Embrace Uganda’s tax amnesty

The Government has taken a bold decision to waive interest on tax arrears unpaid by June 30th 2020 by taxpayers who will voluntarily comply with their tax obligations. This proposal, if approved by Parliament, is likely to encourage taxpayers who have been fearful of the punitive penalties and interest to regularise their tax affairs.

This offer builds on an earlier amendment to the law in 2019 that gave the Commissioner General (“CG”) of Uganda Revenue Authority (URA) power to waive interest and fines for taxpayers that voluntarily disclose their tax exposure.
Uganda’s first formal tax amnesty programme was in 2007.

Taxpayers who willingly disclosed their tax obligations to the URA by December 31st 2007 and paid the principal tax were forgiven the accruing interest and penalties.

This amnesty programme was lauded as a success because it enabled the government not only to register new taxpayers but also collect about $18 million from the exercise. URA was also unlikely to discover the tax anomalies that the taxpayers disclosed voluntarily pursuant to the amnesty. The five-year limit period within which the URA must ordinarily audit taxpayers was likely to lapse before URA had undertaken the same.

According to the International Monetary Fund, tax amnesties are common in periods of economic hardship when taxpayers default on their tax obligations. Tax amnesty programmes are also inevitable with the inherent weakness in the tax legal frameworks and administration in many developing economies. Tax administrators usually lack the power to write off tax debts that are uncollectible.

Appeals in the tax courts are sometimes abused by taxpayers buying time to postpone or defer the payment of tax arrears. The penalty and interest regime is also perceived as unfair by taxpayers coupled by the absence of a fair instalment payment system to enable taxpayers stagger their tax payments.

In 2019, the law was amended giving the CG of URA discretionary powers to waive interest and fines for taxpayers who on own accord disclosed their tax exposure before the commencement of any related court proceedings.

In July 2020, the URA issued a public notice guiding on how it would implement the voluntary disclosure provisions of the law.

The public notice set out that a voluntary disclosure occurs where a taxpayer discloses what ought to have been revealed but was not declared or partially declared before being prompted by an action or threat of action on the issue by the URA such as: tax investigation, request for information, tax advisory, tax health check/review, notice for a tax audit, tax query or compliance visit by URA officers.

The public notice further provided that a voluntary disclosure must be in writing, complete and accurate highlighting any previous inaccuracies, incomplete or non-disclosure of tax. It must be signed by the taxpayer and accompanied with relevant information such as evidence relating to the omissions and proof of the principal tax.

This public notice notwithstanding, it would have created more certainty if the entitlement to the interest and penalty waiver was mandatory upon making a voluntary disclosure without further consideration or approval by the URA CG.

We anticipate CG reluctance to grant waiver on very sensitive cases or being misunderstood sometimes when he exercises his discretionary power to give the waiver. We also foresee disagreements between the URA and taxpayers in instances where the disclosures are made after a tax audit has commenced but not yet finalised.

A strict reading of the 2019 amendment seems to imply that URA should still favourably consider a taxpayer’s disclosure in the circumstances to the extent there are no court proceedings on the matter that have commenced.

Tax Procedures Code (Amendment) Bill, 2020
Building upon the 2019 tax amendment, the Tax Procedures Code (Amendment) Bill, 2020 proposes to amend the law waiving interest on tax arrears unpaid by June 30th 2020 by taxpayers who voluntarily comply with their tax obligations. This Bill is still under consideration by Parliament which may revise it further and is yet to be enacted as law.

Aside from the coronavirus pandemic, the other policy consideration by the government in making this proposal is that URA’s tax arrears book is bloated with accrued interest and penalty taxes that are unlikely to be recovered.

This, therefore, is expected to encourage taxpayers to take advantage of the current tax amnesty under the law to regularise their tax affairs by making a complete voluntary disclosure of tax liability to the URA.