicle Insurance Online is Cheaper
Also, policyholders can save money by buying motor insurance online as that saves a lot
of operational costs. Insurance companies pass on this benefit to customers in the form
21
of highly competitive premiums, making it beneficial for both the parties with online
motor insurance in Uganda.
Pay Premiums and Enjoy Coverage at All Times Using Motor Insurance Calculator
Motor insurance policyholders can use a Motor Insurance Calculator to check how much
premium they need to pay to enjoy comprehensive coverage. Also, it is best to use a
motor insurance calculator to set aside some money every month which can be paid
towards the premium, particularly for salaried individuals. This comes of great help,
especially during vehicle insurance renewal.
Travel insurance
Travel insurance is a type of insurance that covers the costs and losses associated with
traveling. It is useful protection for those traveling domestically or abroad.
Figure 11.2.10: Travel Insurance policy

Importance of travel insurance
It covers against medical emergencies:
Any Travel Insurance policy covers the cost of medical treatment up to a particular
limit. These policies do not discriminate between the types of medical emergencies. It
could be any type of medical or accident treatment and the insurance company will
reimburse costs up to a particular limit to the mentioned limit. Insurance companies
even have a list of network hospitals where you can avail treatment.
It covers against risks of travel:
Travel Insurance covers risks during travel such as loss of passport and personal
belonging cover, loss of checked in baggage etc. Having these risks covered ensures an
additional layer of protection against financial loss. In case your flight is cancelled for
any reason (as per coverage terms & conditions), having Travel Insurance will give you
compensation up to a particular limit. Without Travel Insurance, these costs would have
been a drain on your pocket. By reimbursing such non-refundable expenses, Travel
Insurance protects your finances.
Covers trip disruptions:
Trip disruptions mean any disruptions that may cause you to cancel your trip or curtail
your trip due to any reason. Travel Insurance also provides coverage for bookings that
are cancelled, entire trip cancellations either by you or by the tour company among
22
others (As per the policy Terms and Conditions against each cover). Having these risks
covered provides a level of compensation.
Travel Insurance companies provide assistance:
In case of any problems on your trip, insurance companies provide all types of
assistance. Their guidance can help you file your claims in the correct fashion and also
help you find a network hospital to get treated. As long as your insurance policy is valid,
the company is obligated to help you in times of need.
SUB-TOPIC 11.3: INSURANCE DOCUMENTS AND PROCESS
Figure 11.3.1: An insurance claim form

be able to;
 Claim form a) explain the documents used in insurance.
 Insurance policy b) identify the steps to take up an insurance
 Certificate of origin policy.
 Cover note c) identify the steps taken to settle a claim.
11.3.1: Documents used in insurance

Insurance documents are required to prove that a contract exists between the insurer
and the insured. The documents serve as evidence of the insurer's and insured's
contract. Insurance paperwork also provide the insurer with detailed information on
the risk that is being insured against.
Some of the paperwork will be sent out before your policy is activated, while others will
be sent out thereafter. Some forms must be filled out and signed, while others are
merely for your information. Let's take a look at some of the more crucial paperwork
you'll receive during the insurance application process.
Activity 11.3.1: Understanding the different documents used in insurance
23
In groups
Carryout a library or internet research and do the tasks that follow:
Tasks:
a) Identify the meaning of an insurance document
b) Describe the different documents used in insurance
c) Share your findings to the rest of the class through a discussion
You have probably learnt that an insurance document means certified documents
issued by an insurance company licensed to operate by the Government certifying that
the bidder is insured in accordance with the Town’s insurance requirements as
contained in the bid documents
11.3.2: Different types of insurance documents
a) Proposal form
Proposal form is the most important and basic document required for life insurance
contract between the insured and insurance company. It includes the insured's
fundamental information like address, age, name, education, occupation etc. It also
includes the person's medical history.
A life insurance company offers a policy on the basis of a proposal form. The form is the
most basic requirement for the functioning of the life insurance contract between you
and the life insurance company. It needs to be completed by the proposer who may seek
the assistance of a life insurance advisor to fill it up.
Activity 11.3.2: Understanding an Insurance Proposal Form
In pairs, study figure 11.3.2 and do the tasks that follow
24
Figure 11.3.2: Proposal form
Tasks
a) Identify the key features of a proposal form shown above
b) Describe the importance of a proposal form
b) Cover note
The other type of insurance document is a cover note A document used to provide
evidence of insurance if policy documents are not immediately available. It generally
shows the name of the insurer and insured, brief details of the property or risk insured,
the coverage, and the total amount of insurance
Activity 11.3.3: Understanding an insurance cover note
In groups,
Carefully study figure 11.3.3 and do the tasks that follow
25
Figure 11.3.3: cover note
Tasks
a) Identify the features of a cover note from figure 11.3.3 above
b) Describe the importance of an insurance cover note
c) Insurance policy form
This is a major document, once an underwriter (a person or company that underwrites
an insurance risk) assessment is done, an insurance company is then able to create your
insurance policy contract. This is basically the contract of insurance detailing the scope
and consequent fees payable, clearly stating the applicable terms and conditions.
The insurance policy form, or policy language, outlines who is an insured, the insuring
conditions, what type of loss(es) are covered, and what type of loss(es) are excluded.
Insurance policy forms, like proposal forms, vary within wide limits as between
different classes of insurance but they have certain features in common. The insurance
policy is a document which provides evidence of the contract of insurance.
Activity 11.3.4: Understanding an insurance policy form
In pairs
26
Carefully study figure 11.3.4 and do the tasks that follow:
Figure 11.3.4: an insurance policy

Tasks
a) Identify the features of an insurance policy from the figure 11.3.4 above
b) Describe the importance of an insurance policy
Steps taken to obtain an insurance policy form
Insurance is one of the most important things you can buy for yourself, family or
property. Remember, you don't need insurance until you absolutely need it and in the
event that you become disabled, your property gets destroyed, or lose your life, your
family will absolutely need insurance.
You now know you need insurance, but how do you obtain
Activity 11.3.5: understanding the steps taken to obtain an insurance policy form
In groups
Carryout a library or internet research and find out the following:
a) Identify the steps taken to obtain an insurance policy
b) Draw an flow chart showing the steps in their order
c) Describe the steps identified in (a) above
27
d) Write a report of your findings in your note books
e) Present your report to the rest of class
You have probably found out the following steps
Steps taken to take up an insurance policy
Lets imagine you are buying a life insurance the following steps are followed
1. Proposal:
Like any other contract, proposal is the first step for entering into a Life Insurance
Contract. The L.I.C. provides printed proposal forms free of cost to the prospects. This
form consists of a number of questions. The proposer has to fill in required information
correctly and completely.
Information which is usually asked in the proposal form:
a. Name, address and occupation
b. Date of birth
c. Proposed Insurance scheme or plan
d. Purpose i.e. protection to family, old age provisions, etc.
e. Details of previous insurance, if any
At the bottom of the form the proposer has to give a declaration that the furnished
information is correct, complete and true to the best of his knowledge. He has to put his
signature.
2. Personal statement:
Along with the proposal form one more printed form is issued by the the L.I.C. called the
personal statement. In this form the proposer has to submit his complete medical
history and also the health of his family.
The acceptance or non-acceptance of the proposal is based on the information
submitted by the proposer in the proposal form and personal statement. The L.I.C. can
cancel the contract in the case of concealment or fact or false and wrong information.
3. Medical examination:
On submission of the proposal and personal statement, the L.I.C. directs the proposed
assured to go through a medical examination. This examination is to be conducted by
the approved doctors who are on the Official Panel of L.I.C. the proposer need not pay
any charge for this medical examination. The doctor then submits his report to the L.I.C.
4. Proof of age:
The proposer has to mention the correct date of birth in the proposal form. The
proposer has to submit some evidence for the age proof like leaving certificate or
affidavit of court etc. because age is an important factor for the fixing the amount of
premium.
5. Reviewing stage/scrutiny of Reports:
28
The L.I.C. officers then fully examine the contents of the proposal form, personal
statement, medical report, agent's remarks and the certificate of proof of age. This
scrutiny is done for taking a decision for acceptance of the proposal.
6. Acceptance of the proposal:
On scrutinizing all the reports and documents, if everything is satisfactory the L.I.C. may
accept the proposal. The L.I.C. then sends intimation to the proposer about the
acceptance of the proposal.
If the reports are completely un-satisfactory the proposal is refused and an intimation
about non-acceptance of the proposal.
7. Payment of premium:
The L.I.C. contract is completed when the first premium is paid by the assured and the
L.I.C. issues a valid receipt for it. The first premium is paid, when the first premium
notice is received by the proposer.
When the first premium is paid along with the proposal only, the receipt is issued after
its acceptance. The L.I.C. runs the risk from the date of issue of first premium receipt.
After the first premium, the assured has to pay agreed premiums at agreed intervals.
8. Issue of insurance policy:
Then the written agreement is prepared, this is called as an insurance policy. In this
document the name, address, occupation, age of the proposer, policy number, type
amount and term of policy, other terms and conditions of the insurance contract etc.
things are mentioned.
d) Claim form
A claim form is the document that tells your insurance company more details about the
accident or illness in question. This will help them determine if the expenses you are
claiming for are covered under your insurance plan or not, so the more information on
this form the better.
Activity 11.3.6: Understanding a claim form
In pairs:
a) Identify the features of a claim form
b) Describe the importance of a claim form
c) Describe the steps taken to obtain a claim form
d) Write a report of your findings in your note book
e) Present your findings to the rest of the class
You have probably foundout the following
Features of a claim form
29
Field Description
Code The unique code for this claim form
Description The description for this claim form
Line of Business The line of business for this claim form
Claim Form Type Optional reference to claim form type
Procedure 1 display name The column header in the claim line section in the claims
pages
Procedure 1 usage name The attribute name in dynamic logic
Procedure 1 definition Flex Code System that defines which codes can be entered
Procedure 1 fatal non match If checked, a non match leads to a fatal system message
indicator
If not, an informative message is applied instead
pages
indicator
pages
indicator
Steps taken to obtain an insurance claim form

The insurance claim process typically involves five main stages, from the moment you
report your loss to the resolution of your claim. You can prepare for the process by
gathering relevant documents (think receipts, original invoices and proof of ownership),
gathering photos and accounts of the event or damage, and familiarizing yourself with
the steps below.
30
Connect with your broker. Your broker is your primary contact when it comes to your
insurance policy – they should understand your situation and how to proceed. Once you
give your broker a detailed list of all the items that were damaged or lost, and any
photos or videos that help to explain the circumstances, an adjuster will follow up with
you to continue the claims process.
Claim investigation begins. After the claim has been reported, it will need to be
investigated by an adjuster to determine the amount of loss or damages covered by
your insurance policy. The adjuster will also identify any liable parties, and you can help
the process by providing any witness information or other parties’ contact information.
Your policy is reviewed. Once the investigation is complete, the adjuster will go
through your policy carefully to determine what is and isn’t covered under your policy,
and inform you of any applicable deductibles that may apply to your case.
Damage evaluation is conducted. In order to accurately evaluate the extent of the
damage, your insurance adjuster may hire appraisers, engineers, or contractors to lend
their expert advice. Once the evaluation is complete, your adjuster will provide you with
a list of preferred vendors to help with repairs. You’re not obligated to hire these
vendors, but it can save you a good deal of time and research.
Payment is arranged. After repairs have been completed and lost or damaged items
have been replaced, your adjuster will contact you regarding settlement of your claim
and payment. The amount of time it takes to receive payment will depend on the
complexity and severity of your situation.
Every claim is different, and although the claims process can vary slightly according to
the situation, your adjuster will devote the time and attention it takes to resolve your
particular case
31
SUB-TOPIC 11.4: CHALLENGES FACING THE INSURANCE INDUSTRY
weak
manpower
challenges
economic facing the lack of trust
instability
insurance
sector
competition

By the end of this sub chapter, you
should be able to;
 Challenges a) explain the challenges facing the
 Insurance industry insurance industry.
 Possible solutions b) explain the possible solutions to the
 Clients challenges faced by the insurance
industry.
11.4.1: Explaining the challenges faced by insurance industries

