Issue 19, July 2014

Black MondayNewsletter

comment FRIDAY, JUNE 28, 2013 11 Citizen Action Against theft of our money withoutDDailailyy Monitor SHAME! www.monitor.co.ug

this is happening to a senior regime pil- lar, how much suffocation t Life presidency project leading country can be gauged from whathere hap- is in the pened to some of the media houses which covered the general’s missives and vi to uncertainty in ews. The Monitor and as well as KFM and Dembe FM radio newspapers sta- Augustine Ruzindana tions were closed by the police for more Politics than 10 days, just to teach them a lesson. There is something grossly s the three East African presidents wrong in The people are gradually a country where such capricious suf- were in striking agree- lowed the apartheid state to ban peopl focation takes place just to show where editorial e, overcoming their fear of the A ments for building oil pipelines, but in Uganda there is no such law and power lies. some distinguished Ugandans w coercive forces and thus the yet the fact of the matter is that “bann The greatest failure of the regime is under house arrest or detained erein Polic leaders were announced by the police by ed” level of force used is rising from beating to teargas and live bullets. that after almost three decade cells and most shops in the central trad- e name to the public. Lukwago was even it has failed to build effective States inin- power, ing area of Kampala were closed by surrounded in a mosque when he we Kampala, in particular, looks like an stitutions that serve all people and for trad- ers. These two goings-on starkly bring to attend prayers at Mosque. nt occupied city when you consider its survival the regime subjects all State out the fact that once again U There must be something grossly wro the heavy police and other forces ganda is at institutions to serving regime partisan crossroads. Uganda may move forward in a country where such things happen, ng deployments. interests. For example, all Sta on the path of development, democracy where immense public resources are coercive arm to protect peoples’tes have rights a and stability or move backwards to expended on enforcement of a and public safety but in current Uganda, chaos ban on the ganda’s economy is currently grow- and instability. How can people in the exercise of fundamental freedoms with- the abuse of rights exceeds business of making money (gener out any pretence of legal cover. the protec- ally tion role. It seems the regime has aban- small traders) decide to intentionally The police have banned legitimate, doned the attempt to win the hearts of deny themselves the opportunity to legal opposition activities that may ex- fights corruption but of all municipalities the people in favour of being feared by make money? There must be so pose the incompetence and failu in Uganda, how come the police h ing at around 6 % per year moving the Tax evasionmething the people. is theft grossly wrong. res of the regime and yet the political system rested the Mayor of who happensave ar- Unfortunately, the people are gradu- Dr Kizza Besigye and Lord Mayor Erias in Uganda is said to be a multi-party to be an FDC member and soon after w ally overcoming their fear of the coercive Lukwago are among a list of oppo system! The police have thus cast them- read in the media that he is holding tale si- forces and thus the level of force used is economy towards the long-term goal of tion leaders announced to the media as selves into an NRM wing to ensure that with NRM leaders, possibly to find waysks rising from beating to tear gas and live “banned” from exercising their freed there are no opposition activities. Mr to save him from police action? bullets. Kampala, in particular, looks like oms of movement and assembly. These are informed the Police that An army general, who also happens to an occupied city when you co U politicians who have been prevented he was organising a rally at Ndeba in his be an MP, expresses his views o heavy police and other forces deploy-nsider the 4 JUNE 17, 2012 transforming Uganda into a middle-income from doing what politicians do, name constituency and the Police dispersed matters of public interest, but nconsiders certain ments. What is sad is that the country freely move, access people and tell themly to the rally. The DP organised a rally in it prudent to run out of the country be- need not have come to this predicamen their views on various issues. In apart- Mityana and informed the po cause of the expected dire consequences if the life presidency project had not been t, lice as the heid South Africa, there was a law that al- law requires and the police disperse that would follow the exercise of his right adopted as the guiding principlenational of NRM. country. To get there, we need more invest- it with tear gas. It is good if the police d to express himself. Indeed, threats of court martial and arrest followed fast. If Mr Ruzindana is a former IGG and f ments and effective tax administration. [email protected] fraud MP. syndicate exposed as URA digs in tial community leadersCONTINUED could play FROM a piv- PAGE 1 The government has committed to a more Ugandans evade taxes because otal role. Culturalhacking and religious into URA’s leaders data system. The would be more effectivesyndicate than involves poli middle men in and civil servantsUganda in engaging and the public onticians one hand, and UGANDA @50 of corruption and ignorance on the importancethe revenueof paying officials taxes from the two efficient revenue collection and a wider tax progress of thecountries country as on well the as other. for fu- for Most the times, Goods from Kenya to Uganda do not Allan G. Nkonge ture generations.according The tofact our that findings, churches imports attract import tax—only VAT of 18 Taxation in Uganda receivethat attract religious higher do tax are falsified per cent and withholding tax of 6 per Stylish Kalule took into items that attractnations less tax like cent. amounting to over 10 per cent (tithe) of raw materials. For instance, if one base. The recent budget speech revealed an ganda presents an intriguing case devotees’ income implies that churche For instance, in July last year, a imports shoes, by the time the con- of tax avoidance. A wide range of and far-reaching tax awareness. can be good advocates for tax payment. s Kampala based firm, Twesi Com- URA say the importer or agent col- Sunda experts agree that the nature of First, improving the legal framework Well-meaning citizens are often tainer arrives in Kampala, it will pay pany Ltd, imported a container of ludes with either URA staff or the tax D U discouraged from paying taxes The belieftax asis thatcalcium churches carbonate. aily Ugandan boxing toUganda’s tax system conforms to gl to weed out possibilities