Kampala- At least 71 top companies have during the course of this year filed complaints with the Tax Appeals Tribunal (TAT) over taxes Uganda Revenue Authority (URA) wants them to pay but which they say they do not owe.
The list of complainants is long and varied, ranging from telecommunications giant MTN to Sheraton Hotel trading as Apollo Hotels Ltd; NTV trading as Africa Broadcasting Ltd (Abul); Nile Breweries Ltd, Umeme, Mukwano Industries Ltd and Uganda Electricity Transmission Company Ltd (UETCL), among others.
On the list, a savings scheme by Bank of Uganda themed “Emmanuel Tumusiime Mutebile & Others” has the biggest claim against the tax body, this year, challenging an income tax levy of Shs40.9 billion.
Bondo Tea Estates has the least challenge against URA challenging payment of Shs84,884 to URA.
Sources at the tribunal told Saturday Monitor that when the person brought the challenge whose worth is less than the costs related to petitioning the tribunal, the petitioner said it was a matter of principal to bring the same.
The number of complaints that companies have lodged with the Tax Appeals Tribunal this year is three times what the body had to deal with last year.
Commenting on the surge in the number of tax complaints, Dr Asa Mugenyi, the Tax Appeals Tribunal chairman, told Saturday Monitor: “The complaints have actually more or less tripled. The matters that come to the tribunal are for these big, big corporations; the small taxpayers we don’t see them.”
URA has come under intense pressure to collect more revenue with its target for this financial year standing at Shs16.4 trillion, although President Museveni, in several correspondences, has indicated that such a figure is lower than what can potentially be collected.
Complaints filed this month
For December alone, the Tax Appeals Tribunal cause list has at least 36 disputes scheduled to be handled by the tax court.
In practice, major corporations with tax disputes worth billions of shillings run to the Tax Appeals Tribunal, a specialised court set up to provide the taxpayers with easily accessible, efficient and independent arbitration in tax disputes with URA, with smaller entities opting to settle the same elsewhere, usually in normal courts.
A taxpayer who lodges a notice of objection to a tax assessment is required to pay 30 per cent of the tax assessed or that part of the tax assessed not in dispute, whichever is greater, pending final resolution of the objection.
In about 24 hours, from December 4 to 5, the Executive made requests to Parliament to borrow euros 270m (Shs1.1 trillion) and $586 (Shs2.1 trillion).
The money will be borrowed from different agencies, including the French Development Agency – AFD, and the International Development Association (IDA) of the World Bank Group.
The tax authority has been put under immense pressure to increase the country’s tax revenue as a means of boosting the tax-to-GDP ratio from the current at least 14 per cent to at least 30 per cent at which point, it is believed, government will be able to fully finance its budget.
Uganda’s GDP is reported at Shs110 trillion. President Museveni, in an ambitious proposal, wants tax authorities to collect 30 per cent of the same, which he says would help the country finance 100 per cent of its budget.
Currently, Uganda has a budget of Shs32 trillion but only finances Shs22 trillion of that. Much of the more than Shs10 trillion balance is covered by loans, with just Shs1.6 trillion received as grants from development partners.
What is the problem?
Members of the business sector we spoke to accuse tax authorities of focusing on a small section within the country to shoulder the tax burden of the entire nation.
“The problem is about the informal sector. As long as we have a big chunk of the informal sector, like we have 60 or 70 per cent involved in agriculture and not paying taxes, then who are you taxing? That means you are piling all the taxes on the few paying,” Mr Everest Kayondo, the chairman of Kampala City Traders Association (Kacita).
He added: “Unless we formalise the informal then GDP tax will remain low unless we get more people in the tax bracket.”
Similar concerns are echoed in the latest Uganda Economic Update report by World Bank themed Financing Growth and Development: Options for Raising More Domestic Revenues.
The report concludes that a small percentage of Uganda’s citizens pay taxes. In addition, about 80 per cent of businesses, it notes, are informal and transact in cash, making it difficult to track and assess them for tax, according to the update.
“Tax is an important source of domestic revenue for a government, and central to spurring growth and opportunity for Uganda to attain its development goals,” Ms Rachel Sebudde, World Bank senior economist and lead author of the economic update, said in a statement published by the bank.
She added: “Without it, citizens would not be able to have good roads, or access to quality and affordable healthcare and education.”