Insurance firms are summarily viewed as establishments meant to cancel or minimize
the adverse consequences of unforeseen misfortunes. Indeed, insurance companies are
risk outcomes underwriters. Because we leave in very unpredictable societies that have
an extensive variety of risk trajectories, it is commonly expected that a person at a
particular point in time will run into unfriendly situations that will endanger his or her
life and property regardless of status, caliber, education level, and class. Industrialized
and matured societies depend on insurance. This is an explanation why many
companies and industries in developed nations do not liquidate or “go under“ in such
societies.
Ordinarily, against this contextual, most people expect that insurance firms will be
viable and popular in societies. However, this is not the case since many insurance
businesses face difficult challenges that seriously threaten their survivals and
existences. This is common in less developed societies where political and socio-
economic systems are yet to crystallize. Social, economic, and political systems in such
countries present terrible problems to insurance companies.
32
For sure, if an individual has just started the business of selling insurance, then he or
she must understand that having thick skin is an important thing for him or her to
survive in the industry. Today, each business changes in some ways and the changes can
either be negative or positive. In any industry, there are various problems to be faced.
Here are the biggest challenges for insurance companies.
Activity 11.4.1: Explaining the challenges faced by insurance industries
In pairs, carefully study the puzzle below and do the tasks that follow:
P O V E R T Y D F G H J K L D S
Z X C V B N M A S D F G H H J T
D F G H J K L I U T R W Q A D F
F L A C K O F T R U S T W E R T
S D F G H J K L E D C V G R Y U
D F T G U Y E C N J K T F G J A
S D F G H J K L P O I U Y T R E
C O M P E T I T I O N G H N R Y
Q W E R T Y U I O P L K J H G F
Q A E D R T G Y H Y J B U S V J
Q W E R T Y U I O G L K J H G F
A S D F G H J K L P O I U Y T R
M I S M A N A G E M E N T F G H
S D F G H J K L O U T R E W Q F
Tasks
a) Identify the challenges facing the insurance industry from the puzzle above
b) Using the internet or library resource describe other challenges faced by the
insurance industry
c) Share your findings with the rest of the class
Challenges facing the insurance industry
1. Lack of trust
This is a reason why many individuals don`t bother with insurance. Many insurance
firms fail to pay claims, and they don`t own up to offering some benefits. Therefore,
most people just see insurance as one of the unnecessary expenses. Many insurance
firms do shut down because of financial challenges and individuals who are the victims
of the loss don`t even think twice about purchasing insurance policies.
2. Competition
Today, there are many insurance firms on the market and therefore there is an intensive
challenge for insurers. Each company looks for the best way of selling their insurance
products in the best possible way and targets a particular group of individuals. Most
insurance businesses, especially the new ones are the most doubted companies. In fact,
most people trust some of the existing insurance firms compared to the new businesses
33
since the new enterprises are operated on a thin line between failure and success and
no one will want to take such risks with the little among of money that they have.
3. Mismanagement
As the owner of the insurance business, one is solely responsible for all issues that his
or her clients may have regarding the management of the insurance business. All
insurance firms that are mismanaged can`t hide their faults for a longer time without
the clients noticing. As time move, there will be a constant increase in the number of
clients` complaints, and if his or her insurance firm is not transparent, then he or she
will lose more customers. Also, incompetent management may cost the company a lot,
particularly if they have poor communication with their clients.
In case an individual`s premiums are high, he or she should not advertise. They should
look for a market for that policy instead of lying to the general public or even form
strategies whereby the clients cut on expenses like providing no-exam life insurance
quotes.
4. Economic instability
When the country`s economy is down, all insurance companies will be affected. At such
situations, the rates can be affected such that the insurance companies might be forced
to increase their rates, just like interest rates on credit facilities provided by financial
institutions.
Of course, no client will appreciate this, even if it is stated clearly in the contract that the
insurance rates might change from time to time. Therefore, such situations might create
a bad image for a company since costumers can spread the information about a service
or product, they were not happy with very fast.
5. Weak manpower
Non-professionals run many of the insurance companies today. In fact, many people
think that what it takes to be an insurance professional is just some knowledge of
monetary studies with no specialized training. Indeed, this has majorly affected the
dependability and operations of insurance firms in this century.
6. Excessive politicization of the insurance industry
Without a doubt, politics play a significant role in insurance companies` operations
depending on the power play & calculations that are dominant in the operating domains
of the insurance firms. The premiums to pay, the outcomes of risk investigations, and
the damages and benefits to pay depend on political conspiracy sometimes.
11.4.2: Solutions to the challenges facing the insurance industry
The insurance sector, in particular, has a lengthy legal process for making agreements
and receiving reimbursement. That means that the government's engagement is
required if the issues affecting Uganda's insurance industry are to be addressed and
profitable returns generated. Educating the public, risk management, organizing
conferences and benchmarking, and regulating the activities of insurance corporations
34
are some of the government's requirements. You will be able to discuss the insurance
challenges after completing activities 11.4.2.
Activity 11.4.2: Understanding the solutions to the challenges faced by the
insurance industry
In groups
Tasks
a) Describe the solutions to the challenges faced by the insurance industry
b) Share your findings with the rest of the class through a discussion
You have probably learnt that the solutions to the challenges facing the insurance
industry are as follows:
Educating the public:
An informed public is an advantage to the country. It's good to educate people on
the advantages of saving up with insurance companies and encouraging them to
do so. This could be done by bringing the services right to their doorsteps after the
education and making the application process hassle free.
Risk management
The impact of the government on policy and legal acts has a way of influencing the risk
involved in the insurance business. It smoothen out the business procedures between
the sellers and the buyers. When the government is involved, both parties will keep
their side of the bargain, creating confidence and trust, a very vital ingredient in
business.
Organising forums and benchmarking
It's the government's duty to organise forums to have its insurance firms exposed to
countries with better insurance services to learn and borrow from them. This can be in
the form of seminars or video conferencing. Open days are also recommendable for the
internal companies to interact with each other and with the general public.
Regulating the insurance firms' operations
As much as the Insurance Regulatory Authority exists, it's good that the government
does follow ups on these operations to make sure the set guidelines on pricing,
customer service and compensation claims are followed to the latter. The solvency of
the insurance company should be protected while on the other hand, consumers are
kept away from unfair treatment and discrimination.
Note :
As a result, it is clear that some interference is required to enhance insurance uptake
and penetration. All parties, including the government, insurance companies, brokers
35
who insure the public, and others, must work together to ensure the success of the
insurance industry in the country.
Activity of integration
Business owners and other stakeholders were called for a seminar to create awareness
about using insurance services. This seminar was organised by the chairperson of
Mubende after a lot of tragedies had happened in the district. These included fires,
accidents, and earthquakes that led to death and loss of people and property,
respectively. The seminar was to empower people to utilise the insurance services that
would help solve these problems, but whosoever was told about this seminar, no one
was interested. This was because most business owners and stakeholders thought of
insurance as a luxury and something for the rich. As a youth in the community of
Mubende, you are required to sensitize the people to go to the seminar, giving them
clear reasons why this seminar is very important and not a luxury.
Write a speech of about 600 words explaining how business men and stakeholders can
utilise insurance services
Chapter Summary
After studying this chapter, you should have been able to;
(a) Understand the meaning of insurance and appreciate its importance.
(b) Understand the types and principles of insurance.
36
(c) Know the documents used in the process of insurance.
(d) Find out the challenges facing the insurance industry and suggest possible solutions.
37
THEME: INTERNATIONAL TRADE
Figure 12.1.1: Modes of international trade

Introduction
Have you ever bought something from a retail shop only to discover that it was not
made in your country? "Made in Kenya, South Africa, and Japan, among other places"
could be included. The effects of international trade are already being felt by you.
Some of the things we use on a daily basis are not made in Uganda. Some of them are
imported from foreign countries. Furthermore, not all Ugandan goods are consumed in
Uganda; some are exported to other nations. You will find and exploit business
opportunities in the worldwide market in this chapter.
SUB-TOPIC 12.5: INTRODUCTION TO INTERNATIONAL TRADE
38
Figure 12.1.2: Shipping cargo through oceans to ports
By the end of this sub chapter, you should be
able to;
 Foreign trade a) understand what is meant by international
 E-commerce trade.
 INCO-terms b) explain forms of international trade,
 Commercial tools including e-commerce.
 Export c) state reasons for international trade.
 Import d) describe the reasons for international trade
 Export and the various challenges it presents.
 Entrepot e) explain International Commercial Terms
(INCO terms)
f ) understand the documents used in
international trade.
g) identify the commercial tools used to control
international trade.
h) explain the factors affecting international
trade.
i) identify the requirements for export and
import trade.
12.1.1: Understanding the meaning of international trade.

Countries go to trade internationally when there are not enough resources or capacity
to meet domestic demand. So, by importing the needed goods, a country can use their
domestic resources to produce what they are good at. Then, the country can export the
surplus to the international market.
After doing activity 12.1.1, you will understand the meaning of international trade
39
Activity 12.1.1: Understanding the meaning of international trade.
In groups,
a) Identify the meaning of international trade
b) Describe the features of international trade
c) Explain the divisions of international trade
d) Share your findings to the rest of the class through a discussion
You have probably foundout that international trade is the exchange of capital, goods,
and services across international borders or territories because there is a need or want
of goods or services.
Or
In simple words, it means the export and import of goods and services. Export means
selling goods and services out of the country, while import means goods and services
flowing into the country.
Key features:
 International trade is the exchange of goods and services between countries.
 Trading globally gives consumers and countries the opportunity to be exposed to
goods and services not available in their own countries, or which would be more
expensive domestically.
 The importance of international trade was recognized early on by political
economists like Adam Smith and David Ricardo.
 Still, some argue that international trade actually can be bad for smaller nations,
putting them at a greater disadvantage on the world stage.
12.1.2: Forms of International trade
There are three types of international trade which include Export trade which means
selling goods and services out of the country, import trade which means goods and
services flowing into the country while Entrepot Trade is a combination of export and
import trade and is also known as Re-export. It means importing goods from one
country and exporting it to another country after adding some value to it.
Activity 12.1.2: understanding the forms of international trade
In pairs
Using the introduction above, study the table below and to the tasks that follow:
Example Form of international trade
India imports gold from China makes
jewellery from it and then exports it to
other countries.
Joshua bought phone accessories from
Dubai for his shop in Kampala
40
Peter is a business man selling coffee to
juba South Sudan every month this done
using dollars
Tasks
a) Fill the table by identifying the form of international trade from the examples
given
b) Describe the forms of international trade identified (a) above
c) Research on the other forms of international trade
d) Share your findings with the rest of the class
From your research you have probably foundout that international trade refers to the
exchange of goods, services, and capital across national borders. Various forms of
international trade exist, each representing different ways in which countries engage in
global commerce. Here are some common forms of international trade:
1. Export Trade: Export trade involves selling goods and services produced within
a country to customers in other countries. This form of trade allows countries to
capitalize on their strengths and take advantage of foreign market demands.
2. Import Trade: Import trade refers to the purchase and consumption of foreign
goods and services within a country's borders. Countries import products that
they lack the resources to produce domestically or when importing is more cost-
effective than domestic production.
3. Re-Export Trade: Re-export trade occurs when a country imports goods and
then re-exports them to other countries without significant changes to the
products. This often happens in free trade zones or customs-bonded areas.
4. Bilateral Trade: Bilateral trade involves the exchange of goods and services
between two countries. It establishes a direct trading relationship and can lead
to the signing of bilateral trade agreements to facilitate trade between the two
nations.
5. Multilateral Trade: Multilateral trade involves trade between multiple
countries. It usually occurs within the framework of trade agreements or
organizations like the World Trade Organization (WTO), where multiple nations
agree on trade rules and regulations.
6. Intra-industry Trade: Intra-industry trade occurs when countries exchange
similar or closely related products within the same industry. This trade pattern
often happens between countries with similar levels of economic development.
7. Inter-industry Trade: Inter-industry trade involves the exchange of products
between countries with significant differences in economic activities or
industries. This type of trade enables countries to specialize in producing certain
goods and services and then trade them for others they lack.
41
8. Barter Trade: Barter trade is a direct exchange of goods and services between
two countries without the use of money. This form of trade is less common than
monetary transactions but can still be found in some instances.
9. E-commerce Trade: E-commerce trade has become increasingly important in
international trade. It involves the online buying and selling of goods and
services across borders, often facilitated by digital platforms and payment
systems.
10. Service Trade: Service trade encompasses the exchange of services, such as
financial, consulting, transportation, and technology services, between countries.
Service trade has grown in significance as services become a larger part of many
economies.
11. Foreign Direct Investment (FDI): FDI involves the investment by a company
from one country into a business or project in another country. This form of
international trade allows companies to expand their operations globally and
gain access to foreign markets.
12.1.3: E-commerce in International trade

Electronic commerce is a relatively new phenomenon. Its rapid expansion since the
mid- 1990s has drawn attention to the impact it will have on promoting trade, economic
growth and development. In addition to the many benefits associated with e-commerce,
concern has been rising in regards to the widening technological gap, ‘the digital divide’
among countries and sectors within countries.
Electronic commerce and the Internet are posed to stimulate trade by lowering the cost
of gathering and processing information from distant markets, by creating global access
to specific goods and services and by making it possible to send over the Internet goods
and services that traditionally required physical delivery.
Electronic commerce is expected to directly and indirectly create and destroy jobs. New
jobs will be generated in the information and communication technologies sector, while
the indirect creation of jobs will occur via increased demand and productivity. A t the
same time, some reallocation and destruction of jobs are expected as consequence of
changes in the way of doing business.
Activity 12.1.3: Understanding e-commerce in international trade
In groups
Carefully study the case-study below and do the tasks that follow:
Moses is a Ugandan businessman that owns several retail establishments that sell
televisions and associated electronics. Moses created an AliExpress.com account and
ordered the supplies he needed to resupply his stores.
Moses made wire payments to Shenzen Phonemax Technologies Ltd, a phone
manufacturing company in Japan, through Equity Bank-Jinja Road and just waited for
42
his order to arrive. He remembered that he needed a new laptop for his online classes to
pass the upcoming examinations with the Institute of Certified Public Accountants
Uganda, so he used his Jumia.com account to look for it (ICPAU). His preferred laptop
was offered through Jumia Global, for which he paid using mobile money and just
waited fourteen days for delivery.
Task: In groups;
1. Would you define Moses’s transactions as international trade? justify your answer.
2. Identify the tool used by Moses to foster his transactions.
3. Debate on the theme "the role of e-commerce in international trade"
4. Present your views to the rest of the class.
International e-commerce refers to the business of selling a product over the internet to
buyers who live in foreign countries. There are practically no limits to where your
company can expand its business, provided there is a market for your goods. But any
expansion into a new market inevitably requires a lot of time, effort, and resources.
Role of e-commerce in international trade
E-commerce is more convenient = People don’t want to visit physically to the store to
buy goods and take services. They usually want all goods and services online, which is
very easy and flexible.
E-commerce gives you marketing opportunities = Your website is one of the best
marketing tools your business has, not only can the use of SEO when building your site
lead to more chances of your business getting found in search engines.
E-commerce increases your reach = Because of the access to the internet, many
people across the world can view your website at any time, which means those who are
looking to expand their businesses which can lead you to gain larger audience.
E-commerce can broaden your brand = It is a creative mode to take your brand from
traditional brick to an innovative, well-loved brand. By offering a good product every
time with online customer service, blogs and social media, your business is no longer a
singular store.
E-commerce easily receives feedback on products = The online store, allows you to
receive feedback so that you can implement progress in your business.
12.1.4: Reasons for International trade
No matter how attractive and ‘must have’ your product or service seems to be, a strictly
limiting yourself to your domestic market will have a finite capacity. And once you have
reached saturation point, what then? Because of these limitations wise business owners
are looking to go global and exploit the many international trade opportunities – after
all, in the global economy; practically every country is a potential customer.
Activity 12.1.4: Understanding the reasons for international trade
43
In pairs
Study the chart in figure 12.1.3 and do the tasks that follow
Reduced
dependence
on your
local market
Reasons for
international
trade
Increased Economic
productivity advantage
Figure 12.1.3: reasons for international trade