of tax a directly shoes from Xuchang Foreign Trade body’s former employees to hack into y benefit the person, their family and their M obal voidance because of corruption. The Co Ltd in China. It was container No the system to register that the said Monitor imbalanced approach with new taxes that benchmarks. Income and corporate tax is the most obvious method of reduc- religious fraternity.For vehicle If imports, local gove the fraud- www.monitor.co.ugonitor taxpayer, seeing public money sters destroy the history of the car MSKU8726470 STC 912 with bags of goods have arrived in Kampala, there- rates in Uganda are 30 per cent per an- ing tax avoidance. Tightening the legal were to request assistance of the localrnments squandered, is less-disposed importation from Japan if it’s a car ladies slippers. Kenyan authorities fore; tax payment starts. Once URA Custom’s officials tightened the num at the highest bracket. The large framework will limit opportunities for pastor in pointing out to his church’s fourth in the worldgap between actual tax paid on overall to contribute to this wastage. that attracts higher tax like Toyota received the goods in Mombasa. system captures the goods as having clearing process. They impounded avoiding taxes and help Uganda realise audienceLand how cruisers. paying Ontaxes arrival has enabled in Kampala, earnings and expected tax to be paid on Without a doubt, we cannot By the time the goods arrived in entered into the bond, the process of several trucks in Busitema last year hit the poorest citizens most. The govern- the proposed budget in the new financial the constructionthey register of theit as new a smaller road or car. a new This , the goods with the same payment begins automatically. The income-generating activities is worr year. Tax lawyers and tax consultants expect a significant reversal in tax forcing the drivers to go on strike al- dispensarymeans ina cartheir that locality, was toit is pay likely Shs80m container number had become ex- importer then processed payment of This also highlights the extent of tax eva-ying. who make a living helping firms and in- avoidance unless there is a visible leging harassment. On further scru- thattax, this only community pays Shs7m. would be willing to ports from Doricliff Prime Enter- tax for calcium carbonate when it’s tiny, URA discovered that at least 113 P. 29 sion and tax avoidance prevalent. Note- dividuals to “creatively” minimise decline in corruption. seized consignments upon clearance Fathers’ Day: listen to their trusted source (the pastor prises based in Nairobi. The con- the shoes that were imported. shoe importers had been falsifying of taxes. URA waived the penalties ment sees a tension between a pro-growth worthy is tax evasion, which is failing to legal tax burden can be hire their andHow act it upon works the advice positively. ) signee changed from Twesi Company file a tax return and pay taxes when they d to do this. imports. This newspaper has a list of after Kacita pledged to sensitise the Second, creating better incentives InWhen a nutshell, goods developing leave China, countrie for in- to Mac Limited, also in Kampala. The URA swings into action. the affected importers. URA found are due is illegal. If found guilty, action traders. tax payment is equally crucial. A more for facestance, similar they tax are issues codenamed to the C63 developed by s may description changes from ladies plas- that at least Sh2.8b in taxes had been can be taken against the individual or o Apparently, this fraud is done by Celebrating the creative and constructive approach seeing public money squandered world.customs The at Mombasaunderlying meaning reasons, they ho tic slippers to 26 tonnes of calcium the middleman without the knowl- lost and a further Shs2.5b in penal- Igga arrested tax policy with low rates and a pro-poor pro- ganisation involved. r- would be to improve incentives for less-disposed to contribute to this wast, is areare onvery transit different entry as to are Uganda, the solutions. so wever, carbonate but the number of the edge of the importer. In Twezi’s ties. Having been variously named by Ironically, those engaged in tax avoid Kenya treats them as exports thus no container that arrived in Mombasa people to pay their taxes. For instance, age. Without a doubt, we canno - Tax evasion is indeed a serious issu case, for instance, his agent Igga The tax body then hired court bro- traders as a man who duped them, ance, which involves exploiting loopholes- it would work if the tax regime is re- a significant reversal in tax avoidancet expect focus.Uganda’s From Mombasa,case, equally the important goods are is thee. In carrying shoes remained the same Abdul Huudu, asked for taxes worth kers who raided premises to force URA arrested Mr Igga. But in his incredible men in in the law to circumvent paying so organised so that there are tax rebates unless there is a visible decline in c destinedtask of toreducing either Malaba tax avoidance. or Busia It is often as the container that carried calcium Shs23.3m to clear the shoes. On July the traders to pay up. But then poli- statement, a copy of which we have me tax border posts. If the importer chooses gressive tax policy aimed atLIFE redistribution escape penalty, as it is not deemed to be on investments in organisations which ruption among public officials. Besides,or- practiced by well-meaning citizens who carbonate to Kampala from Nairobi. 12, 2011, Mr Igga had already paid tics kicked in with traders alleging obtained, Mr Igga spilled the beans. against the law. Tax avoidance finance the government’s develo persuasive and far-reaching awareness to pay taxes at Malaba, so they can On arrival at the bond, sources in URA tax of Sh1.8m for “calcium car- that URA was meting harsh treat- does not offloadare the disillusioned goods and sell, or distrustful they are of public “I am Igga Abdul Huudu. I am of just occur due to those who intention- work. A key reason why citizens do nopmental regarding tax matters will definitely yield financial management effectiveness, or bonate” but on July 26, 2011, Twezi ment against them. In the meetings sound mind and I would like to state coded IM4. Those on transit to Kam- deposited Shs23.2m into Mr Igga’s our lives. ally elude paying tax. Informal s pay taxes is that they do not t positive results. The key to bridging the by some who are not included in the for- that followed, minutes of which this categorically without any intimida- ectors see any cor- pala for tax payment are coded IM8. HOW THE TAX FRAUD account at Barclays Bank, and poverty eradication. However, it wears not captured by the tax regime alongside responding significant improvements gap between expected tax revenue and mal economy or others who are sim newspaper has obtained, the