12 April 2018

Uganda: URA Wanted to Catch Rich Tax Cheats

Photo: The Observer
URA commissioner general Doris Akol

Uganda Revenue Authority's (URA) attempt to force commercial banks to reveal all clients' private accounts information was part of an effort to drag politicians, businessmen and the very rich into the income tax net, sources have revealed.

Over time, the authority had observed that there are many high-net individuals flaunting their wealth, and yet they seem not to be paying their fair share of taxes. This created suspicion that these individuals might not be paying the taxes they are supposed to.

A well-placed insider at the tax body has told The Observer that URA formed its decision upon noticing this contradiction.

"The CG [commissioner general] and the commissioners believe that there is a lot of wealth out there which is untaxed. So, by looking at the account details, they would know who paid their fair share of tax and who did not," the source said.

The information revealed by this insider dovetails with findings from URA's own study that was released last week.

"Wealthy individuals in Uganda contribute very little to personal income taxes (PIT)," the report concluded. "In 2013/14, for example, only 5 per cent of the directors of the top tax-paying companies were paying PIT."

In general terms, therefore, URA's intentions were noble, which probably explains why even the government's official version, denying a wish to expose all personal bank account information to the taxman, essentially confirmed what our sources said.

Speaking at the Uganda Media Centre, Frank Tumwebaze, minister for ICT and national guidance, moved to calm public anxiety, saying it is only interested in tax evaders.

Pointing out that mass access could unsettle the banking industry, Tumwebaze, however, did not deny that the law allows URA power to check bank account details.

"Cabinet agreed that URA is given mandate to get information on accounts of suspected people but those who pay their taxes and have had no bad records shouldn't be disturbed," he said.

"Cabinet agreed that URA should use existing mandate given by the Constitution of Uganda, but not ask for access to all citizens' information from banks."

It is possible that URA may have been further fortified in its belief following the recent scandal in which bank account details of Justine Bagyenda, the executive director for bank supervision at Bank of Uganda, were leaked. The accounts in Diamond Trust and Barclays banks were stuffed with almost Shs 20 billion.

Vincent Seruma, URA assistant commissioner of corporate affairs, On Tuesday said since cabinet has okayed access to details of suspected tax evaders, URA will do exactly that.

"It is clear, we have to go with that," Seruma said.

Also late Tuesday afternoon, Tumwebaze further told The Observer that cabinet listened to Attorney General William Byaruhanga's counsel about the legal challenge facing the URA initiative to increase revenue collections -- in light of privacy provisions of laws governing such client relationships.

"The law allows URA to access accounts of people which are suspicious so they can work with the Financial Intelligence Authority to monitor suspicious inflows and outflows of money. It is not necessary to demand an omnibus declaration of bank details of all Ugandans. This can create uncertainty in the economy and scare away investors," he said.

Officially, central bank governor, Emmanuel Tumusiime-Mutebile, declined to address the issue during Monday's press briefing at Bank of Uganda, but other staff members had warned that URA was toying with a regressive idea.

"We think it will affect the integrity of banks," one staff member told The Observer. "And URA is using a wrong channel. Why did they skip the regulator and go straight to the banks?"

Speaking on the sidelines of Monday' conference, BoU's executive director for research, Dr Adam Mugume, told reporters that the plan to plug this loophole is problematic.

"You signed a contract with the bank that my information is going to be confidential and you are giving it away. You lose trust and the banks don't want to lose trust," said Mugume.

Since it became public knowledge last week that the tax body had directed commercial banks to release all customer details, Ugandans have denounced the order as intrusive. The URA quoted Section 42 of the Tax Procedures Code Act, 2014, which gives the commissioner powers to ask for details of any person for tax investigations purposes.

However, Kampala city traders' spokesman, Issa Ssekito, told The Observer on Monday that URA should instead look at people's businesses, facilitate their growth and only then tax them accordingly.

"A bank account should be private," Ssekito said. "They should explain to us why they are running to banks to get our details. If you seek to tax an account and not an economic activity, it shows you there is something wrong with the economy."

"People are going to run away from banks and it is going to create a problem of thieves attacking people's homes looking for money. I am already planning on what to do yet I am a poor man; how about the rich ones?"

URA officials pitched camp at parliament on Tuesday, hoping to lobby MPs for support. Paul Lakuma, a senior research fellow at Economic Policy Research Centre in Makerere University, said while developed countries were doing it, it can provoke people into draining their accounts.

"It may lead to bank runs or large withdrawals by depositors. This would reverse government attempts to deepen the financial system. It should have been done in a humane and phased manner," Lakuma said.

"Many developed systems do it. I thought they were already doing it. You can't receive unexplained large sums of money without an explanation of the source and other supportive documents such as withholding tax certificate."

Through Uganda Bankers' Association, commercial banks have petitioned the Constitutional court to declare the provision giving URA powers to seek people's account details illegal.

MORE TAXES

It also emerged this week that more tax measures taking effect on July 1 have been proposed. These include; a proposal to repeal the progressive section 21[1] (ad) of the Income Tax [amendment] law which, in an attempt to encourage savings, exempted Saccos from income tax till June 30, 2027.

Saccos will have to pay taxes on their income starting this July. Also proposed, is that companies which register losses for seven straight years pay 0.5% tax on gross turnover for every year after the seventh year.

Government will also seek to impose a 10% withholding tax on the commission telecom companies pay for airtime distribution or provision of mobile money services.

Other tax proposed are:

Shs 230 on each litre of opaque beer (beer brewed from millet and sorghum).

Shs 2,000 will be charged on a litre of undenatured spirits made from locally produced materials.

The spirits made from imported raw materials will be charged 100 per cent or Shs 2,500 per litre.

A similar levy will be placed on each litre of wine made from locally produced materials.

Imported wine will be charged 80 per cent or Shs 8,000 per litre.

Airtime on mobile phones, landlines and public pay phones will be taxed 12 per cent of the fee charges.

Mobile money transactions on receiving, payments and withdrawals will attract one per cent of the value of the transaction. Already mobile money withdrawals and sending are charged 10%.

Incoming international calls, except for Kenya, Rwanda and South Sudan, will attract $0.09 per minute.

Cooking oil Shs 200 per litre, while motorcycles at first registration, one will have to pay Shs 200,000.

This financial year, URA is expected to register a shortfall of at least Shs 600bn, according to the central bank.

Additional reporting by Sadab Kitatta Kaaya.

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