Uganda’s rich who dodge taxes

Shs2.5 trillion skimmed off

Tax evasion rates are already too high. The study, for example, found that 47 out of 56 or 83% of companies linked to the richest people in Uganda had not paid any income tax in 2013.

The report also documents how the same rich people, both locals and foreigners, use offshore accounts to skim-off over Shs2.5 trillion annually or 3% of GDP without paying a penny in income tax.

Under the study, only 12 out of a sample of 60 prominent lawyers had paid income tax in 2012. Only 1 out of 71 high ranking government officials had paid income tax between 2011 and 2014 from money they got through their businesses.

In the case of top lawyers, Tony Katungi, a lawyer told The Independent that a lot of them have cultivated personal relationships with their clients that ensure that their transactions are tailored to dodge paying taxes.

“When the client is a personal friend, they will not demand receipts because normally there will be discussions between the lawyers and the clients to under declare the real value of the transactions being handled,” he says.

Even directors of so-called top tax –paying companies dodge paying Pay As You Earn (PAYE), a mandatory deduction at source made on an employees’ pay and remitted to URA by the employer. Only 5% of directors of companies paid PAYE in 2013/14. In one case, a director of a top company paid just Shs15,000 in PAYE.

The report notes that although 92.5% of taxpayers on the URA tax register are individuals, URA does not audit their incomes and concentrates on the easy to reach Large Taxpayers. It notes that only 13% of individuals on the tax register paid tax on their income. The tax dodgers include top lawyers, rich government officials, and big businesses that operate below the URA radar.

The report points at how in the 2013/14 financial year, four individuals paid customs duty of over Shs1 billion, meaning they imported high value goods for sale, only two paid income tax on the profits. In another case, although 12 people paid over Shs500m in customs duties, zero paid income tax on profits. The list goes on. Although about 30,000 individuals paid customs duties, only 7000 paid income tax.

No tax tracking method

Godfrey Akena, the principal of the East Africa School of Taxation, in an interview with The Independent, says URA must be cautious about targeting civil servants.

“Public Service has a record of all these people, be it commissioners, Permanent Secretaries, they deduct from their pay and directly remit to URA. So I disagree with that part of the survey,” he said.

Akena says URA’s failure to collect taxes from individuals is partly because it does not know its customers. He said this is partly because 80% of money-making ventures in Uganda occur in the informal sector where individuals transact in cash and do not use a Tax Identification Number (TIN).

“Since they are not known, there is no method for tracking them,”Akena says.

In a bid to close the identification gap, URA is working more closely with other government entities involved in gathering data on individuals, business registration, and revenue collection. Such entities include Kampala Capital City Authority and Uganda Bureau of Statistics. They work under the Tax payer Register Expansion Project (TREP). In one of their operations code named ‘Operation Storm Kampala’, URA used information provided by KCCA to storm prominent shopping malls and register businesses that were not on the URA’s tax register. As at June 2015, TREP had added 47,647 taxpayers to the URA tax register. The URA target is an additional 103,570 taxpayers and Shs.12.9 billion in taxes.

There have also been concerns about the numerous tax holidays granted to many foreign investors coming to Uganda. There have been tax holidays on hotel investors, exemptions on raw materials, machinery imports and other sectors like assemblers, hospitals and pharmaceuticals. Voices against have reasoned that this is a disguised form of evasion and shifts the burden to the few since the people who construct hotels and import machinery are high income earners. Ugandan traders have been the leading exponents of the scrapping of these tax incentives because they feel a lot of favouritism is behind these deals.

Some like Derrick Ndeze, who imports building and construction materials, says tax exemption for some big-shot business make it harder for ordinary people in the business like him who is not as connected as big shots in government to operate. He recalls the exemption on payment of import duties for people who were importing building materials for constructing hotels during the CHOGM 2007 period.