traders tion, coercion or promise that I am From Malaba to Kampala, URA branch to clear tax for the “shoes”. named Mr Igga as having been falsi- ignorance about tax matters in public services, which directly tax revenue actually collected is increas- misinformed about the taxation systemply a clearing agent but without a regis- contribute processes a transit document called fying imports without their knowl- significantly to tax evasion. To minimise their lives. It is, therefore, important affect that ing the number of people who pay and its potential long-term bene After noticing the anomaly, URA tered company of my own-therefore this, there are three things the govern- T1 which the track driver carries. And edge. I usually mediate between importers new public services and improvem Very often, lack of awareness of how tax. on arrival These in Kampala, are problems, the goods gowhich seem easierfits. to blinkers and forgets that pervasive poverty ment ought to do: Improve the legal existing ones cater for all segments of entsthe to taxation works and its potential benefits IS CONDUCTED Some agreed to pay up and URA and clearing agents that have clear- to any URAsolve registered than taxbonded evasion ware- but doing so ne framework to weed out possibi population. has so far recovered Shs360m. Oth- ing companies. also contributes to this gap. This can house. better understanding of the local context eds ers are still paying. The traders un- tax avoidance, create better incentlities of In addition, well-meaning citizens are “It was last year around September be overcome through education on tFrom theand warehouse, more creativity the goods than the long a der Kacita ask URA to release the when businessmen and women ap- for tax payment and promote persuaives often discouraged from pa ax matters. So far, this activity has been suc-are dischargedthe electronically law. mean- rm of proached me and told me that they is a hindrance to growthTRUTH by EVERY itself. DAY We need sive because of corruption. The taxpayer,ying taxes The Editor welcomes 650-word comments on topical issu cessfully carried out but there remainsing a that the owner can proceed to pay had imported containers loaded with mountain to climb. Additionally, influen-the taxes and later remove the goods. es. Preference will be given to insightful articles rather than ge Mr Nkonge is a tax and business development shoes from China but that the said The tax is paid throughanalyst. [email protected] chan- containers had a lot of excess and | KSH80 | RF650 | TZSH1,200 | JUBA USHS2,000 neralis ed polemic observations. Kindly attachnel, a yellowportrait channeland or red channel. that even the invoices they had, had a taxation regime that enhances linkages and If goods go through green channel it send to [email protected] higher value than they were willing TAXTA FRFRAUD. means the goods are not physically . 5 X FR to present to URA customs officers Tax fraud syndicate checked by URA officials because by URA.any It is bonded at thisAUDAU point warehouseD where supervisedURA TheTh goods arrive to for tax assessment. They requested USHS 1,500 they are either raw materials that at- system is hacked into to show the dgoods CHINA me to devise away whereby the said stop leakages. BY BY CHRIS OBORE tract less tax or the importer has a arrived safely thus tax payment can ive tot r containers would go through URA NO. 168 good track record. proceed. Since the documents are already vised LEAVING CHINA. exposed as URA digs in forged, the importers pay a lower tax thanR A MOMBASA 1. Specific goods are customs officers without opening [email protected] When its yellow, URA only verifies g bought with invoices and verifying the goods,” reads the the documents or if the goods are to would have ordinarily paid. oods n showing the actual quantity, statement. In this issue of the Black Monday news- be physically checked, it would arise l value of the goods. The d According to Igga, the importers from what the documents say. Ve- documents also show connected him to a man in Nairobi hicles fall under this category. container number before who would get information to be re- JUNE 17, 2012 If it’s red, it implies the goods are goods leave for Mombasa. flected on forged documents from Sunday Monitor of higher risk and must be physically letter, we argue that stopping tax theft can Nairobi. He admits coordinating with A syndicate of traders, middlemen and checked before the tax process is other people at the border and also KAMPALA. completed and goods released. Goods getting money from the traders to classified under higher risk include facilitate the process. garments, spirits, cigarettes, hard- UGANDA create a lot more revenue than new regres- some URA staff has beaten the system and dodged “However, one time, one of these ware and electronics among others. containers was intercepted by a cus- tax payment over the last couple of years thus affect- Goods can also be declared of higher toms officer at Malaba. The customs P.4 risks depending on their source or officer asked why the container has ing the country’s revenue collections, our investiga- the nature of importer. They can also a shipper’s seal yet it was for export sive taxes that will harm the poorest citi- be put under red category if other Kampala Maraba KENYA from Kenya. However, Edison (other tion now reveals. agencies like security have interest. names withheld), gave the customs Jinja The tax evasion has been mainly through falsifica- Pharmaceuticals and foods fall under officer Shs6m and he left the con- this category. Busia DOCUMENTS zens. The government grants incentives that Eldoret 3.FORGED. signment to go,” Mr Igga’s statement tion of documents especially of imported goods and in Nairobi temper with the reads. Exploiting system documents by changingFraudsters under declaration of imports which is done by Aware that URA and Kenya Reve- the description of goods, Tax evasion nue Authority are connected to a dig- Nakuru quantity and value to “I would like to clarify that a con- create loopholes that international com- ital data exchange that allows URA to indicate as exports tainer of shoes was supposed to for- Mukula, Muhwezi access information declared in Kenya Nairobi orignating from Kenya to mally pay taxes of between Shs40m abuse of office before the Anti-Corruption about goods destined to Uganda, the Uganda. Such exports don’t to Shs60m but none of these import- fraudsters went to work. attract import duty like non- ers ever paid that money for a con- panies take advantage of to transfer their Court in Kampala. In some of the cases whose docu- East African Community tainer of shoes. They used to give me BY EPHRAIM KASOZI The State on Friday conceded that no ments we have obtained copies, the products. between Shs15m and