Kampala. A policy to guide the formulation of a double taxation treaty will be finalised by close of this month, the commissioner for tax policy at the Ministry of Finance, Mr Moses Kaggwa, has disclosed.
Double taxation treaty (DTT) is an important agreement that determines which country has the right to tax profit of a company that has operations in two or more countries.
Through such treaties, a multinational company can determine where to pay taxes from. And in most cases it will choose to pay taxes where it thinks the rates are lower or avoid paying them altogether.
Speaking to Daily Monitor last week after touring a Uganda Revenue Authority building under construction, Mr Kaggwa said the treaty is undergoing final touches and in a matter of days, it should be a done deal.
He said: “We are trying to finalise the policy because by the end of this month we will be presenting it before Cabinet.”
He continued: “It is a policy that has Uganda at heart and it guards Uganda’s interests. It deals with issues of tax haven as well as bearing in mind what Uganda’s law says. And once it is harmonised it will be the basis upon which the EAC tax models will be formulated.”
Mid last year, government suspended negotiations on Double Taxation Agreements after it emerged that the country’s interests and priorities contained in most of those treaties are not usually clearly stated.
Multi-nationals evading taxes
Multinational companies have tendencies of going around DTT to avoid paying taxes. They use network of DTT as a mechanism to either legally or illegally evade taxes, paving way for illicit financial flows and tax losses to developing countries like Uganda.
A report on Illicit Financial Flows estimates that Uganda loses at least Shs1.5 trillion every year, to illegal activities by international companies.
The money lost translates into slightly more than half of the 2015/2016 total budget allocated for transport and infrastructure development across the country. It is also nearly an equivalent of four times the budget allocated for agriculture.
In the same report, the African Union/Economic Commission for Africa High Level Panel on Illicit Financial Flows from Africa report, chaired by former South African president Thabo Mbeki, established that illicit trade is being propelled mainly by multinational companies. “The major perpetrators of IFFs from Africa are multinational companies, especially those operating in Africa’s extractive sector, mostly in oil, gas and mining,” reads the report in part.
Tit bits on taxation
Losses. Africa loses about $50 billion (about Shs160 trillion) each year through illicit activities of multinational companies and rich individuals.
“The multiplier effects of these losses are much larger. illicit financial flows in real terms mean loss of jobs, income, decent education, health facilities and other basic infrastructure critical to structurally transform the economy of countries in Africa and the socio-economic conditions of Africans,” reads a report on illicit financial flows.
Treaty. Last month Africa’s revenue authorities in Kampala moved to embrace a Double Taxation Treaty that is unique to the continent in an attempt to get rid of tax evaders robbing Africa of taxes.