Tasks
a) Fill the chart by identifying the other reasons for international trade
b) Describe reasons identified on the chart in figure 12.1.3 above
You have probably leant that the reasons why people participate in international trade
are as follows
Reduced dependence on your local market
Your home market may be struggling due to economic pressures, but if you go global,
you will have immediate access to a practically unlimited range of customers in areas
where there is more money available to spend, and because different cultures have
different wants and needs, you can diversify your product range to take advantage of
these differences.
Increased chances of success
Unless you’ve got your pricing wrong, the higher the volume of products you sell, the
more profit you make, and overseas trade is an obvious way to increase sales. In
support of this, companies who go global are 12% more likely to survive and excel than
those who choose not to export.
Increased efficiency
Benefit from the economies of scale that the export of your goods can bring – go global
and profitably use up any excess capacity in your business, smoothing the load and
44
avoiding the seasonal peaks and troughs that are the bane of the production manager’s
life.
Increased productivity
Ministry of Trade, Industry and Cooperatives states that companies involved in
overseas trade can improve their productivity by 34% – imagine that, over a third more
with no increase in plant.
Economic advantage
Take advantage of currency fluctuations – export when the value of the Uganda shillings
is low against other currencies, and reap the very real benefits. Words of warning
though; watch out for import tariffs in the country you are exporting to, and keep an eye
on the value of shillings. You don’t want to be caught out by any sudden upsurge in the
value of the shillings, or you could lose all the profit you have worked so hard to gain.
Innovation
Because you are exporting to a wider range of customers, you will also gain a wider
range of feedback about your products, and this can lead to real benefits. In fact,
Ministry of Trade, Industry and Cooperatives statistics show that businesses believe
that exporting leads to innovation – increases in break-through product development to
solve problems and meet the needs of the wider customer base. 53% of businesses they
spoke to said that a new product or service has evolved because of their overseas trade.
Growth
The holy grail for any business, and something that has been lacking for a long time in
our manufacturing industries – more overseas trade = increased growth opportunities,
to benefit both your business and our economy as a whole.
Availability and cheapness of commodities
Because of international trade the consumers can get access to foreign goods at lower
prices. Normally foreign goods are imported because of their relative cheapness in
comparison with the prices of domestic goods.
Creation of industrial society
International trade through specialization of large-scale production, usage of machinery
and exploitation of natural resources has resulted in the creation of a new industrial
society.
Availability of commodities whose costs of production are high
With the help of international trade, the countries are able to acquire commodities
which they cannot produce locally due to the nonavailability of factors of production,
insufficient quantity, and due to high costs of production. Europe and Africa could get
tea and penicillin, respectively, only because of international trade.
Improvement in transport
45
International trade has resulted in the improvement in the means of transport in all
parts of the world.
Development of backward nations
With the help of international trade, the economically backward and under-developed
countries are able to import machinery and capital goods in exchange for their raw
materials, agricultural products and food stuffs.
12.1.5: Challenges presented by international trade

Although international trade creates a lot of opportunities in an economy it also has a
lot of disadvantages as it could bring a lot of problems in the economy too. In activity
12.1.5 you will explore the challenges presented by international trade
Activity 12.1.5: Exploring the challenges presented by International Trade
In groups,
Study the poem below and do the tasks that follow:
Remus Ceasar. S. Calicdan Jr Apr 2018
Globalization
Trade, Globalization, Terrorism and Corruption
What's the difference?
Each of us look at the world with open eyes yet with closed minds.
We see the structures of society right before us
yet we can do nothing to alter its existence
Marxism, Liberalism, Elitism, lenses that see a point but not the whole picture
The age of politics is over, the market comes to be our master
I know some might argue over me in this, but hear me out still.
The world we live in is like a senseless commodity
Our natural resources is taken every day
To create excess cars, excess food, excess everything
The surplus is too much that its overflowing with decay
Another thing is war,
A place where precious lives are seen to be walking bags of meat.
The preach for violence that could've created peace, and for what ?
To protect the free world? where the rich sit in high places
46
and some of us pushed down to supply their greed
Globalization is a license, a license to what?
A license to ****, a license to invade other states without the use of soldiers to force out
our will
We become docile as people in their wake and companies are laughing as we speak.
These corrupt figures, conflict is their business, opportunity and peace is their excuse.
Human integration is what they say and offer, for a better society they say.
But look at us now, where is the promise of a future in the world today?
The world terrorizes me, terrorizes the people who are willing to see
and if I am in terror, what makes the system different from the loud bombs we hear
when they explode.
They only made ways to make the killings silent and the experience more traumatic.
I'm sorry if globalization is a bad thing for me, but living in our country, globalization
harms before it can give
it takes before we can receive.
Tasks
a) Identify the poet is against globalization
b) Carryout a library or internet research to find out the disadvantage of
international trade
c) Write your findings in your note book
You may already be aware of the difficulties involved in doing international trade:
1. Exhaustion of Essential Materials
International trade may result in the exhaustion of essential materials and minerals of a
country. Most of the minerals were exported to other countries. If they had been
preserved, they would have brought better returns to the country.
2. Affects Domestic Industries
International trade may adversely affect the consumption pattern of a country due to
the import of cheaply manufactured and at times harmful commodities. Indian
handicrafts suffered a severe setback through free trade and unrestricted imports of
English textiles.
3. Lopsided Economic Development
Due to the operation of comparative costs, international trade leads to specialization
and one-sided economic development which is not conducive to the prosperity of the
country.
47
4. Evil Effects of Dumping
Sometimes, certain countries use international trade to dump their goods on other
countries with a view to cheapen the value of the latter goods.
5. Dependence on other Nation
Though it ensures higher standard of living for a nation, it makes the countries
dependent on foreign markets not for raw materials but also for selling the finished
products. This dependence should be reduced or eradicated.
6. Against national Defense
It is argued that a nation which depends on foreign sources of supply lacks defense
during the war.
7. Instability and Economic Planning
It is a source of economic instability and it stands in the way of national economic
planning for development and growth.
12.1.6: Explaining International Commercial Terms (INCO terms)
To facilitate commerce around the world, the International Chamber of Commerce (ICC)
publishes a set of Incoterms, officially known as international commercial terms.
Globally recognized, Incoterms prevent confusion in foreign trade contracts by
clarifying the obligations of buyers and sellers.
Parties involved in domestic and international trade commonly use them as a kind of
shorthand to help understand one another and the exact terms of their business
arrangements. Some Incoterms apply to any means of transportation, while others
apply strictly to transportation across water.
48
Figure 12.1.4: International commercial terms
Activity 12.1.6: Understanding international commercial terms
In groups, carryout a library or internet research and do the tasks that follow.
Task: In groups;
1. Read and discuss the INCO-TERMS as provided below
a) FAS - Free Alongside Ship
b) FOB - Free On Board
c) CFR - Cost and Freight
d) CIF - Cost, Insurance & Freightt
e) DAT - Delivery At Terminal
f) DAP - Delivery At Place
g) DDP - Delivery Duty Paid
2. Select one or two and present to the rest of the class
3. Share your findings with the rest of the class through a discussion
You have probably foundout that Put simply, Incoterms® are the selling terms that the
buyer and seller of goods both agree to during international transactions. These rules
are accepted by governments and legal authorities around the world. Understanding
Incoterms® is a vital part of International Trade because they clearly state which tasks,
costs and risks are associated with the buyer and the seller.
The Incoterm® states when the seller’s costs and risks are transferred onto the buyer.
It’s also important to understand that not all rules apply in all cases. Some encompass
49
any mode or modes of transport. Transport by all modes of transport (road, rail, air and
sea) covers FCA, CPT, CIP, DAP, DPU (replaces DAT) and DDP. Sea/Inland waterway
transport (Sea) covers FAS, FOB, CFR and CIF, which we explain below.
EXW – Ex-Works or Ex-Warehouse
Ex works is when the seller places the goods at the disposal of the buyer at the seller’s
premises or at another named place (i.e., works, factory, warehouse, etc.).
The seller does not need to load the goods on any collecting vehicle. Nor does it need to
clear them for export, where such clearance is applicable.
FCA – Free Carrier
The seller delivers the goods to the carrier or another person nominated by the buyer at
the seller’s premises or another named place.
The parties are well advised to specify as explicitly as possible the point within the
named place of delivery, as the risk passes to the buyer at that point.
FAS – Free Alongside Ship
The seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a
barge) nominated by the buyer at the named port of shipment.
The risk of loss of or damage to the goods passes when the products are alongside the
ship. The buyer bears all costs from that moment onwards.
FOB – Free On Board
The seller delivers the goods on board the vessel nominated by the buyer at the named
port of shipment or procures the goods already so delivered.
The risk of loss of or damage to the goods passes when the products are on board the
vessel. The buyer bears all costs from that moment onwards.
CFR – Cost and Freight
The seller delivers the goods on board the vessel or procures the goods already so
delivered.
The risk of loss of or damage to the goods passes when the products are on board the
vessel.
The seller must contract for and pay the costs and freight necessary to bring the goods
to the named port of destination.
CIF – Cost, Insurance and Freight
The seller delivers the goods on board the vessel or procures the goods already so
delivered. The risk of loss of or damage to the goods passes when the products are on
the ship.
The seller must contract for and pay the costs and freight necessary to bring the goods
to the named port of destination.
50
The seller also contracts for insurance cover against the buyer’s risk of loss of or
damage to the goods during the carriage.
The buyer should note that under CIF the seller is required to obtain insurance only on
minimum cover. Should the buyer wish to have more insurance protection, it will need
either to agree as much expressly with the seller or to make its own extra insurance
arrangements.
CPT – Carriage Paid To
The seller delivers the goods to the carrier or another person nominated by the seller at
an agreed place (if any such site is agreed between parties).
The seller must contract for and pay the costs of carriage necessary to bring the goods
to the named place of destination.
CIP – Carriage And Insurance Paid To
The seller has the same responsibilities as CPT, but they also contract for insurance
cover against the buyer’s risk of loss of or damage to the goods during the carriage.
The buyer should note that under CIP the seller is required to obtain insurance only on
minimum cover. Should the buyer wish to have more insurance protection, it will need
either to agree as much expressly with the seller or to make its own extra insurance
arrangements.
DAP – Delivered At Place
The seller delivers when the goods are placed at the disposal of the buyer on the
arriving means of transport ready for unloading at the named place of destination.
The seller bears all risks involved in bringing the goods to the named place.
DPU – Delivered At Place Unloaded
DPU replaces the former Incoterm® DAT (Delivered At Terminal). The seller delivers
when the goods, once unloaded are placed at the disposal of the buyer at a named place
of destination.
The seller bears all risks involved in bringing the goods to, and unloading them at the
named place of destination.
DDP – Delivered Duty Paid
The seller delivers the goods when the goods are placed at the disposal of the buyer,
cleared for import on the arriving means of transport ready for unloading at the named
place of destination.
The seller bears all the costs and risks involved in bringing the goods to the place of
destination. They must clear the products not only for export but also for import, to pay
any duty for both export and import and to carry out all customs formalities.
12.1.7: Documents used in International Trade
51
In an international trade transaction, there is a time lag between the transfer of goods
by the exporter to the importer, and transfer of payment by the importer to exporter. To
protect both parties from counter-party risk, a number of documents are created and
used. They can be explained as follows:
a) Bill of Exchange
Figure 12.1.5: Bill of Exchange