Shs20m.” Out importers would declare goods as of this, Mr Igga would also pay taxes [email protected] evidence was adduced on charges of al- shoes on arrival in Mombasa but by worth Shs2m or less. profits to tax havens. We also show that the the time they arrive in Nairobi, the leged theft and causing financial loss goods turned into Calcium carbonate The traders who used to bay for P.5 News Summary Mr Igga’s blood during meetings against Maj. Gen. , Capt. originating from Kenya to Uganda. Voi with URA, have since the man’s ar- rest refused to bare witness against regressive taxes could be avoidedcharges if compa- dropped The State has dropped Mike Mukula and him, forcing police to release the man on police bond. The three KAMPALA. Uganda adopts a new malaria drug EXPLOITINGEXPL LOOPHOLES. MombasaMo 4.arrive atO MalabaITIN border, where customs mbas The Health ministry has adopted Artesunate officials check the falseG declaration L papers a When contacted, URA Commis- OOPH sioner for Customs Richard Kama- charges of theft and causing financial loss and allow them to proceed to KampalaOLE without GOODS ARRIVE ENROUTE jugo corroborated our account say- nies and individuals settled their tax debt. KAMPALA. physically verifying because the documentationS. TheThe goods 2.TO UGANDA. ing: “We agreed with Kacita that Not free yet. against the three former health ministers portrays them as EAC products and non-risk item show the correct quantity and injectable medicine as a first choice drug for severe malaria value of the goods. The containerDocuments let the consignees only pay tax and now facing charges of embezzlement and both in children and adults replacing quinine which has is cleared and released as goods in leave out the penalties. The traders ex-ministers still face transit to Uganda via Nairobi. had politicised the whole issue and We look at the issue of accountability as the been widely used for the last 15 years. The China-made wanted to paint a picture that URA was harassing them.” charges of embezzlement drug is said to reliably and rapidly be arbsorbed in the body s. Mr Kamajugo added: “Some people P. 5 have imported sophisticated systems missing link in Uganda’s domestic resource within five minutes compared to quinine which takes more GRAPHIC BY MUHAMMAD TAMALE to hack into the URA system and this ILLUSTRATIONS BY STANO OLONDE and abuse of office. than 30 minutes. makes our work harder.” Asked about the collusion between traders and some URA staff, Mr Kam- mobilization. Unfortunately, the current tax ajugo said Kacita has declined to re- Challenges that could bedevil budget veal any official they suspect.. proposals lean heavily on previous trends of While the budget speech had a business-likeP. 3 KAMPALA. tone, reflecting a fresh new thinking and new way of doing over reliance on consumption taxes. business, analysts say there are challenges that must be ven tax evaders make use of the ser- to 80 overcomebillion to achieve shillings economic development. ($ 15.5 million) deny- ed and banned individual businessmen from There is an obvious absence of the citi- THE LIZARD vices the government provides. When ing Ugandans access to basic services. It is travelling abroad until they have settled their zens’ voice in these decision-making pro- INDEX 2-5 Mukula companies continuously don’t pay what estimatedNational that 650% of these resources are in debt. cesses as illustrated in the interview with 8 Muhwezi E Regions charges they owe, they are vultures preying on the VAT arrearsEditorial mainly8-9 by construction and real Looking at the list closely leaves one ask- Tumuheirwe Florence from district. Comment 9-21 dropped. compliant citizen who becomes increasingly estate companies.T&Ideas 25 BUT THE CASE inging what could have happened behind the It point to gaps in the taxation sector that Letters 26 IS NOT LOST ON Africa over-burdened. Known tax evaders owe a In June 2014, 27 URAUGANDANS published a list with curtain. While the weekly newspaper; The should be addressed urgently. Otherwise, the World 29-32 Sports documented 25.9 bn shs to Uganda Rev- names of companies and individuals7 who East African in June 2014 quotes the total right holders who diligently pay tax amidst arges of enue Authority (URA) however the actual have failed to pay their taxes. It is a list of the tax arrears to stand at 80 billion shillings ($ meagre pay will forever carry the burden. amount is more likely to be around 80 bil- so-called “hard-core” defaulters, which was 15.5 million), the list shared by URA with lion shillings. dubbed the “Shame-List”. These are people the public only totals 25.9 billion Uganda — Arthur Larok With the unveiling PHOTO BY JOSEPH KIGGUNDU of 2014 /15 Budget, who over time have accumulated a debt to shillings. Parambot Breweries is one of [email protected] Former health ministers Jimthe Muhwezi government (L), Mike Mukula (C) share introduces a light moment with Brig. new taxes, after which court dropped ch the URA and “remained defiant to settling the many tax defaulters, not on URA’s list. theft and causing financial tasksloss against them URA on Friday . with collection of 65% of the their tax liability despite several reminders”, This leaves one wondering who the other budget. In total URA has to collect 9,783 bil- as URA Debt Collection Manager Abudu tax evaders are and why they are not on the lion shillings. The main sources are personal Waiswa told RedPepper on June 5th 2014. URA list. Inside this issue >> income (PAYE) and Value Added Tax (VAT). Some companies have accumulated this debt Of the 178 companies, only 37 (21%) In other words, the main contributors to the for more than 5 years. have known guarantors to URA; the rest 3 | The taxation paradox: Uganda national budget are regular citizens who pay The total amount of debt from 178 de- have either failed to provide the necessary loses trillions in tax theft taxes from their salaries and through their faulters is 25.9 billion shillings, with some information to the authorities, or are sole consumption and buying of daily products. companies owing as much as 5 and 3 billion proprietors of their businesses. This includes 6 | Analysis of the 2014/15 However, as Ugandans are choking with shillings. After they were given 7 days to pay companies like Rio Holding International Financial Tax proposals the increasing tax burden, there are indi- their taxes and publicly shamed, and a few that have a tax debt of over 5 billion shil- vidual businessmen and companies that are companies chose to come forward, but only lings. 8 | The corruption scandals cheating Uganda by evading taxes. Data amounting to 200m, as reported suggests that these ‘cheats’ are holding up on June 27th. URA have as a result blacklist- TURN TO PAGE 2 1 NOT FOR SALE Issue 19, July 2014

