27 May 2018

Uganda: Chinese Top Tax Fraud List

Photo: New Zimbabwe
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Companies represented by individuals with Chinese names have dominated the list published by Uganda Revenue Authority (URA) that the tax collection body says are engaged in fraudulent activities regarding Value Added Tax (VAT).

The public notice issued by the Commissioner General, Ms Doris Akol, and published in Daily Monitor on Friday, URA explained that the accused companies use fictitious invoices generated to portray a business transaction, while in actual sense there is no genuine supply/movement of goods and/or services.

URA says it has already recovered Shs60 billion from VAT tax fraudsters of that nature and says it is set to commence criminal investigations against the listed companies for alleged tax fraud.

Further to that, the tax body reported that under section 9(5) of the VAT Act and section 5(7) of Tax Procedures Code Act, it has cancelled registration of the implicated companies, annulled the input tax arising from the fictitious invoices by the accused companies, and revoked all Tax Clearance Certificates (TCC) it had issued to them in the 2017/2018 financial year.

URA also put the Public Procurement and Disposal of Public Assets (PPDA) on notice about dealing with the accused tax defaulters and fraudsters.

Of the 148 companies that URA listed in this regard, 93 (63 per cent) belong to foreigners, with at least 90 of those having Chinese directors.

The ownership of the remaining companies is mixed, with some having local directors (by virtue of having indigenous names), while others have both local and foreign registered owners.

Evading VAT in this way is estimated to have denied Ugandans at least Shs200 billion in revenue between 2015 and 2017.

In the last at least 10 years, Chinese companies have set up shop in Uganda and are involved in different types of businesses, ranging from retail trade to handling major construction projects.

China is also one of Uganda's largest sources of imports, with goods worth more than $800m imported from the economic giant every year. On the other hand, Uganda's exports to China are valued at less than $50m annually.

The tax body's list has also raised questions on the capacity of some individuals and companies regarded as foreign investors, who President Museveni and his government have been keen to woo for decades.

Over the last two decades, Uganda has seen an influx of foreign investors, mainly of Asian origin, many of whom come under the guise of being big investors only to turn out to be petty traders or operate shell companies.

Last month, Cabinet directed government ministries, departments and agencies to be vigilant and scrutinise foreign investors. Cabinet also directed the Finance minister to inform accounting officers of government entities to undertake due diligence of foreign investors, working together with the Financial Intelligence Authority (FIA).

Trade laws in Uganda require foreign investors to have a minimum of $100,000 (about Shs370m) capital in planned investment for them to acquire an investment license to do business in Uganda. The fact that the same investors are allegedly engaged in tax fraud raises questions on whether they are fulfilling such requirements.

The revelation that many Chinese companies could be engaged in tax fraud could further aggravate the debate on their operations in the country. Sections of foreigners, among them many Chinese, have been involved in petty trade, leading to confrontations with the local business community players.

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