It is an agreement signed by the buyer of the goods to pay the seller a certain sum of
money on a specified future date. Each international trade transaction generates its own
bill of exchange. The bill is drawn by the exporter and sent to the importer. Once the
importer accepts the bill and returns it to the exporter, the importer is legally bound to
make payment, and the bill is legal evidence of a contractual obligation for payment. A
bill of exchange is a negotiable instrument.
The exporter can hold the bill till its maturity, transfer it to another party through
endorsement, or get the bill discounted with a bank. The advantage of discounting is
that the exporter gets cash well ahead of the date on which he was due to get the
payment from the importer. The holder therefore can be the exporter, another party (to
whom it has been endorsed) or a bank (if it is discounted).
Activity 12.1.7: Understanding Bill of Exchange
In groups:
a) Prepare a bill of exchange
b) Identify the uses of bill of exchange
c) Share your findings with the rest of the class through a discussion
b) Letter of Credit (L/C):
52
Figure 12.1.6: Letter of Credit
A Letter of Credit is an undertaking given by the importer’s bank (called issuing bank)
acting upon the request of the importer, that it will make payment to a beneficiary (the
exporter). A Letter of Credit involves a minimum of four parties – the importer,
importer’s bank (issuing bank), exporter and the exporter’s bank (advising bank).
A Letter of Credit imposes the superior creditworthiness of the importer’s bank over
that of the importer, and protects the exporter from credit risk and risk of non-payment.
Activity 12.1.8: understanding letter of credit
In pairs
a) Prepare a letter of credit in your note books
b) Identify uses of letter of credit
c) Describe the different types of letter of credit
d) Share your findings with the rest of the class through a discussion
There are different types of letters of credit
i. Clean L/C:
53
If the issuing bank agrees to make payment to the exporter under the terms of the L/C
without any documents relating to the international trade transaction being presented
to it, the L/C is called a clean L/C.
ii. Documentary L/C:
If the issuing bank will release payments only when the exporter submits all relevant
documents, it is called a documentary L/C.
iii. Fixed L/C:
The L/Creduced as and when Bills of Exchange are presented by the exporter for
payment. It is also called non-revolving L/C. If the L/C was opened for shs. 1 million,
and a bill of exchange for the shs. 400,000 was presented by the bank to the exporter,
then the L/C gets reduced to shs. 600,000.
iv. Revolving L/C:
The L/C limit gets renewed after payment is released by the issuing bank. Taking the
above example of an L/C opened for shs. 1 million, if a bill of exchange for shs. 400,000
was presented by the bank to the exporter, then the L/C gets restored to the original
amount of shs. 1 million. This is called restoration of utilized amount. A new L/C does
need to be opened even when the entire shs. 1 million is used up. The number of
utilizations and the time period is specified in the L/C. The bank’s advantage from a
revolving L/C is that it will not have to incur costs (and therefore has cost savings) on
making changes (called ‘amendments’) in a non-revolving L/C.
v. Confirmed L/C:
Though the issuing bank guarantees payment to the exporter under an L/C, the
exporter might want his bank to offer further guarantee that he will receive the
payment. A confirmed L/C is one in which the advising bank (exporter’s bank) gives an
additional undertaking to make the payment.
vi. Unconfirmed L/C:
It is an L/C that does not carry the additional guarantee by the advising bank.
vii. Transferable L/C:
The exporter informs his bank that the payment should be made by the issuing bank to
a specified third party (the new beneficiary), and this is noted on the L/C. Such an L/C is
called a transferable L/C or a transferred credit.
viii. Non-Transferable L/C:
The exporter cannot transfer the beneficiary status to someone else. If nothing is
mentioned in the L/C, it is deemed to be non-transferable. Countervailing credit is the
term used when the exporter’s bank issues a separate L/C in favour of the new
beneficiary
ix. Revocable L/C:
54
If the issuing bank has the right to cancel or amend the L/C any time after its issue
without informing the exporter of the cancellation, it is called a revocable L/C or a
revocable credit. For the exporter, a revocable L/C carries the risk of cancellation, and
offers him no safety. So it is rarely used in international trade.
x. Irrevocable L/C:
If the issuing bank cannot cancel or change the L/C after it has been issued unless the
exporter agrees to the cancellation or the changes as the case maybe, it is called an
irrevocable L/C.
c) Certificate of Origin of Goods (COO):
55
Figure 12.1.7: Certificate of origin
The certificate of origin is an instrument that establishes the origin of goods imported
into a country. The rules of ‘origin’ were framed by the WTO. Sometimes the importer’s
country may ban the import of goods from specific countries. If the country of origin is
not on the ‘banned’ list of countries, the certificate of origin enables the importer to
bring the goods into his country. Similarly, if the importer’s country gives tariff
concessions to goods imported from specified countries, the COO is proof that the goods
56
are eligible for this tariff reduction, since they have been imported from one of the
specified countries.
Types of Certificates of Origin
There are two main types of COs based on the different rules of origin:
1. Non-Preferential COs – the country of origin does not qualify for any
preferential tariff treatment. These are the main type of COs, also known as
“ordinary COs.”
2. Preferential COs – the goods are subject to reduced tariffs, under FTA, or
exemptions when they are exported to countries extending these privileges. (for
example European Union)
Activity 12.1.9: Understanding Certificate of Origin
In pairs:
a) Prepare a certificate of origin
b) Identify the purpose of certificate of origin
d) Packing List:
57
Figure 12.1.8: Packing List
A packing list is a document used in international trade. It provides the exporter,
international freight forwarder, and ultimate consignee with information about the
shipment, including how it's packed, the dimensions and weight of each package, and
the marks and numbers that are noted on the outside of the boxes.
Activity 12.1.10: Understanding Packing List
In groups:
a) Prepare a packing list
b) Identify the uses of a packing list
Why is a packing list important when exporting goods from a given country?
 It provides a count of the product that is being shipped
 It serves as proof of the inland Bill of Lading
 It indicated the information required for the Certificate of Origin
 It provides much of the detail needed by the Electronic Export Information
section in the Automated Export System.
 It serves as proof of a Material Safety Data Sheet, in the case that goods are
deemed hazardous or dangerous.
 It is used to create a booking with the international carrier, as well as obtaining
an international Bill of Lading.
 It helps the Customs broker when entering the listed goods in their country’s
import database, as it contains important information.
 It serves as a guide for the receiver/buyer when counting the product that they
received.
 It serves as a supporting document for reimbursement under a letter of credit.
e) Bill of lading
A Bill of Lading is a legal document that has a few important functions in shipping and
logistics. It is firstly a contract between the shipper, carrier and consignee stating what
goods are being shipped, where the shipment is coming from and where it’s headed to.
The Bill of Lading is only issued after vessel departure from the Port of Loading and the
customer has provided us with all the details, such as the shipper, consignee, notify
party, commodity, weight, cargo description, etc. It also serves as a receipt, i.e., an
acknowledgement that the goods have been loaded (not where the cargo is) and
contains or evidences the terms of the contract of carriage.
Activity 12.1.11: Understanding Bill of Lading
In pairs
58
a) Prepare a sample bill of lading
b) Identify features of bill of lading
c) Describe the uses of bill of lading
d) Share your findings to the rest of the class
You have probably foundout the following:
Features of bill of lading
a. It is a document to title of the goods being transported.
b. It is a receipt for the goods.
c. It is an acknowledgement that the carrier (shipping company) has received the goods
to be delivered to the importer.
d. It describes the goods received for transportation, the name of the port where they
were loaded and the name of the port where they will be unloaded.
e. The holder of a Bill of Lading has the title to the goods. The exporter gives the Bill of
Lading (through his bank) to the importer who can take possession of the goods from
the carrier when the goods reach his country only by submitting it.
Why is the Bill of Lading important?
Because who has the Bill of Lading, owns the cargo. The Bill of Lading acts as the legal
document of title which allows the person holding it to claim ownership of the cargo.
This means that filling out your Bill of Lading accurately and completely is very
important. The Bill of Lading also acts as a contract of carriage, it only details the
responsibilities of the carrier with the parties involved in the transportation of the
cargo.
f) An inspection certificates
59
Figure 12.1.12: certificate of inspection
An inspection certificate is a document used to signify that shipped goods have been
inspected in order to certify that they conform with the terms stated on the sales
contract. It is only required on specific goods, such as industrial equipment, perishable
items, and meat.
Activity 12.1.12: Understanding Certificate of Inspection
In pairs
a) Prepare a sample of certificate of inspection
b) Identify the features of a certificate of inspection
c) Describe the uses of certificate of inspection
60
What is the Importance of Inspection Certificate in Import-Export Business?
An inspection certificate otherwise referred to as pre-shipment inspection certificate is
important in the import-export business in the sense that;
Guarantees quality of goods – All goods are thoroughly inspected to meet the desired
quality expected not only by the importer but also by the consumer.
Ensures that the quantity of the goods is as stated in the sales contract.
An inspection certificate serves as a piece of evidence for any future claims by a 3rd
party.
Reduces risks associated with imports and exports such as frauds.
An inspection certificate prevents the use of fake transport documents such as the Bill of
lading.
Activity 12.1.13: Understanding Other Documents Used in International Trade
Using the internet or library research and do the tasks that follow
Task:
In groups;
1. Identify how these documents are used in international trade.
(a) Consular Invoice
(b) Insurance Document
2. Create a list of key features of each document identified in 1) above.
3. Explain the benefits of the documents identified in 1) above.
4. Design samples of the documents identified in 1) above.
5. Share your work with the class.
g) Consular Invoice:
It is an invoice that describes the goods being transported. The exporter authenticates
the accuracy of the invoice by appearing before the Importer country’s Consul who is
stationed in the exporter’s country.
h) Insurance Document:
To protect goods in transit from loss or damage from the time they leave the exporter’s
warehouse and until they reach the importer’s warehouse, the goods are insured by the
importer. The insurance cover must specify the value insured (such as CIF), the risks
covered, the date from which the insurance cover is effective, and the currency in which
the insurance document is expressed. All details regarding the goods in the insurance
document must conform to those given in other documents such as the bill of Lading, or
the consular invoice.
61
Features of consular invoice
You can expect the invoice to list the following:
 Date
 Exporter
 Port of destination
 Port of loading
 Description of goods
 Carrier
 Amount of charges
 Value of shipment
 Marks and numbers
 Name of certifier
12.1.8: Commercial tools used to control International Trade

Any country's government uses a variety of tools to manage its foreign commerce
activities.
Tariffs, non-tariff trade barriers, import licenses, export licenses, and import quotas are
among them. Subsidies, Voluntary Export Restraints, Local Content Requirements,
Embargos, Currency Devaluation, and Trade Restrictions are all utilized to ensure that
proper operations are carried out.
After doing activity 12.1.14 you will understand the different tools countries used to
control international trade.
Activity 12.1.14: Understanding Commercial Tools Used to Control International
Trade
In pairs,
Carefully the dialogue below and do the tasks that follow:
Mr. Theron: Hello, Mr. Dero How are you today?
Mr. Dero: I'm fine, sir; how about you?
Mr. Theron: I'm fine, but I'm perplexed by a conversation we had at work.
Dero: What was all the talk about? Mr. Theron
Theron: it was about commercial tools used to control international trade, but since
you work with the ministry of trade, would you describe what they are?
62
Dero: Yes, Mr. Theron, commercial tools used to control international trade are also
known as international trade barriers. These are used by the government to regulate
and control international trade. This can be done in many forms, such as tariffs, non-
tariff trade barriers, import and export licenses, among others.
Mr. Theron: Ooooh, that is very interesting.
Tasks:
a) Identify what the dialogue is all about
b) Describe the tools used as international trade barriers from the trade dialogue
c) Using the internet or library describe other international trade barriers used by
countries not mentioned in the dialogue
It may seem odd, but governments often step in to restrict trade. Why might a
government want to restrict trade? The government will restrict trade to help domestic
industries compete against foreign industries if the government cannot afford to help
them develop. Governments may also restrict trade to foster business at home rather
than encourage businesses to move out of the country. These protectionist policies
encourage prices to stay high and help domestic industries develop.
Governments three primary means to restrict trade: quota systems; tariffs; and
subsidies.
A quota system imposes restrictions on the specific number of goods imported into a
country. Quota systems allow governments to control the quantity of imports to help
protect domestic industries.
Tariffs are fees paid on imported goods. Tariffs increase the price that consumers pay
for the good, thus reducing the quantity of the good demanded and making the price
more in line with the price charged by domestic producers. Tariff profits may go to the
government or to developing industries.
Subsidies are grants given to domestic industries to help them develop and compete
with foreign producers. Through subsidies, domestic producers can charge less for their
goods without losing money due to outside grants.
Through judicious use of quotas, tariffs, and subsidies, governments are able to improve
the domestic economy. This may increase the price that domestic consumers pay for
goods, though this small annoyance is usually outweighed by significantly bolstered
overall economic levels and long-term economic growth.
12.1.9: Explaining the factors affecting international trade.
Because international trade can significantly affect a country’s economy, it is important
to identify and monitor the factors that influence it.
After doing activity 12.1.15, you will explain the factors affecting international trade
Activity 12.1.15: Explaining the factors affecting international trade
63
In pairs
a) Identify factors affecting international trade
b) Describe the factors identified in (a) above
c) identify the requirements for export and import trade
You have probably learnt the following factors affecting international trade
1) Impact of Inflation:
If a country’s inflation rate increases relative to the countries with which it trades, its
current account will be expected to decrease, other things being equal. Consumers and
corporations in that country will most likely purchases more goods overseas (due to
high local inflations), while the country’s exports to other countries will decline.
2) Impact of National Income:
If a country’s income level (national income) increases by a higher percentage than
those of other countries, its current account is expected to decrease, other things being
equal. As the real income level (adjusted for inflation) rises, so does consumption of
goods. A percentage of that increase in consumption will most likely reflect an increased
demand for foreign goods.
3) Impact of Government Policies:
A country’s government can have a major effect on its balance of trade due to its policies
on subsidizing exporters, restrictions on imports, or lack of enforcement on piracy.
4) Subsidies for Exporters:
Some governments offer subsidies to their domestic firms, so that those firms can
produce products at a lower cost than their global competitors. Thus, the demand for
the exports produced by those firms is higher as a result of subsidies.
Many firms in China commonly receive free loans or free land from the government.
These firms incur a lower cost of operations and are able to price their products lower
as a result, which enables them to capture a larger share of the global market.
5) Restrictions on Imports:
If a country’s government imposes a tax on imported goods (often referred to as a
tariff), the prices of foreign goods to consumers are effectively increased. Tariffs
imposed by the U.S. government are on average lower than those imposed by other
governments. Some industries, however, are more highly protected by tariffs than
others. American apparel products and farm products have historically received more
protection against foreign competition through high tariffs on related imports.
In addition to tariffs, a government can reduce its country’s imports by enforcing a
quota, or a maximum limit that can be imported. Quotas have been commonly applied to
a variety of goods imported by the United States and other countries.
64
6) Lack of Restrictions on Piracy:
In some cases, a government can affect international trade flows by its lack of
restrictions on piracy. In China, piracy is very common; individuals (called pirates)
manufacture CDs and DVDs that look almost exactly like the original product produced
in the United States and other countries. They sell the CDs and DVDs on the street at a
price that is lower than the original product. They even sell the CDs and DVDs to retail
stores. It has been estimated that U.S. producers of film, music, and software lose Shs. 2
billion in sales per year due to piracy in China.
As a result of piracy, China’s demand for imports is lower. Piracy is one reason why the
United States has a large balance-of-trade deficit with China. However, even if piracy
were eliminated, the U.S. trade deficit with China would still be large.
7) Impact of Exchange Rates:
Each country’s currency is valued in terms of other currencies through the use of
exchange rates, so that currencies can be exchanged to facilitate international
transactions.
65
SUB-TOPIC 12.2: REGIONAL COOPERATION
Figure 12.2.2: Regional cooperation

By the end of this chapter, you should be
able to;
 Trade group (a) Know regional cooperation and give
 Landlocked countries examples
 Regional cooperation (b) appreciate the benefits of regional
 COMESA cooperation
 Political landscape (c) understand the challenges faced by
 Organisation regional cooperation
 Agreement
 States
 Tariff
12.2.1: Knowing Regional Cooperation