Tax Evasion is theft from PAGE 1 authorities, we would not expect a selective reclaim the political space and demand for removal of zero rated VAT exemption on arm when collecting the much-needed taxes. better services. supplies for printing of educational material, On the list is also the government’s own As we applaud URA for publishing this list For a company whose highest priority it various processing of agricultural products printing shop, Uganda Printing and Publish- to try to weed out the bad seeds of society, is to generate as much profit as possible, it as well as inputs to the agricultural sector, ing Corporation who owe 2 billion. Limited we also ask URA to give us a detailed list may seem like a win to save on taxes. By such as machinery, tools, seeds and fertilis- information exists or can be found on the and more explanation on the published list to not paying the due taxes, a company is un- ers. This would add 30.4 bn shs to the bud- physical addresses of most of these compa- underline the illegality of these companies’ dermining the very society where it seeks to get. However this proposal comes without nies, and the type of businesses they are run- behaviour. Why not produce a list of those grow. a clear analysis of what consequence the ning. Judging by the hefty penalties enforced companies who are still non-compliant so It is not only citizens who walk the introduction these taxes will have for small- on a simple tax evader, one wonders how citizens can stop doing business with them? streets, use electricity, enjoy fast internet and scale farmers or small process plants. these companies survive the iron fist of the This comes at a time when being a tax other services that should respect the rule of The government and URA should collect authorities. In May 2014, Parambot Brewer- compliant citizen is not highly rated among law. Companies make use of the exact same the already owed taxes before burdening ies Ltd. was temporarily closed down after it many Ugandans. Many are of the opinion services that the government provides, and Ugandans with new regressive taxes. Until accumulated excise duty worth 2.4 billion. that they are already paying enough when therefore, all must comply and pay their fair they succeed, we urge citizens to stay away How is it that these companies have had the they buy their food, receive their salary, or share. from doing business with such tax evaders. liberty to continue dodging without testing pay other small fees that everybody pays. The 80 billion shillings owed in taxes the wrath of the tax man? Tax evasion is not the way to show your could be substantial financial support to pov- — By Fredrick Kawooya As citizens who do not have the liberty frustration over poor service delivery. Rath- erty eradication. In the reading of 2014/15 & Anders Reimers Larsen, or the luxury to play hide and seek with the er, by paying your taxes as a citizen, you can budget speech, the minister proposed the Action Aid Uganda The 2014/15 Budget: New regressive taxes to hit the most vulnerable The Government is funding the new 2014/15 budget by continued. appearances,” she continued. sure that the public pressure will imposing new taxes that will hit the poorest the hardest. Change from within Tumuheirwe herself has partici- ensure that all students get papers Currently Tumuheirwe works for pated in several radio programmes proving they have graduated” According to social worker Tumuheirwe Florence from the organisation Forum for Wom- informing citizens about their Kabale district, the result is devastating for many women en in Democracy (FOWODE) rights and explaining the obliga- To VAT or not to VAT who, without a steady income, continue to struggle to empowering women to take lead- tions of the Government. Simple Taxes on consumption (mainly ership positions and demand better hands on advice often move VAT) have become the main provide for their families. public services. mountains: source and most prevalent tax “The politicians are not going “Apart from corruption in the revenue for developing countries to change unless we as citizens public sector, we also ensure that and economies in transition. Eco- few hundred shillings answer is straightforward, accord- demand it. That is why I people are not overcharged for nomic Efficiency is often cited as mean absolutely nothing ing to the single mother of five: work to mobilize and goods and services when they the rationale for VAT and thus a “A to the lawmakers, so they “The politicians think about empower women, spend money. Before we preferred choice for international have no problem with new taxes themselves and each other. They so they can demand started our work, a wom- reformers. on salt, sugar and kerosene. Clear- don’t care about the people.” their rights and hold an could pay 300,000 The common assumption and ly, the politicians do not care about leaders accountable. shillings for a goat justification for application of VAT the majority of Ugandans. 200 Poor service Together, we can worth 50,000. Now is that the tax broadens the tax shillings can make a big differ- As a single mother, Tumuheirwe force politicians to citizens are much more base, reaching all produce in the ence in the villages where I work,” has experienced all the hardship listen. The work informed. It has also formal sector without distorting said the 51 year old woman with a she has met through her work as is very success- helped at the health productive processes. However, raised voice. a social worker in her own fam- ful with strong centres that are now VAT remains one of the most re- With the 2014/15 budget, the ily. She emphasized that citizens women groups. kept open through- gressive taxes as it applies equally government reinstated VAT on live up to their commitments by Their voices are out the day because of to everyone regardless of their in- salt and sugar – necessities that paying taxes such as VAT, while amplified by radio public pressure. In the come. When VAT is imposed on are consumed in roughly the same the Government fails to deliver future, I am goods we all need, the poor carry quantities by all citizens. The taxes its promises on Health, Education Tumuheirwe also an unfair tax burden by paying a at the post- are regressive as people with low and Agriculture. much larger proportion of their in- income feel the impact much hard- “I have been with a woman budget analysis conference come than the rich pay. er than people with middle or high ready to give birth at 10 AM, but hosted by Civil Low-income earners spend a income. The new excise duty on the Health Centre was closed be- Society Budget huge part of their income on con- paraffin is most regressive as the cause of insufficient resources. Advocacy sumption. More and more studies poor are the biggest consumers of Last year we had 20 pupils who Group demonstrate that women tend to paraffin. finalized primary school, but they spend their income on basic con- “There are so many people suf- never graduated because of in- sumable goods or necessity goods fering all over this country. Single competence and lack of support,” such as food, medicine, school moms are already struggling more she explained. items, paraffin, and kerosene. than anyone else and it is we who With the new budget, farmers VAT on consumption therefore feel the impact of these taxes. If will have to pay tax on fertilizers hits women much harder than it someone can afford to buy a new and other farm inputs. hits men. Toyota Prado, he should also be “In the villages, women are able to afford to pay fair duty for responsible for feeding the fam- — By Søren Bjerregaard, it. Why did they not raise taxes on ily and most do this through small ActionAid luxury items instead?” Tumuheir- scale farming. VAT on fertilizer we asked rhetorically, because the hits where it hurts the most,” she

