Kampala. Government does not have to enter into double taxation agreements (DTA) because the current domestic tax laws are sufficient enough to deal with cases of double taxation, tax consultants have said.
If government must enter into such treaties, it must be cautious not to give away its taxing rights.
For example an influential IMF paper in 2014 warned that developing countries, among them Uganda would be well advised to sign treaties only with considerable caution.
The purpose of DTAs, first introduced in 1919, is to eliminate international double taxation, thereby promoting exchanges of goods and services as well as movement of capital and persons between and across countries.
But what has happened over time is the manipulation of DTAs by multinational corporations who use them (the agreements) to avoid their tax obligations.
Already, Africa is bleeding as a result of illicit financial flows, with Uganda, according to a report by the African Union/Economic Commission for Africa High Level Panel on Illicit Financial Flows from Africa, losing an estimated Shs2 trillion every year to illegal activities by multinational companies.
The report says corporations in Africa deny the continent its due share of revenue through tax evasion, money laundering and false declaration.
Other illegal methods used by the corporations include: overpricing, transfer pricing (inside dealings/trading), money laundering and corruption.
Presenting an analysis of Uganda’s Double Taxation Agreements: Gaps, Issues and Policy Choices at a Peer Review Meeting in Kampala last week, the chief executive officer, East African School of Taxation, Mr Festus Akunobera, said the purpose of DTAs, is no longer critical and that Uganda can do without them.
In his presentation recently, Mr Akunobera suggested that DTAs with UK, Italy, Netherlands and Mauritius need to be renegotiated since Uganda appears unwilling to drop the idea of entering such agreements.
Several corporations operating in Uganda take advantage of DTAs with any of the aforementioned countries or tax haven jurisdictions, to either pay very little or no taxes at all despite making the earnings from here.
To deal with this situation, he said: “Our domestic laws on taxes take care of this problem. DTA simply tries to short change our domestic laws on taxation so I don’t think we really need them.”
In the introductory note on the ActionAid Tax Treaty Dataset, Mr Martin Hearson, a PhD candidate, London School of Economics, wrote: “Because tax treaties curb developing countries’ taxing rights over foreign investment significantly, there is growing debate about the appropriateness of existing treaties and model treaty norms for developing countries.”
As a result many developing countries are beginning to re-examine the treaties they have signed in the past. Rwanda and South Africa have successfully renegotiated their agreements with Mauritius, while Argentina and Mongolia have cancelled or renegotiated several agreements.
Uganda has finished its model DTA although according to inside sources it is not as expansive as it ought to be, while Zambia has renegotiated several of its historical treaties.
Weighing in the discussion, Ms Nelly Busingye Mugisha, the programme officer, financing for development/tax justice at the Southern and Eastern African Trade, Information and Negotiations Institute, said: “If we must have the DTAs, then it should be on case by case basis and to our advantage, not at the expense of losing revenue. “
When interviewed, trade and negotiation analyst Nathan Irumba said ideally DTAs are not bad, but it has become a way in which the beneficiaries, mostly multinational corporations use to avoid and evade paying of taxes.
According to the policy and campaigns manager at ActionAid Uganda, Mr Fredrick Kawooya, the beneficiaries of DTAs are companies and the economies of the rich countries and not the least developed nations such as Uganda.
He said Uganda should be cautious while entering into such treaties. He also suggested a cost-benefit analysis of nearly 10 countries that Uganda has entered with DTAs.
When contacted, the commissioner tax policy department at the ministry of Finance, Mr Moses Ogwapus, said government is not about to give up signing DTAs with interested parties, saying they serve different purpose from the domestic tax laws in existence.