Regional organizations (ROs) are, in a sense, international organizations (IOs), as they
incorporate international membership and encompass geopolitical entities that
operationally transcend a single nation state. However, their membership is
characterized by boundaries and demarcations characteristic to a defined and unique
geography, such as continents, or geopolitics, such as economic blocs. They have been
established to foster cooperation and political and economic integration or dialogue
among states or entities within a restrictive geographical or geopolitical boundary. They
both reflect common patterns of development and history that have been fostered since
the end of World War II as well as the fragmentation inherent in globalization, which is
66
why their institutional characteristics vary from loose cooperation to formal regional
integration. Most ROs tend to work alongside well-established multilateral
organizations such as the United Nations. While in many instances a regional
organization is simply referred to as an international organization, in many others it
makes sense to use the term regional organization to stress the more limited scope of a
particular membership.
Examples of ROs include, amongst others, the East African Community, the Economic
Community of West African States (ECOWAS), the Economic Community of Central
African States (ECCAS), and the Community of Sahel-Saharan States (CEN-SAD),The
Common Market for Eastern and Southern Africa (COMESA), the African Union (AU),
Association of Southeast Asian Nations (ASEAN), Arab League (AL), Caribbean
Community (CARICOM), Council of Europe (CoE), Eurasian Economic Union (EAEU),
European Union (EU), South Asian Association for Regional Cooperation (SAARC),
Asian-African Legal Consultative Organization (AALCO), Union for the Mediterranean
(UfM), Union of South American Nations (USAN).
Activity 12.2.1: Knowing Regional Cooperation
In groups,
a) Identify the meaning of regional cooperation
b) Identify regional cooperation in which Uganda is a member
c) Describe the types of regional cooperation
You have probably foundout that regional cooperation refers to the political and
institutional mechanisms that countries in a general geographical region devise to find
and strengthen common interests as well as promoting their national interests, through
mutual cooperation and dialogue.
There are four main types of regional economic integration.
Free trade area. This is the most basic form of economic cooperation. Member
countries remove all barriers to trade between themselves but are free to
independently determine trade policies with nonmember nations.
Customs union. This type provides for economic cooperation as in a free-trade zone.
Barriers to trade are removed between member countries. The primary difference from
the free trade area is that members agree to treat trade with nonmember countries in a
similar manner.
Common market. This type allows for the creation of economically integrated markets
between member countries. Trade barriers are removed, as are any restrictions on the
movement of labor and capital between member countries. Like customs unions, there
is a common trade policy for trade with nonmember nations. The primary advantage to
workers is that they no longer need a visa or work permit to work in another member
67
country of a common market. An example is the Common Market for Eastern and
Southern Africa (COMESA).
Economic union. This type is created when countries enter into an economic
agreement to remove barriers to trade and adopt common economic policies. An
example is the European Union (EU).
Uganda is a member of several Africa regional organisations, such as the Eastern African
Community (EAC), the Common Market for Eastern and Southern Africa (COMESA) and
the Intergovernmental Authority on Development (IGAD).
EAST AFRICAN COMMUNITY
Figure 12.2.2: East African community states

The East African Community (EAC) is a regional intergovernmental organisation of six
(6) Partner States, comprising Burundi, Kenya, Rwanda, South Sudan, Tanzania and
Uganda, with its headquarters in Arusha, Tanzania.
The EAC is structured into seven main Organs:
The Summit
The Council of Ministers
The Co-ordinating Committee
68
Sectoral Committees
The East African Court of Justice
The East African Legislative Assembly
The Secretariat
The Community also has nine institutions, three of which became operational in July
2015.
Activity 12.2.2: Exploring the East African Community
In groups,
Study the press conference below and do the tasks that follow:
The Democratic Republic of the Congo joins EAC as its 7th Member
Posted in Press Release
East African Community Headquarters, Arusha, Tanzania, 29th March, 2022: The
Democratic Republic of the Congo (DRC) has today joined the East African Community
(EAC) becoming its 7th Partner State.
The Summit of EAC Heads of State at their 19th Ordinary Summit held on Tuesday, 29th
March, 2022 admitted DRC following recommendation by the Council of Ministers.
The Chairperson of the Summit, H.E Uhuru Kenyatta, who is also Kenya’s President,
informed the meeting that DRC had met all the set criteria for admission as provided for
in the Treaty for the establishment of the EAC
“We have concluded the regional processes for admitting new members as provided for
in our rules of procedure,” said President Kenyatta.
“Admitting DRC into EAC is historic for our Community and the African continent at
large. It demonstrates the agility of the Community to expand beyond its socio-cultural
boundaries to new people and trade-centered partnerships and collaboration, thus
increasing trade and investment opportunities for the citizens,” added the Chair.
President Kenyatta said that he was looking forward to the DRC signing the Treaty of
Accession before the stated date of 14th April, 2022.
The Summit took the decision to admit DRC into EAC after adopting the report of the
Council of Ministers that had recommended the same.
Welcoming his country’s admission into the EAC, DRC President Felix Tshishekedi
termed it a historical day for DRC, stating that it paves the way for the harmonization of
the country’s policies with those of the EAC
President Tshishekedi said that DRC was looking forward to increased Intra-EAC trade
and reduction of tension amongst the EAC Partner States.
69
“It is the desire of DRC to see the creation of a new organ in the EAC that is solely
focused on mining, natural resources and energy that will be based in Kinshasa,
Democratic Republic of Congo,” he said.
In his remarks, Uganda’s President, Hon. Yoweri Museveni said that DRC joining the
Community was an event of great significance, adding that he had personally been
waiting for the last 60 years for DRC to reconnect with EAC.
“DRC has strong historical, social and cultural links with EAC Partner States. It is the
onus of the EAC to now work on restoring peace and stability in Eastern DRC, a fete we
can achieve by working together,” he added.
On his part, President Paul Kagame of Rwanda hailed the EAC Council of Ministers and
the Summit for fast-tracking the entry of DRC into the EAC.
“I call upon EAC Organs and Institutions to accelerate the integration of DRC into the
Community. Rwanda is committed to support the process,” he stated.
Speaking at the event, Tanzania’s President H.E Samia Suluhu Hassan observed that DRC
has a long historical relationship with EAC.
President Samia expressed hope that DRC would ratify the Treaty of Accession to
ensure full integration of her people into the bloc and reaffirmed Tanzania’s
commitment to the integration process in East Africa.
On behalf of Burundi’s President H.E Evariste Ndayishimiye, Vice President Prosper
Bazombanza hailed DRC President Felix Tshishekedi for the admission of his country
into the Community.
“EAC projects and programmes are vital and their implementation critical for the
integration process. As we move towards the Political Federation, we need to
strengthen our efforts to protect our borders against terrorism, piracy and other trans-
national crimes,” said the VP, as he reiterated Burundi’s commitment to constructively
contribute to promoting peace and stability in the region.
Speaking on behalf of South Sudan President H.E. Salva Kiir Mayardit, Hon. Barnaba
Marial Benjamin, the Minister for Presidential Affairs, hailed the entry of DRC into the
EAC.
Hon. Benjamin said that his country had fallen behind in its contributions to EAC due to
the prolonged armed conflict in the country and the Covid-19 pandemic.
“The President has cleared the way for all outstanding contributions to the Community,”
said the Minister, even as he praised efforts to employ South Sudanese nationals into
EAC Organs and Institutions.
Addressing the Summit, EAC Secretary General Hon. (Dr.) Peter Mathuki, said that the
admission of DRC into the EAC comes with increased GDP and expanded market size
making EAC a home to about 300 million people, which would be mutually beneficial to
the people of both EAC and DRC by providing employment and investment
opportunities that come along with this new development.
70
Tasks
1) Identify the countries involved in the press conference above
2) Identify the heads of states that were involved in this conference
3) How will democratic republic of Congo benefit from joining this cooperation
4) Using the internet or library:
a) Identify the objectives of the east African community
b) Describe why the East African Community began,
5) Share your findings with the rest of the class
The Common Market for Eastern and Southern Africa
Figure 12.2.3: COMESA member states

The Common Market for Eastern and Southern Africa (COMESA) comprises 21 African
Member States that came together with the aim of promoting regional integration
through trade and the development of natural and human resources for the mutual
benefit of all people in the region.
71
COMESA was initially established in 1981 as the Preferential Trade Area for Eastern and
Southern Africa (PTA), within the framework of the Organization of African Unity’s
(OAU) Lagos Plan of Action and the Final Act of Lagos. The PTA transformed into
COMESA in 1994. The PTA was established to take advantage of a larger market size, to
share the region’s common heritage and destiny and to allow for greater social and
economic co-operation. COMESA is one of the eight Regional Economic Communities
(RECs) recognized by the African Union.
The Common Market for Eastern and Southern Africa (COMESA) is the largest regional
economic organization in Africa, with 19 member states and a population of about 390
million.
COMESA has a free trade area, with 19 member states, and launched a customs union in
2009.
COMESA countries include:
 Burundi
 Comoros
 D.R. Congo
 Djibouti
 Egypt
 Eritrea
 Ethiopia
 Kenya
 Libya
 Madagascar
 Malawi
 Mauritius
 Rwanda
 Seychelles
 Sudan
 Swaziland
 Uganda
 Zambia
 Zimbabwe
THE OBJECTIVES OF COMESA
72
Among other things, COMESA Member States have agreed on the
following:
(a) The need to create and maintain: full free trade area guaranteeing the free
movement of goods and services produced within COMESA and the removal of all tariffs
and non-tariff barriers;
(b) A customs union under which goods and services imported from non-COMESA
countries will attract an agreed single tariff (Common External Tariff) in all COMESA
Member States;
(c) Free movement of capital and investment supported by the adoption of a common
investment area so as to create a more favourable investment climate for the COMESA
region;
(d) Gradual establishment of a payment union based on the COMESA Clearing House
and the eventual establishment of a common monetary union with a common currency;
and
(e) Gradual Relaxation and Eventual Elimination of Visa Requirements leading to the
Free Movement of Persons, Labour, Service, Right of Establishment and Residence.
12.2.2: Benefits of regional cooperation
Promote trade: removal of taxes eased trade among the E.A.C. member states
Increased production: the big market provide by the citizens of the member countries
boosted and increased the level of production
Eased movement and settlement of people across borders: the East African
Community removed travel restrictions. This enabled the people of member states to
move freely a cross the borders without passports. They freely settled and worked in
any of the member states
Provided employment opportunities: the E.A.C corporatons such as East African
Development bank, East African Examinations Council, East Africa Customs and Excise
Department and East African Court of Appeal all provided employment opportunities to
the people of the member states of the East African Community
Improved transport: The East African Community operated road, air and railway
transport services, Roads were built to join the three countries.
Air transport was also provided in the region by the East African Airways. The
railway network provided cheap transport for goods and passengers a cross member
states. The efficient transport services eased trade and movement of people within the
E.A.C . it also linked the people of the E.A.C to the rest of the world.
Improved the quality of life: the large market provided by the people of EAC and free
trade both promoted production of goods and services. These improved the quality of
life for the people of East Africa Community.
73
Equal currency value for member states: in east Africa, each country had its own
currency with its own value. Upon formation of the EAC, all the three currencies of the
member states became of the same value. This made it easy to trade to be carried out
within the community
Joint investment: cooperation enabled member states to invest in building
infrastructure such as railways, roads, railways, schools etc. these provided services to
the people of the East Africa Community.
Provided investment capital: the East Africa Development Bank provided funds to
member states to finance different investments.
Promoted culture, games and sports: this was achieved through organisations of
inter -state music festivals, games and sports such as the Gosage Football Cup and the
East African Safari Rally.
ACTIVITY 12.2.2: EXPLORING THE BENEFITS OF EAST AFRICAN COOPERATION
In groups,
1. The area where you live is a community, the school you study from is a community
different homesteads in your area make a community.
a) How do you benefit from the community you stay in?
2. Likewise the heads of state of the east African community came together and formed
the East African Community.
b) How did the citizens of these countries benefit from the E.A.C.
3. Share your findings with the rest of the class through a discussion.
12.2.3: Challenges faced by regional cooperation
Many regional cooperation efforts have failed due to a variety of factors, such as the lack
of peace and security, poverty, unemployment, inadequate natural resource
management, unsustainable consumption and production patterns, a lack of research
and appropriate technologies, and civil society's limited capacity to address these
issues.
Activity 12.2.4: Understanding Challenges Faced by Regional Cooperation
In groups,
Read the text below and do the tasks that follow:
Kenya, Tanzania, and Uganda have had a history of cooperation that dates back to the
early 20th century. The Customs Union between Kenya and Uganda was formed in
1917, and Tanzania joined in 1927. Burundi and Rwanda joined in 2009, and South
Sudan joined in 2016. The EAC has had 3 names since its conception; the East African
High Commission from 1948 to 1961, East African Common Services Organization from
1961 to 1967, and then from 1967 to 1977 the East African Community. In 1967 the
East African Common Services Organization was superseded by the East African
74
Community, which aimed to strengthen the ties between the members through a
common market, a common customs tariff, and a range of public serves to help achieve
economic growth in the region. In 1977, the East African Community collapsed due to
Kenya requesting more seats in the decision-making organs, disagreements between
member countries, and the different economic systems between countries, primarily
between Tanzania and Kenya. The East African Community was re-established when its
treaty was signed on November 30, 1999, and came into force on July 7, 2000.
Tasks:
a) What lead to the breakdown of the regional cooperation in the text above?
b) How can these problems be solved?
c) Carryout a library or internet research to find out more challenges facing
regional cooperation
d) Compare your findings with those of other groups
e) Share your findings with the rest of the class
You have realised that the problems facing the international trade are as follow:
Divergent Interests: Countries within a region may have divergent economic, political,
and security interests, making it difficult to reach a consensus on regional initiatives or
agreements. Disagreements over trade, investment, or territorial issues can hinder
cooperation efforts.
Historical Conflicts: Lingering historical conflicts or unresolved territorial disputes
among countries in the region can impede trust-building and hinder the willingness to
engage in regional cooperation.
Nationalism and Sovereignty Concerns: Nationalist sentiments can sometimes lead
countries to prioritize their individual interests over regional ones. Concerns about
preserving national sovereignty can also hinder deeper integration.
Unequal Development: Regional cooperation often involves countries with varying
levels of economic development. Less developed countries may fear that they will bear a
disproportionate burden or not benefit equally from collaborative efforts.
Institutional Weakness: Some regional organizations may suffer from institutional
weaknesses, lack of capacity, and inadequate resources, which can hinder effective
decision-making and implementation of regional initiatives.
Political Instability: Political instability or changes in government within member
countries can disrupt the continuity of regional cooperation efforts and lead to policy
shifts.
Lack of Trust: Building trust among member countries is crucial for successful regional
cooperation. Historical tensions, conflicts, or issues of transparency and accountability
can create mistrust and hinder cooperation.
Infrastructure and Connectivity Gaps: Inadequate physical infrastructure and poor
connectivity can impede the movement of goods, services, and people within the region,
affecting economic integration and trade.
75
External Interference: External actors may have interests in the region and can either
support or undermine regional cooperation efforts, depending on their own agendas.
Resource Constraints: Limited financial resources and funding can pose challenges to
the implementation of regional projects and initiatives.
Coordination and Harmonization: Harmonizing policies, regulations, and legal
frameworks among member countries can be complex and time-consuming, affecting
the efficiency of regional cooperation.
Security Concerns: Security threats such as terrorism, transnational crime, and border
disputes can divert attention and resources away from regional cooperation initiatives.
Conclusion
It is commonly agreed that Africa's efforts to integrate have largely failed. Despite the
existence of policy goals and visions, this is a problem across most of the continent.
Conflicts have increased. Apart from the well-known issues of corruption, insecurity,
autocratic government, and civil unrest, there is also a lack of private sector
participation in regional integration programs. Economic improvements have also been
poorly devised and implemented in some cases.
All countries engaging in international trade have major trading partners with whom
they form unions under a set of conditions. As we saw earlier in the chapter, such
alliances take various forms, each with its own set of implications for the countries
involved.
The people of Gabunga have faced a problem of sulpus production with limited
domestic market for their products. Most have decided to quit agriculture since there
are no strategic solution to this problem and losses keep on accumulating hence their
decision Mr. erick the member of parliament has scheduled a seminar to empower the
people with the theme “exploit business opportunities in the international market” you
have been invited an official from the Ministry of State for Economic Monitoring to
sentise the people of Gabunga on the theme.
76
Tasks
Write a speech of about 600 words explaining more about the theme
Chapter Summary
In this chapter, you have learnt;
(a) what is meant by international trade.
(a) the various forms of international trade,including e-commerce.
(b) the reasons why countries involve in international trade and the various
challenges it presents.
(c) know international commericail terms (INCO terms).
(d) the different documents used in international trade.
(e) the commercial tools used to control international trade.
(f) the factors affecting the trade international trade
(g) the requirements for export and import trade.
77
THEME: TAX COMPLIANCE
Introduction
You learned about the tax administration in chapter 12, and since everyone must pay
taxes, we will study about the many levels of tax payment in this chapter. Some people
pay their taxes while others do not, which could be due to ignorance or arrogance. They
don't want people to be unaware of what they should pay, therefore we investigate
since we need to understand the rewards and drawbacks of being complaint.
In this chapter, you will identify and exploit business opportunities in the local and
international market and complies with tax regulations.
SUB-TOPIC 13.1: TAX COMPLIANCE
78
Figure 13.1.1; Tax compliance
Keywords Learning outcomes:
be able to;
 tax (a) know tax compliance
 compliance (b) appreciate factors affecting tax
 non-tax compliance compliance
 tax morale (c) understand the elements of tax
compliance
(d) know the advantages of tax compliance
(e) know the disadvantages of non-tax
compliance
(f) suggest ways of improving tax
compliance
13.1.1: Knowing tax compliance