The World Bank recommends a number of measures including the use of credit and debit cards, improved regulation of businesses, and simpler and publicly accessible tax procedures to potentially bring taxable entities and hidden transactions into easy reach.
Other recommendations are: Improving efficiency of existing instruments, reducing tax expenditures to minimise revenue foregone arising from tax exemptions, improving efficiency and effectiveness of revenue administration agencies and enhancing public awareness, transparency, and civil society engagement to increase voluntary tax compliance.
The business community also accuses tax authorities of focusing on meeting targets set by government instead of creating a friendly business environment to allow businesses thrive and hence pay more taxes.
“They [tax authorities] are more interested in achieving the targets than the survival of the business. Once they have been given a target they will ensure that the few containers must be taxed to the level so that they collect as much as the target instead of ensuring that we do much more bigger volumes, the turnover is high and once they tax the whole turnover they reach their target,” Mr Kayondo said.
A move by the government, for example, to crack down on substandard products flooding the market has instead turned into another form of taxation for many in the business community.
Against proposals by traders, different traders say, the government has not built capacity of its agencies such as Uganda National Bureau of Standards (UNBS) to carry out inspection. This, traders argue, would deter people from importing substandard products.
“The way they went about it is increase the list of products to be subjected to pre-shipment inspection and when the traders don’t go through the pre-shipment inspection, it has become another form of tax.
You are expected to be fined 15 per cent of the CIF [Cost, Insurance and Freight] which becomes again very expensive. For me as a trader when I am paying, I just compound everything and I will not differentiate and you find that the goods are very expensive,” he added.
Queries have also been made about what the business community terms as the arbitrary taxation by URA through “pre-determined value guidelines” at the Business Processing Centre Nakawa.
President Museveni has on several occasions, since the start of the year, castigated the tax body for either collusion or incompetence and hence failure to collect enough revenue to support Uganda’s goal of fully funding its budget.
In a letter dated March 12, 2018 to Finance minister Matia Kasaija, the President proposed the taxation of social media and also called for taxation of rental buildings and houses, describing as scandalous the level of tax avoidance in the housing sector. A controversial tax on social media was consequently levied.
In a response dated July 12, 2018, to social media users, President Museveni described some officials at URA and the Finance ministry as “corrupt and unpatriotic pigs” who he said steal both collected and uncollected taxes.
“The only pigs that can steal money which is not yet collected in taxes are the officials of URA and the ministry of Finance who deliberately cover up areas of possible tax collection and share the money with the possible tax payers instead of the money developing our country by having a self- sufficient budget,” Mr Museveni wrote.
The president’s directive
On November 23, President Museveni directed URA to monitor all calls made and received from within the country and also subject electronic monitoring to money transfers. He said government was losing money through under declarations by the telecoms. On the same day, Mr Museveni also raised the issue of rental taxes, accusing landlords of under declaring the revenue they collect from their tenants and hence pay less taxes.
On November 25, President Museveni ordered a massive crackdown on what he says is rampant tax evasion. In the same directive, President Museveni admitted that the country is highly indebted with many projects that would have been funded using tax payer money instead relying on loans that have to be serviced at a very high interest.
Because of failure to collect enough taxes to sustain the economy, the incumbent equates the money Uganda spends on debt repayment to seven major road constructions.
He adds: “Currently, we are spending Shs.3.408 trillion each year for debt payment. This is equal to seven Masaka-Kampala roads if you remember that we spent Shs.440 billion reconstructing that road.
The interest part of Shs2.514.11 billion of that debt payment is what bothers me. This is misuse of our national resources although, of course, building roads and dams with loans is better than doing nothing.”
In the letter, the President citing intelligence information, lists a number of revenue sources were he says the evasion is rampant.
Some of the of companies
1. Surgipharm (U)Ltd VAT 164,083,220
2. Star Pharmaceuticals Ltd VAT/IT 2,475,654,100
3. Leds Uganda Ltd VAT 627,019,360
4. Mix Telematix East Africa Ltd VAT 1,529,390,900
5. Amethon Agrin (U) Ltd IT,VAT, WT 4,921,026,000
6. Mukwano Industries Ltd IT 3,666,318,000
7. Tropical Bank Lt VAT,IT,WT 6,779,298,700
8. Rose of Sharon Enterprises Ltd
9. RKA& Company Registration
10. Tetra Technical Services(U)Ltd VAT 3,536,015,600