Rent to rise as govt clamps down on rental tax evasion

Saturday December 15 2018

Stranded employees of Kayegi Hotel

Closed. Employees of Kayegi Hotel stand outside the facility after Uganda Revenue Authority sealed it off for failure to pay tax arrears in 2015. PHOTO BY FRED WAMBEDDE 

By Stephen Kafeero

Kampala. Rent in major townships and Kampala City is set to rise as President Museveni pushes a crackdown on tax evasion, especially rental tax.
A directive by President Museveni for government officials to sign a contract giving an American company a role to “identify gaps in tax collection” has not been implemented, even after the President warned of stern action.
But whether the contract is signed or not, the direction for the near future seems to be for tighter control over rental and other taxes to prevent leakage.
Mr Museveni, in a letter dated November 25 to Finance minister Matia Kasaija, said the contract “must be signed by 1800 hours, Tuesday, the 27th of November, 2018. Failure to implement this on the dot will attract decisive actions from me”.
Two years ago, Mr Museveni says in the letter, he discovered that there was massive concealment of tax in rentals with the collusion of the tax authorities. It was at this point, he says, that “sympathisers” introduced to him an American company known as RippleNami.
The proposal by the company, he says, was for government to grant it permission to collect data to demonstrate how the country was losing taxes. The catch was that if the company exposes the hidden tax revenues, then they should be given a percentage of the additional money that would be realised.
“Simple. However, they have been tossed around for two years now by people that may have something to hide,” the President added.
Speaking to Saturday Monitor yesterday, Mr Kasaija said: “We have not signed any agreement yet. We are still negotiating. I have briefed the President and he knows.”

The evidence
The President adds in the letter: “The intelligence, however, showed me that there was a massive tax evasion in Uganda. The massive tax evasions were in OTT, telephone calls under-declarations, mobile money, rental sources concealment etc. That is how we started making some moves that are already yielding big sums.”
In March this year, President Museveni directed the Minister of Finance and Uganda Revenue Authority (URA) to explore ways of instituting a tax on social media, and new taxes on social media and mobile money were effected in July this year.
Mr Museveni further wrote: “The mobile money tax is already bringing Shs66.7b in just one quarter, the OTT is bringing in Shs12.5b in one quarter in spite of some actors wasting their time by trying to hide in VPN where they spend much more money but we know who they are.”
When Mr Museveni heard from RippleNami and addressed URA, he says URA and KCCA then said that they had actually been planning to implement similar measures.
The President continues: “Even if URA claims that they, together with KCCA, are now doing what they had refused to do all these years, I, as head of government, want to counter-check and be sure there are no more games. The partners I trust are the ones who did the whistleblowing (RippleNami) some two years ago, in 2016.”
URA declined to comment on this story, referring us to ministry of Finance.
“Our guidance is that the ministry of Finance should be in position to give you the right response about RippleNami. This is a government negotiation that involves so many parties,” Mr Ian Rumanyika, the URA public and corporate affairs manager, said.
If the contract was signed, information available to Saturday Monitor is that URA would still do the tax collection and RippleNami would be restricted to identifying gaps where tax money is lost. The rental rates and other concerned taxes would remain the same, unless otherwise varied by the government.
But the concern is that residential and commercial rental income could rise because landlords who may now not be paying the tax would be compelled to pay it and pass on the costs to tenants.
Mr Museveni said in the letter that “massive tax evasion” has denied the country an opportunity to maximise revenue and be budget self-sufficient, condemning it to depending on expensive loans.
Mr Museveni says Uganda is as a result highly indebted since many projects that would have been funded using tax payer money are relying on loans that have to be serviced at a very high interest.
The President’s letter was prompted by what he terms as frustration, lasting two years, of efforts by an American company which sought to do research and expose tax concealment. The President made a specific directive.
President Museveni says with a GDP of Shs110 trillion, Uganda should be budget self-sufficient if the country collected taxes to the tune of 30 per cent of GDP. In the event of failure to collect the envisaged amount, President Museveni says, tax collection should be borne in mind in whatever government does.
“With our present budget of Shs32 trillion, it is not correct that Shs10 trillion of it should be borrowed or begged for from outside. The grant element of this year’s budget is only Shs1.7b. Much of the non-revenue budget expenditure is borrowed money. This borrowed money is always paid back with interest, moreover.”
He adds: “Currently, we are spending Shs.3.408 trillion each year for debt payment. This is equal to seven (7) Masaka-Kampala roads if you remember that we spent Shs.440 billion reconstructing that road. The interest part of Ug.Shs.2.514.11 billion of that debt payment. This is misuse of our national resources although, of course, building roads and dams with loans is better than doing nothing.”