Tax compliance is as old as the concept of taxes. Differentiating and explaining known
patterns of tax disobedience, and then seeking strategies to eliminate it, are clearly a
dominant aspect of state governments all across the world. Tax compliance economics
can be viewed as a problem of public finance, law enforcement, organizational design,
labor supply, ethics, or a mix of these issues.
The constructs of tax compliance have been featured in literature in numerous ways.
Tax compliance is described as a taxpayer's ability and willingness to follow tax
regulations, declare the correct amount of income each year, and pay the correct
amount of taxes on time.
Activity 13.1.1: Knowing Tax Compliance
In groups
79
a) Identify the meaning of tax compliance
b) Describe the reasons why people should be tax compliant
You have probably found out that Tax compliance is defined as the ability and
willingness of taxpayers to comply with the tax laws, declare the correct income for
each year and pay the right amount of taxes on time.
People need to be tax complaint is to foster economic growth and development in the
following ways:
Legal Requirement: Paying taxes is a legal obligation imposed by the government.
Non-compliance can lead to penalties, fines, and even legal consequences.
Funding Public Services: Taxes are the primary source of revenue for the government
to fund public services and infrastructure. These services include education, healthcare,
public safety, transportation, and social welfare programs.
Economic Development: Tax revenues play a crucial role in driving economic
development and supporting the growth of the nation's economy. They enable the
government to invest in infrastructure projects, stimulate business activities, and create
job opportunities.
Social Justice and Redistribution: Progressive tax systems aim to achieve social
justice by redistributing wealth and income. Taxes from higher-income individuals help
support programs that assist those in need, reducing income inequality and promoting
social welfare.
Maintaining Law and Order: Taxes fund law enforcement agencies, judicial systems,
and defense forces, contributing to the maintenance of law and order and ensuring the
safety and security of citizens.
Healthcare and Public Health: Tax revenues are used to finance healthcare programs
and public health initiatives, which are crucial for promoting the well-being and
longevity of the population.
Education and Skill Development: Taxes contribute to funding educational
institutions and initiatives that provide opportunities for skill development and
training, helping to create a qualified and competitive workforce.
Disaster Relief and Emergency Services: In times of natural disasters or emergencies,
tax revenues help fund relief and recovery efforts, providing assistance to affected
communities.
Infrastructure Investment: Tax compliance supports investment in infrastructure
projects such as roads, bridges, public transportation, and utilities, which are essential
for economic growth and connectivity.
80
Reputation and Good Citizenship: Being tax compliant contributes to an individual's
reputation as a responsible and law-abiding citizen. It reflects positively on one's
character and commitment to contributing to society's well-being.
Avoiding Legal Consequences: Non-compliance with tax laws can lead to severe
consequences, including financial penalties, interest, and potential criminal charges.
Being tax compliant helps individuals avoid these negative repercussions.
Preserving Public Trust: A transparent and efficient tax system helps maintain public
trust in the government and ensures that tax revenues are used appropriately for the
benefit of society.
13.1.2: Factors affecting tax compliance
Figure 13.1.2: Factors affecting the rate of tax compliance

Factors that determine citizens' tax-compliance attitude in countries, we find that tax
compliance attitude is positively correlated with provision of public services in all the
four countries. However, the correlation depends on the specific service in question and
differs between countries. Tax knowledge and awareness are found to be positively
correlated with tax-compliance attitude. On the other hand, frequent payment to non-
state actors in exchange for security and individual's perception that their own ethnic
group is treated unfairly by the government are negatively correlated with tax-
compliance attitude.
Activity 13.1.2: Understanding the Factors Determining Tax Compliance
In groups,
81
Carefully study the case-study below and do the tasks that follow:
Case-study one:
Mr. Cloude, owner of K.E.C company, visited his accountant to fill out his tax returns for
the month of May. This led to such expenses as salaries of people working in
compliance, time and money spent on reporting, new systems required to meet
retention, and so on. As a result of all of this, he was forced to find a way to avoid
compliance, owing to the magnitude of tax compliance costs.
Case- study two:
Maggie was transporting her goods to a customer in Kisanyi when an accident occurred,
and the driver was accused of causing the accident. Maggie was summoned to court and
fined Shs. 50,000, which she was able to pay because the penalty was less severe. She
was able to get her goods delivered to the customer after the hearing.
Case- study three:
With the economic crisis right now in Uganda, most businessmen are trying so hard to
avoid the high taxes in the economy. based on the President’s address on May 22, 2022,
about the economic status. The president's solution was that "It will be suicidal if the
government is to reduce taxes." This has made it an unfairness of the tax system, which
has hardened businesses. Therefore, most are tax non-complaint.
Tasks:
a) Identify the factors that have determined the compliance of the people in the
case-studies
b) Carryout a library or internet research to identify other factors that determine
tax compliance in the economy
c) Share your findings with the rest of class through a discussion
You have probably foundout that Tax compliance can be affected by many factors such
as:
Tax System Complexity: A complex tax system with numerous regulations,
exemptions, and deductions can confuse taxpayers and increase the likelihood of errors
or intentional non-compliance.
Perceived Fairness: If taxpayers perceive the tax system as fair, with equitable
distribution of the tax burden, they are more likely to comply willingly. Unfair or
unequal tax policies may lead to resentment and non-compliance.
Trust in Government: Public trust in the government and its institutions plays a
significant role in tax compliance. When taxpayers have confidence that their tax
contributions will be used responsibly for the common good, they are more likely to
comply.
Enforcement and Penalties: The effectiveness of tax enforcement and the severity of
penalties for non-compliance are essential in influencing taxpayer behaviour. Strong
enforcement and meaningful penalties act as deterrents to tax evasion.
82
Availability of Information: Access to clear and easily understandable tax information
helps taxpayers fulfill their obligations accurately. Transparent communication from tax
authorities reduces confusion and fosters compliance.
Economic Conditions: Economic conditions, such as the overall level of prosperity,
employment rates, and business opportunities, can impact tax compliance. During
economic downturns, tax evasion may increase as financial strains grow.
Tax Culture and Social Norms: The prevailing tax culture and social norms within a
society can shape attitudes towards tax compliance. In some cultures, paying taxes is
seen as a civic duty and a mark of good citizenship, while in others, tax evasion may be
more socially accepted.
Taxpayer Education and Support: Providing taxpayer education and assistance can
improve compliance. Clear guidance on tax obligations and access to support from tax
authorities help taxpayers meet their responsibilities.
Perception of Risks and Detection Probability: Taxpayers' perception of the
likelihood of being caught for non-compliance and facing penalties significantly affects
compliance behaviour.
Taxpayer Behaviour and Ethics: Individual moral values and attitudes towards
taxation influence compliance decisions. Taxpayers with high ethical standards are
more likely to comply with tax laws.
Tax Policy Stability: Frequent changes to tax laws and policies can create uncertainty
for taxpayers, leading to lower compliance levels.
Taxpayer Segmentation: Different taxpayer segments, such as individuals, businesses,
or high-net-worth individuals, may have varying compliance behaviors and needs,
necessitating targeted compliance strategies.
13.1.3: Elements of tax compliance
Tax compliance consists of five components. Registration, filing returns, declarations,
payment, and record keeping are among them.
Registration:
For tax purposes, every business, person in business, owner of real estate such as land,
vehicles, and buildings, and individuals in gainful employment are required to register
with the URA. A registered tax payer receives a Tax Identification Number (TIN), which
serves as the taxpayer's primary identifier. Tax registration is free and can be
completed at any URA office or online through the URA website (www.ura.go.ug).
Returns to the URA
A tax return is a declaration form created by the URA for the purpose of tax accounting.
As a result, filing tax returns entails filling out the tax return form with accurate and
true information about the business for the relevant period and submitting it to the tax
authority for the aim of determining the tax payer's tax situation. Individuals and
83
enterprises registered for various taxes within the heading of domestic taxes fill out
returns.
Declaration
This involves providing correct information particularly during importation of goods
and services to the URA customs office when clearing on a prescribed form for
further processing. This can be done using Automatic Systems' Customer Data
World (ASYCUDA). Therefore declarations are made by tax payers involved in
international trade to the customs office of the revenue collecting Authority.
Payment of taxes
The correct amount of the tax assessed should be paid in time through banks,
mobile money, and other e-payment platforms such as payway.
Record keeping
By law, tax payers are obliged to maintain accurate and proper records. These records
help to determine the true tax position of tax payers. It is to the advantage of the tax
authority as well as the tax payers. In cases where the tax authority querries the returns
filed or declarations made, the tax payer can present the supporting documents to back
their returns and in turn the revenue collecting authority can trust the accuracy of the
submitted return.
There are various elements of tax compliance and activity 13.1.3 will help you discover
all the five elements of tax compliance.
Activity 13.1.3: Demonstrate Elements of Tax Compliance
In groups,
Carefully study the puzzle below and do the tasks that follow:
D E A D L I N E S G H J K L D R
Z X C V B N M A S D F G H H J E
D F G H J K L I U T R W Q A D G
F I L L I N G T R U S T W E R I
S D F G H R E P O R T I N G Y S
D F T G U Y E C N J K T F G J T
S P A Y M E N T S O I U Y T R R
R E C O R D K E E P I N G N R A
Q W E R T Y U I O P L K J H G T
Q A E D R T G Y H Y J B U S V I
Q W E R T Y U I O G L K J H G O
A S D F G H J K L P O I U Y T N
84
D E C L A R A T I O N E T F G H
S D F G H J K L O U T R E W Q F
Tasks:
a) Identify the elements of tax compliance from the puzzle above
b) Describe each of the elements identified in (a) above
Note: All filing, declarations and payments must be done before the deadline
determined by the tax authority. We shall look at the various deadlines under basic tax
computations
13.1.4: Explaining the Advantages & Disadvantages of being tax compliant
Figure 13.1.3: advantages and disadvantages of being tax compliant

Taxation is one of the essential functions of government, and a fact of life for taxpayers
that requires compliance and planning. Income tax, property tax and sales tax all reduce
how much money consumers have to save or spend. Business taxes place some of the
burden on commercial enterprises, but whatever the source, tax go toward some of the
same purposes. One of the most basic advantages of taxes is that they allow the
government to spend money for basic operations
Activity 13.1.4: Explaining the advantages of tax compliance
In pairs,
85
Tasks
a) Identify the advantages of being tax compliant
b) Describe the disadvantages of being tax compliant
c) Debate on the advantages and disadvantages of being tax complaint
You have probably foundout the following:
Advantages of being tax compliance
 Money to fund public infrastructure projects
 Better public education
 Childcare facilities
 Improvements in public transport
 Better healthcare
 Technological progress can be accelerated
 Income tax usually increases with the income of a person
 Assurance of security
 Politicians have to be paid
 Court system has to be financed
 Money for military services
 We need firefighters
 Social duty to contribute one’s part
 Assurance of social security schemes
 Mitigation of the wealth gap between the poor and the rich
 Instrument to ensure the financial stability of a country
 Tax cuts in crisis times to foster the economy
 Governments can tax unhealthy products at a higher rate
Disadvantages of being tax compliance
 People have less money to spend
 Less overall savings in bank accounts
 Investments for the future might suffer
 Taxes may discourage people to work hard
 People may try to avoid tax payments
86
 Tax schemes may be considered to be unfair
 Big corporations often try to avoid paying taxes
 Money may be spent in an ineffective manner
 Politicians may act opportunistically
 Lobbying may lead to waste of government funds
 Confined freedom
13.1.5: Exploring ways of improving tax compliance

The rate of occurrence of tax evasion is higher in Uganda than in the rest of East Africa.
Where the taxpayer has latitude to decide whether or not to be compliant, as in the case
of income taxes, Ugandans seem to be less compliant than other East Africans. Uganda
collects less in domestic taxes than other countries in the region. For revenue, the
Ugandan government depends more on customs duties, on taxes that are difficult to
dodge, notably Withholding Tax, and on taxes where there are in-built incentives to
comply, such as Value Added Tax (VAT).
Activity 13.1.5: Exploring ways of improving tax compliance
In groups:
Carefully study the photograph in figure 13.1.4 and do the tasks that follow:
Figure 13.1.4: U.R.A school outreach

