Corruption returns to URA

By Mubatsi Asinja Habati

Tax body ranked most corrupt in East Africa

In 2003 President Museveni described the Uganda Revenue Authority (URA) as “a den of thieves” because the levels of corruption were alarmingly high.

Soon after, the tax body restructured and appeared to have put corruption and incompetence behind it.However, going by reports of recent scandals, the pre-2004 corruption at URA seems to be returning with some staffers conniving with “˜wrong elements’ to defraud the tax collecting body.

The loopholes in the tax administration prior 2005 seem to be knocking on URA’s door unless something is done fast. Transparency International has ranked URA as the most corrupt tax body in East Africa.

Increasing corruption is reflected in the degree of tax evasion evidenced by smuggling, forgeries, under declaration of income and goods among companies and individuals, and corruption among tax collectors. Increased red tape in the process of paying the taxes due to inappropriate technology is yet another weakness. One paying taxes has to stand in queues for hours before paying the money yet if this process was automated people would be served better.

The URA managers also appear to have become less vigilant against its corrupt officials.

While URA in 2006/07 dismissed 17 staff and terminated 36 after they were found guilty of indiscipline and fraud cases, according Sara Banage, URA’s Assistant Commissioner-Public and Corporate Affairs, the figure had dropped to dismissed 11 and terminated more than 15 in the 2008/2009 financial year. Yet, as evidenced in press reports and surveys, corruption in URA has been on the rise over the same period. In 2007/08 URA dismissed 14 terminated 12, in 2005/06 financial year, it dismissed 28 and terminated 20. Since 2005, URA has prosecuted nine of its staff; including the two who were found involved in the recent motor vehicle registration frauds.

Two URA staff, Muhumuza Collin and Asiimwe Odur, have been implicated in the car registration numbers scam where vehicles were registered without paying customs taxes. Muhumuza is alleged to have fraudulently generated documentation for vehicles that had not paid customs duties which he duly submitted for registration.

In a major recent case, a URA commissioner in the anti-smuggling unit hurriedly resigned after he got wind that his quick amassing of wealth was causing suspicion. The officer had been at URA office for only four years earning a monthly salary of Shs 8 million but he had built three rental flats in Kireka, Naalya and Banda, according to information The Independent has got.

His bosses reportedly questioned how somebody earning Shs 8 million per month could acquire such property in a short time without a history of similar high paying job before. Besides, over Shs 900 million was found on his bank account.

Apparently, URA officials are increasingly demanding bribes and conniving with culprits to under declare their goods or falsify the goods they are importing for example say a container marked to be carrying baby diapers on closer inspection is also found to be carrying milk powder.

It is alleged that some traders have been passing their goods into the country disguised as being in transit to the neighbouring countries like South Sudan, Rwanda and DR Congo but actually selling them in Ugandan market to dodge the high taxes. These commodities are sold cheaper than others of the same brand and quality.

Last Financial Year, the tax body registered a 42% increase in smuggled goods seizure valued at a whopping Shs 6.7 billion in taxes. What is most shocking is that most of the goods passed through URA gazetted, manned and patrolled areas, main roads and the Lake Victoria.

URA statistics show the areas of Eastern and Central Uganda top the list. Little smuggling activity has been registered in the Southern and the Northern areas of Uganda.

According to Peter Kaujju, URA’s Public and Corporate Affairs Officer, the tax body loses more tax revenue to smugglers in the areas in and around Kampala than anywhere else in Uganda. “Kampala caters for the biggest market for imported goods given its population. In the areas of Malaba, Mbale, Mutukula, Busia and Entebbe may provide the route of entry of these goods but do not provide a very large market,” he says. He adds that URA has beefed up surveillance through its informer network and rapid response capacity.

The most commonly smuggled commodities into Uganda, according to Kaujju, include among others cigarettes, wines and spirits, polythene bags, oil and petroleum products.

Experts also blame the increasing corruption on weaknesses in the tax administration. They say the URA imposes a higher tax burden on its clients compared to other tax regimes in the region.

Economists blame the high tax rates on Uganda’s narrow tax base. This leads URA to charge higher taxes on the few major commodities which in turn makes tax evasion attractive. The customs department is URA’s biggest revenue earner. So if tax evaders exploited it, the government is bound to lose a substantial proportion of revenue.

People prefer to use shortcuts to under-declare their goods or reach for fake car registration numbers, a racket that has hit URA now for the past two years and cost the tax body billions of shillings.

Uganda’s tax system includes corporate and personal income tax, value added tax on goods and services, customs and excise duties, and stamp duty. A number of statutory levies and social security payments also exist.

Uganda’s tax revenue to GDP ratio is 13% which is lower than the average tax revenue to GDP ratio of 18 “” 20% in Sub-Saharan Africa. Kenya is collecting taxes equivalent to 20% of their GDP while Tanzania’s tax to GDP ratio is 14%. Analysts say the weaknesses in Uganda’s tax administration could be responsible for the below average of tax to GDP ratio.

Under the EAC common external tariff URA is obliged to charge 25% import duty, 6% Comesa duty on imported and 18% VAT. Goods outside East Africa are not subjected to the EAC common external tariff.

Unassembled cars not exceeding 2500cc are taxed 25% import duty, 6% COMESA tax and 18% VAT. Besides this EAC tax regime, Uganda charges 2% of import commission and a duty remission on some commercial vehicles. In Kenya, the taxes charged on vehicles are the import duty of 25%, excise duty of 20% and VAT of 16%.

On the other hand, a Ugandan trader doing cross-border trade in Rwanda pays customs duties, for goods originating from the COMESA region of 3%, 1.5%, 0.5%, or 0% import duty on the customs value depending on the nature of the product, 18% or 0%VAT and 4% handling charges. The trader would also pay excise duty ranging from 70%-5% if the goods in question are excisable. For goods originating outside the COMESA region the treatment is the same as above but import duty varies from 30%, 15%, 5% or 0% depending on the nature of the product.

Francis Kamulegeya, director tax service with PriceWaterHouseCoopers, says when the Minister of Finance projects domestic tax revenue to increase by 20% next year without any increases in tax rates, it shows how much tax the government thinks is out there to collect with increased efficiency and less corruption.

Kamulegeya says good taxation has to be equitable, fair and justifiable. When it does not cater for these principles then it ceases to be fair taxation.

He believes people’s habit to evade taxes stems from the immoral behaviour that characterises Ugandan society today. “You hear doctors are stealing drugs meant for the patients, engineers are constructing roads but the next day you hear the road is worn out. These things discourage people from paying taxes because they don’t see value for what they pay,” Kamulegeya says.

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Additional reporting by John Njoroge.