2 Issue 19, July 2014

The taxation paradox: Uganda loses trillions in tax theft

The budget proposal for 2014/15 raises the tax burden on ordinary citizens but is yet again almost quiet on taxing the highest incomes. The business sector still enjoys tax incentives and a study from May this year show that some importers are illegally shifting their profit abroad evading taxes in Uganda. Tax evasion is another type of corruption – the effect is poorer public services. The budget proposal adds 215 bn shs in VAT proposals and 210 bn shs in excise duty as potential burdens to ordinary citizens. Instead of imposing new taxes, it would be more beneficial to put an end to tax losses. Research has shown an estimated tax loss of 1331 bn shs through various types of tax losses that Uganda suffers; including tax credits, tax incentives, and tax evasion.

Tax credits Tax incentives

Tax credits are paid taxes that the Tax incentives are in deductions, tax incentives is ill advised. Companies base government has agreed to return discounts or exclusion given to an their investment decisions on other factors to companies. This is the first investor, normally to lower their costs of such as infrastructure, level of corruption source of tax losses. The Ministry investments for purposes of enticing them and political climate. The Government of Finance, Planning and Economic to set up shop. An example is tax holidays, has committed to review some of the Development (MoFPED) is obliged to publish where a company is granted, for instance, incentives, though it has still not to date the tax credits, also called tax expenditures a period of 10 years where they don’t need done a thorough review on that they have returned to various companies. to pay certain categories of taxes such as the ones with most impact in This is following the laws of Uganda where VAT; or a special exemption benefitting terms of revenue potential for procurement of certain goods and materials just one company. Uganda. In the Budget Speech are exempted, and hence tax is returned to The rationale behind providing for 2014/15, it is proposed to those who imported the goods. However, the incentives has been linked to remove the incentive for looking critically at the list of tax expenditures arguments such as incentives the agricultural sector at released by the MoFPED, the ministry to promote foreign direct large. There is however purchased LED light tubes to receive a tax investment (FDIs), as a need to consider this credit of 423,909,401 shs! The list also indicates compensation for poor carefully. It may be a total of 42,668.30 shs for an anonymous public goods and to reasonable to award purchase of a Toyota Land Cruiser Prado. The create employment and small-scale farmers government should shed some more light on skill transfer. The overall certain incentives to some of these exaggerated expenditures as expectations in terms of enable them to survive tax credits. A total of 11,503,215,750 shs was returns are economic growth the competition paid out to companies in the last financial year. for the country. However, from large-scale agri- Citizens of Uganda have a right to know if it the African Development Bank businesses and to avoid was all eligible. estimated that Uganda lost 690 large-scale companies bn shs in tax incentives in the FY taking advantage of the 2009/2010. Currently companies incentives by maximising benefiting from tax their profits. Shs11,503,215,750 incentives in Uganda Was paid out to companies in the last financial year include Bidco and Uganda Oil Palm Limited. Tax evasion has the same face as corruption Global Financial institutions, such Shs690 billion as the IMF, have According to the African There is a global focus on combating tax duty proposals that will predominantly hit consistently Development Bank, Uganda evasion, and African governments will later ordinary citizens. The Government should said that lost an estimated Shs690 in the year receive a report from a high- instead focus on generating at least some awarding billion in tax incentives in level UN Panel on illicit financial flows, of the 1331 other billion shillings that companies tax FY 2009/2010 which will provide recommendations Uganda is losing from productive sectors. to governments on how to avoid huge revenue losses. We urge that it is crucial for Tax evasion the Government to assent to the coming report on illicit financial flows and to act on it. The magnitude of illicit financial Tax evasion is an illegal activity. It can scheming methods to avoid paying taxes. flows are enormous, leading to a loss take many shapes and is, because of its The main problem for Uganda is that from the African continent of 60 billion US dubious nature, very hard to track. In companies are importing goods at inflated dollars, or 155 trillion shs – ten times the May 2014, a leading research institution, prices. These imports are often done Ugandan annual budget. Global Financial Integrity, released a from subsidiaries of the same company We cannot continue to accept tax report showing the magnitude in a tax haven. It is therefore a transfer evasion taking place and for company of the problem. The report, of money out of Uganda to a country profits to flow freely out of Uganda. At the “Hiding in Plain Sight” with low or no taxation. Therefore, the end of the day, the result is the same as was commissioned by company can declare lower profits when corruption money that should have DANIDA to showcase and avoid being taxed corporate been used on sustainable development is how companies are income tax although they stolen or denied. using unscrupulous, have made their profits The budget proposals introduce a total on operations of 425 billion shillings in VAT and excise in Uganda. According to the report, Shs630 billion Uganda loses According to a report 630 bn shs Shs155 trillion commissioned by DANIDA, Illicit financial flows: The African continent every per year on Uganda loses Shs630 billion year loses US$60 billion, or Shs155 trillion – ten tax evasion. per year on tax evasion. times the Ugandan annual budget

Compiled by Regina Navuga & Nelly Busingye (SEATINI-Uganda) & Anders Reimers Larsen (ActionAid Uganda)

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The uganda national budget

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THE WEIGHT OF TAX ON AN ORDINARY UGANDAN WOMAN

Cooking gas 18%Salt 18%

government Kerosene added shs 200per litre

REPUBLIC OF UGANDA Milk 18%

10% Excise duty on banking charges Mobile Presumptive tax 3% money 10%

Sugar added shs 200 per kg Trading license Shs 120,000

Local service Tax shs 100,00

Water(NWSC Bills) Electricity Cooking oil Vat 18% Air time Property tax

Loading fees Birth Registration Land Rice 25% transaction charges

Tea leaves Toilet paper 18% vat 18%vat

Soap

18% Vat Timo

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The 2014/15 budget Tax proposals Analysis The government plans to increase revenue through scrapping of tax exemptions, introduction of new taxes, identifying non-compliant taxpayers through collaboration within government agencies and use of technology tools, and amending laws to enable to access more information to aid tax audits and investigations. The Civil Society Budget Advocacy Group (CSBAG) has taken time to analyze the tax proposals and measures by the Minister of Finance Planning and Economic Development (MoFPED) which we present in the table below.