Tasks
87
a) Identify what is happening in figure 13.1.4
b) Describe how this improves tax compliance in an economy
c) Carry out a library or internet research to find out ways of improving tax
compliance.
You have probably learnt ways to improve tax compliance as follows
One of the main techniques used by URA to improve tax compliance is providing proper
tax education. Gone are the days when students graduated from secondary school or
even university without knowing anything about Uganda's tax system; for example
figure 13.1.4
Focus resources on improved auditing, processes, and tools
Fast-moving growth creates opportunities for tax evasion and may encourage a culture
of noncompliance. Auditing can not only detect and penalize evasion attempts but also
signal a tax administration’s intention to prioritize more aggressive enforcement. One
such administration, for example, installed a group of some 50 auditors while at the
same time training about 100 tax examiners. To automate parts of the process, the
administration developed specific audit tools, which simplified procedures and
improved the overall quality and consistency of audits. Within six months, the auditors’
productivity rose more than tenfold and audit-related collections increased fiftyfold.
Voluntary compliance increased substantially thanks to the perception of increased
controls. As a result, revenue from the corporate income tax has risen by over 30
percent year on year.
Use simple segmentation to identify larger collection opportunities
Most rapidly developing economies lack the advanced analytic tools and databases
necessary to flag and follow up on suspicious taxpayer behavior automatically.
Nonetheless, simply segmenting taxpayers according to attributes such as size, sector,
and past behavior can help tax authorities quickly perform a risk analysis identifying
discrepancies between an individual taxpayer’s behavior or payments and that of his or
her cohort. By applying this technique to approximately 500 taxpayers, the tax
administration in one African country, then in the early stages of its improvement
journey, identified a small number of taxpayers who together owed 5 percent of the
nation’s total uncollected tax debt. The administration expects to recover over half of
this amount.
Target collections in the tax offices with the largest outstanding debts
In many emerging markets, tax collection is neither automated nor centralized.
Collection rates are often low, and there is little awareness of how much is truly owed.
In response to this challenge, one customs authority identified the importing businesses
that owed the most in back taxes and put in place a technical team to negotiate payment
terms directly with debtors. The program helped minimize opportunities for importers
to accumulate more debt and also served to publicize the customs authority’s intention
to act against evaders. Within three months of launch, the initiative helped collect
88
approximately 15 percent of the customs department’s outstanding debt—
corresponding to some 2 percent of its yearly revenue—and reduced the rate of new-
debt formation by more than half.
Ensure regular updates to the taxpayer registry
In many rapidly growing markets, it can be difficult to maintain an accurate central
taxpayer registry, as much of the economy is made up of “informal” and small-scale
businesses, and tax authorities lack the external controls necessary to ensure that such
entities stay within the system. To counteract this, registration should be made more
rigorous and feedback systems introduced to ensure that taxpayers regularly update
their information. Additionally, quick and simple controls can be put in place to raise
the alarm if taxpayers fail to comply with their obligations. One tax administration in
Africa, for example, launched an aggressive two-week effort to improve its registry.
During this period, the authority closed selected branches and sent their officials into
the field to identify and register informal businesses in specific areas. Taxpayer registry
entries increased by 20 to 30 percent in the targeted districts.
Introduce account managers to oversee large taxpayers
In most countries, a very small number of taxpayers account for the majority of tax
revenue. Although tax administrations usually have large-taxpayer units, these LTUs
often use the same processes, rules, and resources as general tax offices. LTU “account
managers,” supported by a back office devoted to their needs, can provide large
taxpayers with differentiated and improved services that will ensure increased
revenues. One sub-Saharan country, for example, doubled the number of auditors in the
audit teams of its large-taxpayer unit and implemented an ambitious training program
to raise their technical skills and the quality of their work quickly. In parallel, the unit
launched a focused effort to analyze and close a small number of high-value, complex
cases in specific sectors by using specialized audit teams with sector-specific training
and skills. The additional revenue the specialist teams identified equaled 2 to 3 percent
of the tax authority’s total yearly revenue.
Use electronic channels for simple transactions
In many rapidly developing economies, mobile and Internet penetration are
comparatively high. Tax administrations can therefore introduce electronic channels
such as Internet portals, mobile-payment options, and ATMs. By using these channels
for simple taxpayer transactions (such as declarations and payments), a tax
administration can increase the level of voluntary payments while conveying a strong
sense of its public purpose. Such approaches reduce the length of queues at tax offices
while also removing a barrier to compliance.
Communicate the benefits of the quick wins widely
Communication about tax programs should address three areas: promoting the benefits
of paying taxes, educating taxpayers about how to comply, and increasing the
perception of risk for noncompliance. The communication plan should include both
institutional and initiative-specific messages. It can incorporate appeals that have an
89
emotional element—for example, linking the use of tax revenue to the funding of
schools or highlighting sanctions for failure to comply. Other messages, such as
explaining changes to tax laws or procedures, can be purely informative.
Effective communication promotes voluntary compliance. By communicating specific
tax initiatives even to residents who weren’t necessarily affected by them, one country
more than doubled their impact because the general population felt obliged to comply
with broader tax rules.
Analyze opportunities to close tax loopholes
With input from senior tax officials, tax administrations can perform a top-down,
granular analysis of each type of tax to establish whether there are opportunities to
close sector-specific tax loopholes quickly. The analysis should establish whether there
are any significant gaps between the expected and the effective tax rates.
Using this approach, a Latin American country identified two large economic sectors
that had exploited loopholes (for example, legacy tax exemptions) to pay effective tax
rates from a quarter to a sixth of the nominal corporate income-tax rate. With only
limited legislative changes—and still keeping nominal tax rates for these two sectors
lower than they were in neighboring countries—the administration increased total
corporate income-tax revenues by more than 10 percent in one fiscal year.
Simplify the tax system to encourage formalization
The tax systems in most rapidly growing economies are highly informal and often
unnecessarily complex. Simplifying the tax code encourages voluntary compliance,
while at the same time sending the message that efforts to formalize the system are a
priority. For example, in 2009 South Africa introduced a less complicated “turnover tax”
as an alternative to the normal corporate income tax and value-added tax. The system
attracted more than 7,000 new taxpayers in the first year alone. A large portion of them
were converted from the informal economy.
Create external checks that enforce compliance
Often, informal businesses that don’t pay taxes nevertheless interact with government
agencies as part of normal operations. Tax administrations can work with these
agencies to verify the tax status of businesses. Such checks need not be overly intrusive
but can still effectively encourage formalization. One rapidly developing country, for
instance, passed a law requiring government workers to check the tax administration’s
registry when residents attempted to import goods, send funds abroad, sponsor
applications for work visas, or apply for public contracts. The law was then broadly
publicized in the media, showcasing the government’s commitment to formalizing the
tax system and ultimately increasing voluntary compliance.
90
SUB-TOPIC 13.2: BASIC TAX COMPUTATIONS
Figure 13.2.1: Computation of Taxes

Introduction
In this chapter, you are going to identify and exploit business opportunities in the local
and international market and comply with tax regulations. Many people in your
communities pay taxes to Uganda Revenue Authority (URA) and the local government
authorities as one of the compulsory charges imposed on them to finance public
utilities. However, while some willingly pay the taxes assessed on them, others wait to
be coarsed into paying them.

be able to;
 output tax a) demonstrate how to calculate basic
 input tax taxes.
 taxable value
 taxable person
91
 rental
 VAT rate
 VAT Threshold
13.2.1: Meaning of basic taxes

This subtopic will explore the learners to the ways of calculating taxes payable. Many
people in Uganda are not aware how taxes are derived. as a result, they often get the
services of tax consultants clearing and forwarding agents which makes the whole
process of paying taxes costly. It is therefore , assumed that, the learners after getting
knowledge and skills of tax computation will guide their families and community on the
accurate amounts of taxes to be paid to the tax authority thus minimizing the costs of
doing business
Tax computation deals with estabiling taxes/ duties payable. It focuses on how taxes are
determined, based on relevant laws in Uganda. The taxes are categorised as domestic
and international.
Domestic taxes in Uganda include: corporation tax, individual income tax, individual
rental tax, withholding tax, individual presumptive tax, VAT among others
International taxes are levied on importation of goods, they include import duty,
excise duty, vat, withholding tax, environmental levy and infrastructural levy
In order to compute taxes payable, its important to understand the meaning of the
terms below:
Taxable income refers to the base upon which an income tax system imposes tax. In
other words, the income over which the government-imposed tax. Generally, it includes
some or all items of income and is reduced by expenses and other deductions.
Gross income refers to the total earnings a person receives before paying for taxes and
other deductions. The amount that remains after taxes are deducted is called net
income.
Exempt income is not subject to taxation
Tax deductions reduce your total taxable income—the amount you use to calculate
your tax bill.
Therefore, chargeable income = gross income – total deductions
Tax liability / tax payable
Is the total amount of tax owed in a given period, by individuals and organizations, to
the central government and local governments.
13.2.2: Basic tax computations
This course aims to teach you the fundamentals of tax computation, such as individual
taxes, pay as you earn taxes, rental income taxes, and so on.
92
This course aims to teach you the fundamentals of tax computation, such as individual
taxes, pay as you earn taxes, rental income taxes, and so on.
(a) Individual Income Tax :
This is imposed on income from business, employment and/or property. For
a resident person, income tax is charged on gross income from all over the
world where as for a non- resident person, it is only charged on income derived
from sources within Uganda.
Taxpayers, whose turnover is above sh150m, must file annual Income Tax
returns such that the tax is computed on their net profits as illustrated below:
Chargeable income Rate of tax
Not exceeding Ushs 2,820,000 NIL
Exceeding Ushs. 2,820,000 but not 10% of the amount by which chargeable
exceeding Ushs. 4,020,000 income exceeds Ushs. 2,820,000
Exceeding Ushs. 4,020,000 but not Ushs. 120,000 plus 20% of the amount by
exceeding Ushs. 4,920,000 which chargeable income exceeds Ushs.
4,020,000
Exceeding Ushs. 4,920,000 (a) Ushs. 300,000 plus 30% of the
amount by which chargeable income
exceeds Ushs. 4,920,000
(b) Where the chargeable income of
an individual exceeds Ushs 120,000,000.
An additional 10% charged on the amount
by which chargeable income exceeds
120,000,000
Example
Mr Mbayo received 135m from the supply of his products to Kira Investments in Mpigi
during 2014/2015 of which 8.1m (6% on 135m) was withheld by Kira Investments.
From the beginning of the year, he incurred the following costs.
i. Production costs……………………………………………………………….……………….22m
ii. Direct costs (e.g Transportation of products)……………………………..…5m
iii. Administration costs (including
Annual salary for 2 employees……………………………………….……….………24m
Annual rent for store……………………………………………………………………….…..8m
Fuel expenses………….………………………………………………………………..………...14m
iv. Annual staff party………………………………………………………………………………...9m
Calculate his Income Tax Liability for 2014/2015.
Solution
93
Gross Income from sales………………………………………………………………...135m
Less
Production costs…………………………………………………………………………..…….22m
Direct costs……………………………………………………………………………………………5m
Gross Profit……………………….......................................................................108 m
Less Allowable deductions
Annual salary for 2 employees…………………………………………………….….24m
Annual rent for store……………………………………………………………………………8m
Fuel expenses………………………………………………………………………………….….1.4m
Chargeable Income…………………………………………………………………….….….62m
Income Tax Liability
Since his chargeable income falls in the fourth category, then
Tax Liability = (62,000,000-4,920,000) *30% + 300,000..……………….17.424m
Less withholding Tax at source……………………………………………………………..….......8.1m
Net tax liability (Income Tax – Withholding tax)……………………………………..324m
Note that the expense incurred for the annual staff party (9m) does not account for the
allowable expenses in the generation of his gross income.
Activity 13.2.1: Computing individual taxes
In pairs,
Mr. Dick’s gross income for the year 2017 was ugx 75,000,000 and his allowable
expenses amounted to ugx 50,000,000
Tasks
a) Calculate his chargeable income
b) Determine the amount of tax payable
c) Present your findings with the rest of the class
(b) Corporation Tax
A company is defined as a body of persons corporate or unincorporate,
whether created or recognised under the law in force in Uganda or elsewhere and
includes a unit trust, but does not include any other trust or partnership.
Accordingly, limited liability companies, companies limited by guarantees, associations
and Non-Government Organisations among others are taxed under the company
taxation regime.
94
Based on the above definition, even non-resident companies are assessable (subject) to
tax in Uganda on their income that is derived from Uganda while resident companies
are subject to tax on their worldwide income. Income tax paid by companies is referred
to as corporation tax. Income tax on companies is imposed under the Income Tax Act on
every person who has chargeable income for any year of income. The current rate of tax
applicable to companies is 30% charged on the profits from business (Chargeable
Income). The chargeable income for both resident and non-resident companies is taxed
at this rate.
Example one
Divine's Corporation had the following income and expenses in May 2021;
Revenues 800,000
Expenses 300,000
Gains on sale of Capital assets 50,000.
Losses on the sale of Capital assets 25,000.
The taxable income for Divine Corporation is given by:
Revenues - expenses + gains on sale of capital assets - losses on sale of capital assets.
800,000 - 300,000+50,000  25,000 = ug shs 425000.
Example two
Determination of the Tax liability for companies (Non- individuals)
Sale of goods (clothes, 200,000,000
shoes, Poultry, Timber,
beans)
Add Other income
(e.g. subletting of space for 39,000,000
rent)
Total revenue from trading 239,000,000
Less: Costs of goods sold
Purchases 15,000,000
Direct labour- (sales girl, 14,000,000
planting, weeding, feeds)
Cost of direct overheads 5,000,000
(direct power, water, etc.)
Total Production Costs 34,000,000
Less Administrative costs
(Worker salaries, office 16,000,000
power, Water, rent, etc.)
Total costs 50,000,000
Net Profit/Loss(Chargeable 189,000,000
Income)
Tax at 30% 56,700,000
95
Activity 13.2.2: Computing corporation tax
Kec limited gross income for the year 2017 was ug Shs 95 ,000,000 and his allowable
expenses amounted to ug Shs. 60,000,000.
TASKS
a) calculate his chargeable income
b) determine the amount of tax payable given corporation tax rate of 30%
c) Pay As You Earn (PAYE)
This is a tax levied on the Gross salary on employees (earning income above 235,000)
by employers and then remitted to URA on behalf of the employees.
If you have employees who earn a monthly income above shs 235000/=, you are
required to withhold and remit monthly PAYE by the 15th of the month following one in
which tax is withheld as per the PAYE rates below.
Rate of tax for resident individuals
Monthly emoluments Tax Rate (Bracket)
Not exceeding Shs 235,000 Nil
Exceeding Shs 235,000 but not exceeding 10% of the amount by which
Shs 335,000 chargeable income exceeds Shs
235,000.
Exceeding Shs 335,000 but not Shs 10,000 plus 20% of the amount by
exceeding Shs 410,000 which chargeable income exceeds Shs
335,000
Exceeding Shs 410,000 (a) Shs.25,000 plus 30% of the amount
Shs.410,000
(b) Where the chargeable income of an
individual exceeds Shs. 10,000,000 an
additional 10% charged on the amount
Shs. 10,000,000.
Example one
Acul Ocolo is employed as a security guard in Karacen (U) Ltd. He earns a monthly
salary of Shs 225,000.
Required: Is Karacen (U) Ltd obliged to deduct PAYE tax from Acul Ocolo?
96
Solution: No, because Acul Ocolo’s monthly salary is less than the threshold so his salary
does not attract PAYE.
Example two
Alech earns a monthly consolidated which includes a monthly salary of 200,000,
transport allowance of Shs 75,000 and medical allowance of Shs 95,000, the amount of
Pay as You Earn to be deducted is calculated as below:
Gross Employment Income:
Salary ...................................................................................... 200,000
Transport allowance ............................................................. 75,000
Medical allowance ..................................................................95,000
Total ...........................................................................................370,000
His gross employment income lies in category three and thus we shall use the rates in
the third bracket, i.e. Exceeding Shs 335, 000 but less than 410,000 (10000 + 20% of the
amount by which chargeable income exceeds Shs 335, 000)
Chargeable income = Shs (370,000 - 335,000) = 35,000
PAYE to be deducted =shs 10,000 + 20% × 35,000 = 17,000
Activity 13.2.4: computing PAYE
Mark is an employee of K.E.C LTD. He earns the following monthly income :
A salary of shs 700,000
Travelling allonce of shs 120,000
Medical allowance of shs 300,000
Tasks
a) Compute his monthly P.A.Y.E tax liability
b) Share your findings with the rest of the class
(d) Rental Tax
97
Figure 13.2.2: Rentals in kampala
This is tax levied on income earned by a person from letting out immovable property
(land and buildings) in Uganda. For income tax purposes, it does not matter whether the
building is let out as a residence or for commercial use.
Property is let out by a landlord or landlady to another person also known as a tenant
for a consideration.
A person (landlord or landlady) may take the form of an individual e.g Robert Wamala, a
corporate body e.g., RORA Properties Ltd, Government e.g Luwero District
Administration, an institution e.g. Makerere University, or a listed institution such as
Deposit Protection Fund of Uganda.
Taxation of Rental Income is provided for under S. 5 of the Income Tax Act. This is rent
earned by persons and is segregated and taxed separately as though it were the only
source of income for the taxpayer.
The rental income of a resident person for the year of income is charged to tax at the
rate of 30% of the chargeable income after deducting the allowable expenses.
The rental income of a resident person for the year of income is charged to tax at the
rate of 30% of the chargeable income after deducting the allowable expenses.
Steps of computation of rental taxes
98
In determining the tax due, individuals may claim up to 75% of the gross annual rental
income as allowable expenses.
• In determining the tax due, a company may claim expenses in excess of 75% of the
annual rental income.
• Individuals may claim interest on a mortgage from a financial institution as
expenditure over and above the 75% allowable deduction.
• The claimed expenses shall be subject to verification by Uganda Revenue Authority,
therefore only expenses that have been incurred in the generation of rental income can
be claimed by individuals and non-individuals in determining the chargeable rental
income.
• Tax is charged at a rate of 30% of the chargeable rental income for the year for both
individuals and non- individuals. However for non-resident individuals, tax is charged at
the rate of 15% of the gross annual rental income.
Individual Rental Income Tax
In computing individual rental tax for a resident individual, the following steps are
considered:
Step I:
Determine the total annual gross rent from all sources of the individual; say R;
Step II:
Deduct up to 75 percent allowance for expenses i.e. R – 75%, therefore chargeable
rental income = 25%R
Step III:
Deduct interest on mortgage for that property. (I.R)
Step IV:
Determine rental income tax at 30% i.e. 30 %( 25%R –I.R).
Illustration
Acul Ocolo earned annual rent of: Shs 3,500,000 from a house in Kitintale, Shs 900,000
from a house in Kabale and Shs 600,000 from a house in Ly-antonde.
He is charged an annual interest of 500,000 on a mortgage he got from the bank to build
the houses. Acul Ocolo incurred Shs. 4,000,000 as expenses in generating the rental
income.
Task : Determine the Rental tax payable
Solution: The rental tax is computed as follows:
Step I:
Determine the total annual gross rents from all sources of the individual
99
Gross rental income = 3,500,000 + 900,000 + 600,000 = 5,000,000
Step II:
Deduct 75 percent allowance for expenses = 75%X 5,000,000 =3,750,000
So 5,000,000 – 3,750,000 = 1,250,000
Note: Only Shs. 3,750,000 is claimed as expenses and not the Shs.4, 000,000 because
Individuals are only allowed to claim expenses up to 75% of the annual gross rental
income.
Step III:
Deduct interest on mortgage for that property. (I.R)
So 1,250,000 – 500,000 = 750,000
Step IV:
Determine income tax at 30%
So 30% X 750,000 = 225,000
Rental tax payable = Shs. 225,00
Activity 13.2.5: Computing Rental Tax
Joan earned annual rent of Shs 2,500,000 from house in kisaasi , shs 900,000 from
house in Jinja and shs 600,000 from house in Lyatonde
Tasks
a) Calculate Joan’s rental tax
b) Share your findings with the rest of the class
(e) Value Added Tax (V.A.T) TAX
As already mentioned, VAT is an indirect tax charged on consumption. It is imposed at
each stage beginning at the start of the production process and ending at the sale of the
commodity to the final consumer. This is due to the inability of evasion of this kind of
tax and avoidance is limited as well.
Computation of Business VAT liability
Registration of business for VAT is not mandatory however, business entities find it to
their advantages to be registered for the tax as this increases their credibility in the eyes
of potential clients. Moreover, majority of entities require their suppliers to VAT
registered before giving them business.
According to URA tax compliance, all VAT registered companies and individuals must
declare (show their sales for the month, a process called filing monthly VAT returns)
and pay all the liabilities due by the 15th day of the following month. Simultaneously,
the purchases on which VAT was incurred are claimed including administrative
expenses.
100
To better understand the computation of VAT, let us take a look at the key terms used in
VAT computations.
Definition of Key Terms used in VAT
Output Tax: This is the VAT a taxable person charges upon making taxable supplies i.e.
tax charged upon selling taxable goods and services.
Input Tax: This is the VAT a taxable person is charged on taxable purchases and
expenses incurred for business purposes. The purchases could be from local sources or
imported.
Taxable Supply: This is a supply of goods and/or services other than an exempt supply,
by a taxable person for a consideration. VAT is charged on a taxable supply at either
zero rate or standard rate.
Taxable Person: This is a person who is either registered for VAT or one who is not yet
registered but is required to be registered. Such person may be any of the following: an
individual, partnership, company, trust, Government as well as public or local authority
e.g. Town council.
Taxable Value: This is the total consideration or price for a particular supply. This
could be in money or in kind. It is the tax base upon which the VAT rate is applied to
compute VAT.
Exempt Supply: This is a non-taxable supply of goods or services thhat does not attract
VAT i.e. neither at zero rate nor at standard rate. These supplies are specified in the
Second Schedule of the VAT Act Cap 349.
VAT Threshold: This refers to the minimum level of taxable turnover above which a
person is required to register for VAT. The current annual threshold is Shs.150million of
taxable supply. However for registration purposes, this is determined on a quarterly
basis at 37.5million in any three consecutive calendar months.
Computations can be broken down as below:
VAT = Taxable value x VAT rate
Where: Taxable value is the price of the taxable good or service excluding VAT. This is
also known as the tax base.
VAT rate is the percentage used to compute VAT. The current rate is 18%.
VAT Computation Statements
Tax base (y) x VAT rate (18%) = VAT liability (z)
VAT liability = Gross amount x 18%
VAT mechanism
The vat mechanism involves three items;
101
VAT on purchase and expenses. This is called input tax
VAT on sales. This is called output tax
VAT liability = Output tax - Input tax
Note: Where output tax exceeds the input tax the tax payer pays the difference as VAT
to URA. However, where the input tax exceeds the output tax, the tax payer claims the
difference as VAT refund from URA.
Example one
Derrick is a wholesale trader who deals in soft drinks like sodas and juice. He buys from
different companies in large quantities and sells to customers in quantities they can
afford. In the month of August 2020, he bought 1000 cartons at Shs. 5,000,000 and
resold all of it at Shs. 6,500,000.
This implies that: Shs.
Input VAT (VAT on purchases) 5,000,000 x 18%
ug Shs900,000
Output VAT (VAT on sales) 6, 500,000 x 18%
ug Shs =1,170,000
Therefore, VAT liability = Output - Input tax
= 1,170,000 - 900,000
ug Shs=270,000
Example two
Assuming Derrick bought the same quantity of soft drinks at Shs. 5,000,000. But this
time did not sell all of it. Chombo sold only for Shs. 3,500,000.
This implies that: Shs.
Input VAT (VAT on purchases) 5,000,000 x 18%
ug Shs 900,000
Output VAT (VAT on sales) 3,500,000 x 18%
ug Shs= 630,000
Therefore, VAT refund = Output tax - Input tax
= (630,000 - 900,000)
= Shs. 270,000
102
Activity 13.2.6: Calculating V.A.T
Newton cotton farmers sold 10 tons of cotton to Brad ginnery at shs. 7,000,000. Brad a
cotton ginnery sold 10 tons of lint cotton to Nyanza textiles at shs.10,000,000. Nyanza
textiles produced bed sheets out of the cotton and sold them to Kiyembe Ltd (a retailer)
at shs 17,500,000. Kiyembe Ltd sold all the bed sheets to various customers and total
sales were shs. 22,500,000. All figures are exclusive of VAT and VAT rate applicable is
18%.
Task
1.Determine the total VAT payable through the process.
2. share your findings with the rest of the class through a discussion
Many business owners in Uganda are not aware of how taxes are derived. As a result,
they often get the services of tax consultants, clearing and forwarding agents, which
makes the whole process of paying taxes costly. This has made them find ways to avoid
paying taxes and evading paying due to the high costs. There are also complaints about
the value of the taxes paid by the government. For example, the social services and
infrastructure are still in poor condition. This has also made them more non-tax
compliant.the U.R.A has organised a press conference to create awareness in computing
basic taxes and benefits of being tax compliant.
Imagine the U.R.A has hired a tax expert to give a speech about :
a) How to compute basic taxes
b) The benefits of being tax complaint
103
Write a press speech of about 700 words explaining the tasks above
Chapter Summary
After studying this chapter, you should have been able to;
 know tax compliance.
 appreciate factors affecting tax compliance.
 understand the elements of tax compliance.
 know the advantages of tax compliance.
 know the disadvantages of non-tax compliance
 know ways of improving tax compliance
 demonstrate how to calculate basic taxes.
104

Book Four Ent

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Book Four Ent

Uploaded by

Copyright:

Available Formats

ENTRPRENURSHIP BOOK FOUR

FOR LOWER SECONDARY

Figure 11.1.1: Insurance

Keywords Learning outcomes

11.1.1: Understanding the meaning of insurance

Figure 11.1.3: Common terms used in insurance

b) Identify other terms not in the table above

SUB-TOPIC 11.2: PRINCIPLES OF INSURANCE

Figure 11.2.1: Principles of insurance

11.2.3: Identify the types and classes of insurance

Figure 11.2.2: Types of insurance

Figure 11.2.3: types of life insurance

-Such products double up as investment tools. -A part of your premium goes

c) Brainstorm on the meaning of life insurance

Figure 11.2.4: Endowment policy

Figure 11.2.5: General insurance

Figure 11.2.6: General insurance policy

Figure 11.2.7: Property on fire

Figure 11.2.9: Car Accident

Figure 11.2.10: Travel Insurance policy

Figure 11.3.1: An insurance claim form

11.3.1: Documents used in insurance

Figure 11.3.4: an insurance policy

Code The unique code for this claim form

Description The description for this claim form

Line of Business The line of business for this claim form

Claim Form Type Optional reference to claim form type

Procedure 1 usage name The attribute name in dynamic logic

Procedure 2 usage name The attribute name in dynamic logic

Procedure 3 usage name The attribute name in dynamic logic

Steps taken to obtain an insurance claim form

Keywords Learning outcomes

11.4.1: Explaining the challenges faced by insurance industries

Figure 12.1.1: Modes of international trade

SUB-TOPIC 12.5: INTRODUCTION TO INTERNATIONAL TRADE

12.1.1: Understanding the meaning of international trade.

12.1.3: E-commerce in International trade

Figure 12.1.3: reasons for international trade

12.1.5: Challenges presented by international trade

Figure 12.1.5: Bill of Exchange

12.1.8: Commercial tools used to control International Trade

Figure 12.2.2: Regional cooperation

12.2.1: Knowing Regional Cooperation

Figure 12.2.2: East African community states

The Common Market for Eastern and Southern Africa

Figure 12.2.3: COMESA member states

13.1.1: Knowing tax compliance

13.1.2: Factors affecting tax compliance

Figure 13.1.2: Factors affecting the rate of tax compliance

Figure 13.1.3: advantages and disadvantages of being tax compliant

13.1.5: Exploring ways of improving tax compliance

Figure 13.1.4: U.R.A school outreach

Figure 13.2.1: Computation of Taxes

Keywords Learning outcomes

13.2.1: Meaning of basic taxes

Not exceeding Shs 235,000 Nil

You might also like