Proposal Potential Revenue Analysis

Terminate initial allowance on eligible property. Shs 53.2 billion This implies accelerated depreciation as an investment incentive will no longer be enjoyed by businesses. Small businesses will pay more (businesses with annual revenue of less than 50 million shs). This may discourage voluntary compliance. Increase the presumptive tax threshold from 1% to 3%. Shs 8 billion Need to encourage formal registration of businesses by making the URSB more accessible in all regions of the country. Introduce a 15% tax on winnings on sports and pool betting Shs 8.0 billion This is a good tax measure; will control gambling and betting. and designate gambling houses as agents to withhold the tax. Increase the tax to at least 30%; might double the expected revenue. Income This may reduce loans by financial institutions to the agricultural sector given the sector’s inherit risks. Financial institutions are Terminate the exemption on interest income Shs 25.1 billion Tax also likely to pass on the tax costs resulting in an increase in interest rates on agricultural loans. Thus, discouraging agricultural on agricultural loans. borrowing which currently stands at less than 10%. Government need to drop this proposal. Introduce capital gains tax on the sale of commercial property. Shs 52 billion This is a good tax measure. However, government needs to recruit, train and retain government Valuers.

Terminate the exemption on income derived by Shs 15 billion Private education institutions are likely to increase school fees and tuition fees to retain their margins while complying with this a person from managing or running an educational amendment. This will curtail the growth of the education sector especially ensuring quality education; which should be a top institution for commercial gain. priority of government. Government needs to re-think this proposal.

Propose to terminate VAT exemptions on: Shs 215 billion All the supplies will be taxable at a standard rate of 18%.

New computers, desktop printers, computer parts Likely to hurt the ICT industry, and reverse the gains so far made. & accessories and computer software licenses. Government needs to re-think this proposal.

Supply of hotel accommodation in tourist lodges Likely to hurt the tourism industry especially for hotels outside Kampala district. Thus, the additional money allocated to UBT and hotels outside Kampala District. might not achieve its objective. Government needs to re-think this proposal.

Supply of liquefied petroleum gas. The cost of LPG is already high; this measure is likely to worsen the situation. Since electricity is expensive; household will resort to firewood and charcoal which will have disastrous effects on health and environment. Government needs to drop the proposal. Supply of feeds for poultry and livestock; Supply of agriculture This is likely to hurt the agricultural sector, which is largely private sector driven. This actually contradicts the government policy on VAT and diary machinery; and supply of packaging materials to the promoting commercial agriculture. Government needs to drop the proposal. diary and milling industries.

Supply of salt. Why salt? This is the most important item for the poor households. Gov’t needs to amend this proposal to only apply to imports.

Termination of VAT zero-rated Shs.30.4 billion All the above supplies will be taxable at a standard rate of 18%. Supplies:

Supply of printing services for Will affect the education sector; since the cost will be borne by the parents educational materials Government needs to drop the proposal.

Supply of cereals, grown, milled or produced in Likely to affect consumers especially the urban poor and rural schools. Uganda. Government needs to drop the proposal.

Supply of processed milk and milk products; Supply of This is likely to hurt the agricultural sector, which is largely private sector driven. The high cost is likely to further curtail fertilizer Machinery and Tools for Agriculture; and Supply of Seeds, use, which is currently less than 10% in Uganda. Government needs to drop the proposals. Fertilizers, Pesticides and Hoes.

Increase excise duty on petrol and diesel by 50 shillings. Shs 60 billion Will affect all the sectors of the economy through increased transportation cost

Reinstate excise duty on kerosene at 200 shillings per litre to Shs 15 billion This is anti-poor people; since they are the major users of Kerosene. Government need to drop this proposal and instead raise revenue. enforce strict regulation and supervision of fuel station on adulteration of fuel. EXCISE DUTY Increase excise duty on sugar from 25 shillings to 50 shillings. Shs 7 billion For promotion of local industry, we propose that this be applied on only imported sugar. The tax burden will be borne by the users and will increase the cost of doing business especially for SMEs Proposing a 10% excise duty on fees charged on withdrawals. Shs 16 billion Government needs to put strict regulation of mobile money to protect the consumers. Introduce excise duty of 10 percent on bank charges and money Shs 22 billion Likely to increase the cost of doing business especially for SMEs transfer fees.

All goods and services procured by government, directly or with Good proposal the donor support will be tax inclusive.

OTHER Link the e-tax system with the government payment system, Good proposal. This will catch non-compliant taxpayers and to broaden the tax base. REFORMS Integrated Financial Management System (IFMS).

Review the Excise Duty Act, Stamps Duty Act, lotteries and Parliament should expedite the gaming laws and to introduce a Tax Procedures Act to improve Enactment of these bills. compliance and consolidate the tax administration process.

General concerns development of the mineral sector (iron ore, gold, Vermiculite, Limestone/Marble) l The proposed tax measures are too harsh on the agricultural sector and the poor sections of which is estimated at US$ 38.3 billion the Ugandans. Many of them need to be dropped as proposed above. l We also request government to improve on the Non Tax Revenue collections by l Government needs to devise other means of raising revenues such as expeditious modernizing tax administration.

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to accountability in taxation can intends to finance 81.8% of the link tax to a broader process of budget from domestic sources. It’s all about socio-economic development Tax collected by Uganda Revenue for Uganda. Authority is estimated at 65% of It is widely accepted by this figure. To avoid a feeling of analysts, technocrats and coercion or a sense of ‘tax injus- trust and activists alike that gov- tice’, government must pay more ernments which derive attention to the return on invest- a greater proportion of ment to tax payers. their revenue from domes- The government must ensure accountability tic taxes, tend to be more that a progressive taxation regime accountable, responsive is in place, one that curbs tax eva- and democratic. The recent sion and abusive tax avoidance Transparent and accountable use of public events in Uganda that led do- and at the same time ensures hori- revenue has a mutually reinforcing effect of nors and development partners zontal and vertical equity, improv- to cut back or withdraw their ing allocative efficiency, removal enhanced government responsiveness and funding significantly could be a of unnecessary incentives and tax compliance by citizens. silver lining for the citizens of reduction of public wastage. This Uganda. is possible if the government ex- ax and taxation are vital for ICON OF INTEGRITY, In the current bud- changes tax compliance for more development and governance July 2014: Through get proposal, the accountable and democratic insti- of any country. By paying unprecedented government tutions. Tax compliance is much T fundraising projects, taxes, citizens contribute to build- higher in countries that have low ing sovereign states while good Katikkiro Mayiga levels of corruption and progres- has demonstrated sive public service provision than governments in return offer the the highest levels services expected of them. in those without. of transparency The Minister of Finance, Paying tax should be a patri- and otic duty paid with pride by all accountability Planning and Economic De- Ugandans. We should celebrate and as a result velopment in her recent budget when we see greater dependence generated speech reiterated government’s on domestic taxes as opposed to more money commitment to instituting foreign aid through donors. This for Buganda accountability measures for Kingdom. strengthens our sovereignty as a enhanced effectiveness and nation and prosperity as a people. efficiency in the utilisation of At 13.5%, Uganda’s tax to GDP public resources. It is not the ratio is one of the lowest in Africa first time that Ugandans hear and it should therefore be a na- such sweet sounding words. tional goal to increase this ratio. We need real action that will However, many Ugandans feel not only bolster efficiency but tax as burden they would rather also act as a deterrent to those avoid. This feeling is understand- keen to pillage hard-earned able when taxpayers do not get tax revenue. quality services in return for pay- One can argue that Ugandan ing taxes. The public’s trust in the taxpayers are willing to pay government’s accountability has even more of their income been eroding which has been at- but only if they can trust that tested by several opinion polls in the government will put it to the last 3 years. good use and be accountable. In the past 3 financial years, If the Minister of Finance and Ugandan public expenditure has the Government can focus on been estimated at about 11 bn shs redressing this accountability excluding project aid, public debt deficit, they can be sure to generate and other statutory obligations. more taxes. How was this amount generated? There are certainly important At what cost on the ordinary citi- lessons our government can zens? How is the money spent pick from the Prime Minister of and what quality of services has Buganda Kingdom, Peter Mayiga, the government provided? These who has raised amazingly high questions need to be responded amounts of revenue for a strategic to in a compelling way in order to project for Buganda. Through better change the negative attitude unprecedented fundraising many have about the ever-increas- projects, he has demonstrated ing taxes. the highest levels of transparency Standards of good governance and accountability and as a result should not be limited to prudent generated more money for the management of a country’s rev- Kingdom. It is for this reason enue. Accountability and the qual- that Peter Mayiga is our ICON ity of service delivery are even OF INTEGRITY for the month more crucial. Accountability is of July 2014. one of the fundamental tenets of effective governance in both the — By [email protected], public and private sector. Cor- [email protected] and ruption thrives in the absence of [email protected] accountability. Paying attention

7 SUMMARY OF CORRUPTION SCANDALS TO LOOK BACK AT

2013 2013 2012 2012 URA payment to (Min of Finance) ghost firms 2012 Lost via Internet Deal Lost in the Education 400 Billion 12.9 billion 107.8 Billion Pension scandal Ministry 375 Billion Over 262 Billion

2012 2011 Compensation Via office of the Public servants’ 2011 2012 to Rhino 2012 Prime Minister workshop Meant for Lost through 50.2 Billion allowances Investments Bicycles Cairo Bank breach 14.9 Billion of contract by 5 Billion 5 Billion Pension Quality Chemicals Scandal Industries 2011 165 billion 46.8 Billion Identity cards 205 Billion 2011 Basajjabalaba 2012 2012 169 Billion Compensation Lost in to Beach Side compensation 2010 Development to Dura Cement Lost Via Total amount lost to theft Services Limited Posta Kenya 1.69 Billion 37.9 Billion 2.5 Billion 4, 841, 400, 000, 000= This could fund 37.24 % of the total 2014/15 2009 national budget which amounts to 2003 2003 NSSF 2009 GAVI 2.7 Billion Shs13,000,000,000,000= Training ghost soldiers 1.6 Billion subsidy fee 155 Billion 20 billion

2009 2004 2003 Compensation 2009 Compensation Lost through NAADS 2006 Min of Health to Haba Group 2008 to Basil 24.5 Billion 2.7 Billion Via Tri star Engineering 135 Billion Temangalo (cloth making) 11 Billion 20 Billion 36.4 Billion 2007 2002 CHOGM 2000 247 Billion Compensation 2006 Police to Xpectrade Ltd Global Fund 2006 Payment 6.2 billion Meant for UPE 1 Billion 600 Billion 82 Billion

What must we do to get our money back?

Wear only black clothes Demand political Isolate every thief Do not buy goods or every Monday to show action from the implicated in a theft services from businesses you are tired of theft. President scandal. Don’t invite owned by thieves. Support them to your burials, Ugandans working weddings. honestly to make a living. Until all the thieves have returned our money.

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